<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 31, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------
HILLS STORES COMPANY
HILLS DEPARTMENT STORE COMPANY
CANTON ADVERTISING, INC.
CORPORATE VISION, INC.
C.R.H. INTERNATIONAL, INC.
HDS TRANSPORT, INC.
HILLS DISTRIBUTING COMPANY
(Exact Names of Registrants as Specified in Their Charters)
-----------------
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DELAWARE 5311 31-1153510
DELAWARE 5311 04-3201920
MASSACHUSETTS 7311 31-1110263
MASSACHUSETTS 5311 04-3033031
OHIO 5311 31-0843874
OHIO 4730 31-0799137
DELAWARE 5311 04-3078935
(States or Other Jurisdictions of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Numbers) Identification Numbers)
</TABLE>
15 DAN ROAD
CANTON, MASSACHUSETTS 02021
(617) 821-1000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrants' Principal Executive Offices)
-----------------
WILLIAM K. FRIEND, ESQ. COPY TO:
VICE PRESIDENT-SECRETARY AND CORPORATE COUNSEL BARRY B. WHITE, ESQ.
HILLS STORES COMPANY FOLEY, HOAG & ELIOT
15 DAN ROAD ONE POST OFFICE SQUARE
CANTON, MASSACHUSETTS 02021 BOSTON, MASSACHUSETTS 02109
(617) 821-1000 (617) 832-1000
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
-----------------
Approximate date of commencement of proposed sale to the public: As
promptly as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SECURITY PRICE REGISTRATION FEE
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12 1/2% Senior Notes due 2003, Series B $195,000,000 100%(1) $195,000,000(1) $67,242
- -------------------------------------------------------------------------------------------------------------------
Guarantee of Hills Department Store Company
of 12 1/2% Senior Notes due 2003, Series B $195,000,000 (2) (2) None
- -------------------------------------------------------------------------------------------------------------------
Guarantee of Canton Advertising, Inc. of
12 1/2% Senior Notes due 2003, Series B $195,000,000 (2) (2) None
- -------------------------------------------------------------------------------------------------------------------
Guarantee of Corporate Vision, Inc. of
12 1/2% Senior Notes due 2003, Series B $195,000,000 (2) (2) None
- -------------------------------------------------------------------------------------------------------------------
Guarantee of C.R.H. International, Inc. of
12 1/2% Senior Notes due 2003, Series B $195,000,000 (2) (2) None
- -------------------------------------------------------------------------------------------------------------------
Guarantee of HDS Transport, Inc. of
12 1/2% Senior Notes due 2003, Series B $195,000,000 (2) (2) None
- -------------------------------------------------------------------------------------------------------------------
Guarantee of Hills Distributing Company of
12 1/2% Senior Notes due 2003, Series B $195,000,000 (2) (2) None
===================================================================================================================
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(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
(2) No additional consideration will be paid for these guarantees.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
HILLS STORES COMPANY
HILLS DEPARTMENT STORE COMPANY
CANTON ADVERTISING, INC.
CORPORATE VISION, INC.
C.R.H. INTERNATIONAL, INC.
HDS TRANSPORT, INC.
HILLS DISTRIBUTING COMPANY
Cross-Reference Sheet Pursuant to Item 501(b) of Regulation S-K
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FORM S-4
ITEM NO. LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Available Information; Information Incorporated by
Pages of Prospectus Reference; Outside Back Cover Page
3. Risk Factors, Ratio of Earnings to Prospectus Summary; Risk Factors; The Company;
Fixed Charges and Other Information Selected Consolidated Financial and Operating Data
4. Terms of the Transaction Outside Front Cover Page; Prospectus Summary; The
Exchange Offer; Description of Series B Notes;
Certain Federal Income Tax Considerations
5. Pro Forma Financial Information [Not Applicable]
6. Material Contacts with the Company [Not Applicable]
Being Acquired
7. Additional Information Required for [Not Applicable]
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Counsel Legal Matters; Experts
9. Disclosure of Commission Position on [Not Applicable]
Indemnification for Securities Act
Liabilities
10. Information with Respect to S-3 Prospectus Summary; Risk Factors; The Company;
Registrants Selected Consolidated Financial and Operating Data
11. Incorporation of Certain Information by Information Incorporated by Reference
Reference
12. Information with Respect to S-2 or S-3 [Not Applicable]
Registrants
13. Incorporation of Certain Information by [Not Applicable]
Reference
14. Information with Respect to Registrants [Not Applicable]
Other than S-3 or S-2 Registrants
</TABLE>
(i)
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FORM S-4
ITEM NO. LOCATION IN PROSPECTUS
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15. Information with Respect to S-3 [Not Applicable]
Companies
16. Information with Respect to S-2 or S-3 [Not Applicable]
Companies
17. Information with Respect to Companies [Not Applicable]
Other than S-2 or S-3 Companies
18. Information if Proxies, Consents or [Not Applicable]
Authorizations are to be Solicited
19. Information if Proxies, Consents or [Not Applicable]
Authorizations are not to be Solicited
or in an Exchange Offer
</TABLE>
(ii)
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE ISSUED NOR MAY
OFFERS TO EXCHANGE BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO ISSUE OR THE
SOLICITATION OF AN OFFER TO EXCHANGE NOR SHALL THERE BE ANY ISSUANCE OR EXCHANGE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 31, 1996.
PROSPECTUS
HILLS STORES COMPANY
OFFER TO EXCHANGE
12 1/2% SENIOR NOTES DUE 2003, SERIES B
FOR
12 1/2% SENIOR NOTES DUE 2003
Hills Stores Company (the "Company" and, together with its subsidiaries,
"Hills") hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its 12 1/2% Senior Notes due 2003, Series B ("Series B Notes"), for each
$1,000 principal amount of its outstanding 12 1/2% Senior Notes due 2003
("Series A Notes"), of which $195,000,000 in aggregate principal amount are
outstanding as of the date hereof. See "The Exchange Offer."
The Exchange Offer has been registered under the Securities Act of 1933, as
amended (the "Securities Act"). The terms of the Series B Notes (including the
terms of the guarantees thereof by each of the subsidiaries of the Company) will
be identical to those of the Series A Notes, except that the Series B Notes will
not bear transfer restrictive legends. The Series A Notes were sold to certain
qualified institutional buyers on April 19, 1996 in transactions not registered
under the Securities Act in reliance upon Rule 144A under the Securities Act.
SERIES A NOTES THAT ARE NOT TENDERED OR ARE TENDERED BUT NOT ACCEPTED WILL,
FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, REMAIN RESTRICTED SECURITIES AND
MAY NOT BE REOFFERED, RESOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER
THE SECURITIES ACT OR UNLESS AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT IS AVAILABLE.
Series B Notes will evidence the same debt as the Series A Notes that they
replace and will be issued under, and will be entitled to the benefits of, the
indenture dated as of April 19, 1996 governing the Series A Notes and the Series
B Notes (the "Indenture"). Series B Notes will bear interest from July 1, 1996
(the most recent date as of which interest will not have been paid on the Series
A Notes as of the date of issuance of the Series B Notes), and holders whose
Series A Notes are accepted for exchange will be deemed to have waived the right
to receive any interest accrued on the Series A Notes on or after July 1, 1996.
See "Description of Series B Notes."
THE EXCHANGE OFFER WILL EXPIRE AT 5 P.M., NEW YORK CITY TIME, ON ,
1996 UNLESS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION (as extended, the
"Expiration Time"). Subject to the conditions described herein and in the Letter
of Transmittal, the Company will accept for exchange any and all validly
tendered Series A Notes not withdrawn prior to the Expiration Time. Tenders of
Series A Notes may be withdrawn at any time prior to the Expiration Time. Series
A Notes may be tendered only in integral multiples of $1,000. See "The Exchange
Offer."
This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Series B Notes
received in exchange for Series A Notes that were acquired by such broker-dealer
as a result of market-making or other trading activities. The Company has
agreed that for a period of one year from the date of this Prospectus, it will
make this Prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH THE EXCHANGE OFFER AND AN INVESTMENT IN SERIES B NOTES, SEE "RISK FACTORS"
ON PAGE 10.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information may be
inspected and copies may be obtained (at prescribed rates) at the Commission's
Public Reference Section, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549 and the Commission's Regional Offices at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Reports and other information
concerning the Company also may be inspected at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Prospectus constitutes part of a Registration Statement on Form S-4
(the "Registration Statement") filed by the Company and the Guarantors (as
defined hereinafter) with the Commission under the Securities Act. This
Prospectus does not contain all of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and
related exhibits and schedules for further information with respect to the
Company, the Guarantors and the Series B Notes. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
such instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in all respects by such reference.
The Company is required under the Indenture to furnish certain documents
and information to holders of Series B Notes. See "Description of Series B
Notes--Certain Covenants--Reports."
INFORMATION INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference: (1) the
Company's Annual Report on Form 10-K for the fiscal year ended February 3, 1996
(the "Form 10-K"); (2) the Company's definitive Proxy Statement dated May 10,
1996; and (3) the Company's Current Report on Form 8-K dated April 5, 1996. All
reports and other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering made hereby shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated herein by reference modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus.
ANY PERSON TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED MAY OBTAIN,
WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY OF THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN, EXCEPT FOR THE EXHIBITS TO SUCH DOCUMENTS
(OTHER THAN EXHIBITS EXPRESSLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS).
REQUESTS FOR SUCH DOCUMENTS SHOULD BE MADE IN WRITING TO WILLIAM K. FRIEND, VICE
PRESIDENT-SECRETARY AND CORPORATE COUNSEL, HILLS STORES COMPANY, 15 DAN ROAD,
CANTON, MASSACHUSETTS 02021, OR BY TELEPHONE TO MR. FRIEND AT TELEPHONE NUMBER
(617) 821-1000.
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The Series B Notes will be available initially only in book-entry form. The
Company expects that all Series B Notes issued pursuant to this Exchange Offer
will be issued in the form of a fully registered global note (the "Global Note")
that will be deposited with, or on behalf of, The Depositary Trust Company (the
"Depositary") and registered in the name of the Depositary or in the name of
Cede & Co., as nominee of the Depositary. Beneficial interests in the Global
Note representing the Series B Notes will be shown on, and transfers thereof
will be effected through, records maintained by the Depositary and its
participants. After the initial issuance of the Global Note, Series B Notes in
certificated form will be issued in exchange for the Global Note only as set
forth in the Indenture. See "Description of Series B Notes--Book Entry, Delivery
and Form."
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including the notes thereto)
found elsewhere in this Prospectus and documents incorporated by reference
herein.
THE COMPANY
Hills is a leading regional discount retailer offering a broad range of
brand name and other first-quality general merchandise. Hills emphasizes product
lines designed to appeal to its predominantly female customer base, such as
apparel, footwear, domestics and home furnishings, jewelry, housewares, toys and
other family-oriented items. Management's business strategy stresses everyday
low prices, depth and breadth of products in selected merchandise categories,
remodeled facilities and strict operating controls. Hills operates 164 stores in
12 Mid-Western and Mid-Atlantic states.
The Company's predecessor and five of the predecessor's subsidiaries
(including the Company, which was then the principal operating company) filed
for protection under Chapter 11 of the United States Bankruptcy Code in February
1991. The bankruptcy reorganization was completed in October 1993. Pursuant to
the bankruptcy plan of reorganization, the predecessor company was dissolved and
the assets of the Company were transferred to Hills Department Store Company
("HDSC"), a newly formed subsidiary of the Company. The Company became a holding
company at that time, and its operations are currently conducted solely through
HDSC.
On July 5, 1995, following a proxy contest in connection with the annual
meeting of stockholders of the Company held on June 23, 1995, seven nominees of
Dickstein Partners Inc. ("Dickstein Partners") became directors of the Company,
replacing the former Board of Directors. The executive officers of the Company
resigned following the election of the new Board. As a result of the change in
control effected by the election of the new Board, the Company became obligated
to offer to redeem (the "Redemption Offer") all of its outstanding 10.25% Senior
Notes due 2003 (the "1993 Notes") at a redemption price equal to 101% of the
principal amount thereof. The Company subsequently obtained the consent of the
holders of the 1993 Notes to defer its obligation to initiate the Redemption
Offer for the 1993 Notes until April 1996.
In April 1996, the Company offered and sold the Series A Notes in order to
finance the redemption of 1993 Notes tendered pursuant to the Redemption Offer.
The Company made the Redemption Offer in April and May 1996, and in connection
therewith redeemed $154,984,000 in aggregate principal amount of the 1993 Notes
for an aggregate redemption price of $158,801,086 consisting of principal,
premium and accrued interest. In May 1996, the Company announced that, in
accordance with the terms of the indenture governing the 1993 Notes (the "1993
Note Indenture"), it would (i) effect a mandatory redemption on July 1, 1996,
at a redemption price equal to 104% of principal amount plus accrued interest,
of all outstanding 1993 Notes not tendered pursuant to the Redemption Offer and
(ii) deposit in trust with Fleet National Bank, as trustee under the 1993 Note
Indenture, funds sufficient to redeem upon issuance, at a redemption price equal
to 104% of principal amount plus accrued interest, approximately $2.5 million of
1993 Notes remaining subject to issuance under the Company's plan of
reorganization relating to its emergence from bankruptcy. Upon the completion of
these and certain related actions, the 1993 Note Indenture shall cease to be of
further effect (except as to rights of registration of transfer or exchange of
1993 Notes expressly provided for and rights to receive payments of principal
thereof and premium and interest thereon). See "Description of Other
Indebtedness--1993 Notes."
The Series B Notes are being offered hereby in order to satisfy obligations
of the Company under the registration rights agreement dated as of April 19,
1996 entered into in connection with the issuance and sale of the Series A Notes
(the "Registration Rights Agreement").
3
<PAGE> 7
THE EXCHANGE OFFER
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Exchange Offer . . . . . . . . . . The Company is offering to exchange $1,000 principal amount of Series B Notes for each $1,000
principal amount of Series A Notes that are properly tendered and accepted. The Company will
issue Series B Notes on the earliest practicable date following the Expiration Time. As of
the date of this Prospectus, an aggregate of $195,000,000 in principal amount of Series A
Notes are outstanding. See "The Exchange Offer."
The terms of the Series B Notes (including the terms of the guarantees thereof by each of the
Guarantors) will be identical to those of the Series A Notes, except that the Exchange Offer
has been registered under the Securities Act and therefore Series B Notes will not bear
transfer restrictive legends.
Based on interpretations by the staff of the Commission set forth in no-action letters issued
to third parties, the Company believes that a holder (other than (i) a broker-dealer who
purchased Series A Notes directly from the Company for resale pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) that exchanges Series A Notes for
Series B Notes in the ordinary course of business and that is not engaged in, does not intend
to engage in, and had no arrangement or understanding with any person to engage in a
distribution of Series B Notes, will be allowed to resell Series B Notes to the public without
compliance with the registration and prospectus delivery provisions of the Securities Act.
Holders of Series A Notes wishing to accept the Exchange Offer must represent to the Company
that such conditions have been met. Each broker-dealer that receives Series B Notes for its
own account in exchange for Series A Notes that were acquired by such broker-dealer as a
result of market-making or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of the Series B Notes.
Expiration Time . . . . . . . . . . The Exchange Offer will expire at 5 P.M., New York City time, on , 1996, unless the
Exchange Offer is extended by the Company in its sole discretion, in which case the term
"Expiration Time" shall mean the latest date and time to which the Exchange Offer is extended.
Accrued Interest on Series B Notes
and Series A Notes . . . . . . . Series B Notes will bear interest from July 1, 1996, the most recent date as of which interest
will not have been paid on the Series A Notes as of the Expiration Time. Holders whose
Series A Notes are accepted for exchange will be deemed to have waived the right to receive
any interest accrued on the Series A Notes on or after July 1, 1996.
Procedures for Tendering
Series A Notes . . . . . . . . . Each holder of Series A Notes wishing to accept the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Series A Notes and any other required documentation to
Fleet National Bank, as exchange agent (the "Exchange Agent"), at the address set forth
herein. By executing the Letter of Transmittal, a holder of Series A Notes will represent and
agree that, among other things, (i) Series B Notes to be
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4
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acquired by the holder in the Exchange Offer are being acquired in the ordinary course of
business of the holder, (ii) the holder is not an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company, (iii) the holder has no arrangement or understanding with any
person to engage in any distribution of Series B Notes and if the holder is not a broker-dealer,
it is not engaged in, and does not intend to engage in, a distribution of Series B Notes,
(iv) any person who is a broker or dealer registered under the Exchange Act or is participating
in the Exchange Offer for purposes of distributing Series B Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Series B Notes, and (v) any secondary resale transaction
described in clause (iv) above and any resale of Series B Notes obtained by such holder in
exchange for Series A Notes acquired by such holder directly from the Company should be covered
by an effective registration statement containing the selling securityholder information
required by Item 507 or 508, as applicable, of Regulation S-K of the Commission. If the holder
is a broker-dealer that will receive Series B Notes for its own account in exchange for Series A
Notes that were acquired as a result of market-making or other trading activities, the holder
will be required to acknowledge in the Letter of Transmittal that it will deliver a prospectus
in connection with any resale of such Series B Notes; by so acknowledging and by delivering a
prospectus, however, the holder will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. See "The Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners . . . . . . . . Any beneficial owner whose Series A Notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender the Series A Notes in
the Exchange Offer should contact the registered holder of the Series A Notes promptly and
instruct such registered holder to tender the Series A Notes on the beneficial owner's behalf.
See "The Exchange Offer--Procedures for Tendering." If the beneficial owner wishes to tender
on its own behalf, it must, prior to completing and executing the Letter of Transmittal and
delivering its Series A Notes, either make appropriate arrangements to register ownership of
the Series A Notes in its name or obtain a properly completed bond power from the registered
holder. A transfer of registered ownership may take considerable time and may not be able to
be completed prior to the Expiration Time.
Guaranteed Delivery Procedures . . Holders of Series A Notes who wish to tender their Series A Notes and whose Series A Notes are
not immediately available, who cannot deliver their Series A Notes, the Letter of Transmittal
or any other documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Time, or who are unable to complete the procedure for book-entry transfer on a
timely basis, must tender their Series A Notes according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed Delivery Procedures."
Conditions to Exchange Offer . . . The Exchange Offer is subject to certain procedures and conditions that may be waived by the
Company in its discretion. The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Series A Notes being tendered for exchange.
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5
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Acceptance of Series A Notes
and Delivery of Series B Notes . Subject to the satisfaction or waiver of the conditions to the Exchange Offer, the Company
will accept for exchange any and all Series A Notes properly tendered in the Exchange Offer
prior to the Expiration Time. The Series B Notes issued pursuant to the Exchange Offer will
be delivered on the earliest practicable date following the Expiration Time. See "The
Exchange Offer--Terms of the Exchange Offer."
Withdrawal Rights . . . . . . . . . Tenders of Series A Notes may be withdrawn at any time prior to the Expiration Time. See "The
Exchange Offer--Withdrawal of Tenders."
Certain Federal Income
Tax Considerations . . . . . . . For a discussion of certain federal income tax considerations relating to exchanges of
Series B Notes for Series A Notes, see "Certain Federal Income Tax Considerations."
Exchange Agent . . . . . . . . . . Fleet National Bank is serving as the Exchange Agent in connection with the Exchange Offer.
</TABLE>
CONSEQUENCES OF FAILURE TO EXCHANGE SERIES A NOTES
The Series B Notes will be issued in exchange for Series A Notes only after
timely receipt by the Exchange Agent of the Series A Notes, together with a
properly completed and duly executed Letter of Transmittal and all other
required documents. Neither the Exchange Agent nor the Company is under any duty
to give notification of defects or irregularities with respect to tenders of
Series A Notes for exchange. Series A Notes that are not tendered or are
tendered but not accepted will, following consummation of the Exchange Offer,
remain restricted securities. Accordingly, such Series A Notes could be resold
only (i) to a person whom the seller reasonably believes is a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act) in a
transaction meeting the requirements of Rule 144A, (ii) in a transaction meeting
the requirements of Rule 144 under the Securities Act, (iii) outside the United
States to a foreign person in a transaction meeting the requirements of Rule 904
under the Securities Act, (iv) in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel if the Company so requests), (v) to the Company, or (vi) pursuant to an
effective registration statement and, in each case, in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction. See "The Exchange Offer--Consequences of Failure to
Exchange Series A Notes."
REQUIREMENTS FOR AFFILIATES AND CERTAIN BROKER-DEALERS
Any holder of Series A Notes who is (i) an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act, (ii) a broker or dealer
within the meaning of Rule 144A under the Securities Act or (iii) participating
in the Exchange Offer for the purposes of distributing the Series B Notes, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the Series B
Notes acquired by such holder pursuant to the Exchange Offer and cannot rely on
the position of the staff of the Commission enunciated in no-action letters
issued with respect to certain third parties. Secondary resale transactions of
the Series B Notes acquired by such holders and resales of Series B Notes
obtained by such holders in exchange for Series A Notes acquired by such holders
directly from the Company should be covered by an effective registration
statement containing the selling securityholder information required by Item 507
or 508, as applicable, of Regulation S-K. See "The Exchange Offer--Resale of
Series B Notes."
6
<PAGE> 10
THE SERIES B NOTES
The Exchange Offer applies to $195,000,000 aggregate principal amount of
the Series A Notes. The terms of the Series B Notes (including the terms of the
guarantees thereof by each of the Guarantors) are the same as the terms of the
Series A Notes, except that the Series B Notes will not bear legends restricting
their transfer pursuant to the Securities Act. Series B Notes will evidence the
same debt as the Series A Notes that they replace and will be issued under, and
will be entitled to the benefits of, the Indenture. See "Description of Series B
Notes."
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<S> <C>
Maturity . . . . . . . . . . . . . July 1, 2003.
Interest . . . . . . . . . . . . . Series B Notes will bear interest at the rate of 12 1/2% per annum, payable semiannually on
January 1 and July 1, commencing January 1, 1997. See "The Exchange Offer--Interest on
Series B Notes."
Sinking Fund Provisions . . . . . . None.
Optional Redemption . . . . . . . . Series B Notes will not be redeemable at the option of the Company, in whole or in part, at
any time.
Change of Control . . . . . . . . . In the event of a Change of Control (as defined hereinafter), holders of Series B Notes will
have the right to require the Company to redeem the Series B Notes at a price equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages (as defined hereinafter), if any, to the redemption date.
Series B Guarantees . . . . . . . . Pursuant to the Series B Guarantees (as defined hereinafter), the Series B Notes will be
guaranteed by the Guarantors, which will include each existing and future Subsidiary (as
defined hereinafter) of the Company. As of the date of issuance of the Series B Notes, the
Guarantors will consist of HDSC, Canton Advertising, Inc., Corporate Vision, Inc., C.R.H.
International, Inc., HDS Transport, Inc. and Hills Distributing Company. The Series B
Guarantees will rank pari passu in right of payment with all existing and future senior
Indebtedness (as defined hereinafter) of the Guarantors (including obligations under the
Series A Guarantees, as defined hereinafter), except that the Series B Guarantees will be
contractually subordinated to all of the Guarantors' current and future obligations under the
Revolving Credit Facility (as defined hereinafter) and any successor credit facility.
Ranking . . . . . . . . . . . . . . Series B Notes will be general obligations of the Company and will be unsecured. Series B
Notes will rank pari passu in right of payment with all existing and future senior
Indebtedness of the Company and senior in right of payment to all future subordinated
Indebtedness of the Company. The Company conducts all of its operations through HDSC and the
Company's other subsidiaries and has no material assets of any kind other than the stock of
HDSC. As a result of the Company's status as a holding company and the contractual
subordination provisions of the Series B Guarantees, the Series B Notes will be subordinated
to all obligations of the Company and the Guarantors under the Revolving Credit Facility and
any successor credit facility. At May 31, 1996, an aggregate of $35.0 million in direct
borrowings was outstanding under the Revolving Credit Facility, all of which was secured by
all of the stock and assets of the Guarantors and guaranteed by the Company. The Indenture
permits the Guarantors to borrow additional Indebtedness pursuant to the Revolving Credit
Facility and any successor facility.
</TABLE>
7
<PAGE> 11
<TABLE>
<S> <C>
Covenants . . . . . . . . . . . . . The Indenture contains certain covenants that, among other things, limit the ability of the
Company and the Guarantors to incur additional Indebtedness and issue preferred stock, pay
dividends or make other distributions, repurchase Equity Interests (as defined hereinafter) or
subordinated Indebtedness, engage in sale and leaseback transactions, create certain liens,
enter into certain transactions with affiliates, sell assets of the Company or the Guarantors,
issue or sell Equity Interests of the Guarantors, or enter into certain mergers and
consolidations. In addition, under certain circumstances the Company will be required to
offer to redeem Series B Notes at a price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the
proceeds of certain Asset Sales (as defined hereinafter). See "Description of Series B
Notes--Redemption at Option of Holders--Asset Sales."
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary data should be read in conjunction with the
information set forth in "Selected Consolidated Financial and Operating Data"
below, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in the Form 10-K and the consolidated financial statements
(including the notes thereto) included in the Form 10-K.
<TABLE>
<CAPTION>
Successor Company(1) Predecessor Company(1)
-----------------------------------------------------------------------------------------
Fifty-Three Fifty-Two Seventeen Thirty-Five Fifty-Two Fifty-Two
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
Feb. 3, 1996 Jan. 28, 1995 Jan. 29, 1994 Oct. 2, 1993 Jan. 30, 1993 Feb. 1, 1992
------------ ------------- ------------- ------------ ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> | <C> <C> <C>
STATEMENT OF OPERATIONS DATA: |
Net sales .............................. $ 1,900,104 $ 1,872,021 $ 772,685 | $ 992,848 $ 1,750,266 $ 1,679,866
Cost of sales .......................... 1,384,421 1,340,221 549,651 | 710,299 1,249,812 1,214,090
Operating earnings ..................... 31,168 105,755 73,346 | 14,574 77,914 52,514
Interest expense ....................... 49,497 38,712 13,141 | 13,648 22,016 25,551
Net earnings (loss)(2) ................. (16,666) 40,431 36,235 | 250,154 49,696 22,512
Ratio of earnings to fixed charges(3) .. -- 2.33x 4.16x | -- 2.17x 1.46x
|
OPERATING AND OTHER FINANCIAL DATA: |
Gross margin ........................... 27.1 % 28.4% 28.9% | 28.5% 28.6% 27.7 %
Comparable store sales growth(4) ....... (3.9)% 5.1% N/A | N/A 4.2% (1.8)%
Number of stores open at end of period . 164 154 151 | 151 154 154
Number of stores remodeled in period ... 33 38 -- | 32 40 6
Capital expenditures(5) ................ $ 56,714 $ 38,458 $ 3,070 | $ 27,162 $ 40,066 $ 11,487
EBITDA(6) .............................. 119,344 138,133 86,682 | 42,803 117,578 89,485
Pro forma cash interest expense(7) ..... 52,354
Pro forma ratio of EBITDA
to cash interest expense(7) .......... 2.28x
</TABLE>
<TABLE>
<CAPTION>
At February 3, 1996
-----------------------------
Actual Pro Forma(8)
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital $147,090 $173,283
Total assets 858,723 890,004
Total debt, including current portion 309,677 344,677
Preferred stock 24,636 24,636
Total common shareholders' equity 254,663 252,487
</TABLE>
(footnotes appear on following page)
8
<PAGE> 12
- -----------
(1) The Company adopted fresh-start accounting upon its emergence from
bankruptcy proceedings in October 1993. Financial statements for periods
prior to the Company's adoption of fresh-start accounting are designated as
those of the Predecessor Company. Under fresh-start accounting, a new
reporting entity is created and the recorded amounts of assets and
liabilities are adjusted to reflect estimated fair market values. As a
result, the financial statements of the Successor Company have been
prepared on a basis that is not comparable with the financial statements of
the Predecessor Company. See Notes 1 and 2 to the consolidated financial
statements included in the Form 10-K.
(2) Net earnings for the thirty-five weeks ended October 2, 1993 include the
effect of an extraordinary gain of $258.2 million resulting from the
discharge of prepetition debt in bankruptcy proceedings.
(3) Calculated by dividing income from continuing operations before income
taxes plus fixed charges by fixed charges. Fixed charges consist of
interest expense, including amortization of financing costs, the pre-tax
equivalent of preferred stock dividend requirements and that portion of
rental expense deemed to be representative of the interest component of
rental expense. The deficit of earnings to fixed charges was $13.5
million for fiscal 1995 and $0.5 million for the thirty-five weeks ended
October 2, 1993. On a pro forma basis after giving effect to the
issuance of the Series A Notes and the application of the net proceeds
thereof (see "Use of Proceeds"), earnings were insufficient to cover
fixed charges for fiscal 1995 by $16.3 million.
(4) Comparable store sales growth for fiscal 1993 was 1.8%. Net sales for
stores which reported sales for every month in fiscal 1995 and fiscal 1994,
excluding net sales from such stores in the fifty-third week of fiscal
1995, totalled $1.78 billion in fiscal 1995 and $1.85 billion in fiscal
1994.
(5) Capital expenditures during fiscal 1995 consisted principally of costs
associated with the opening of ten new stores and the remodeling of 33
stores.
(6) Represents net earnings before interest, taxes, depreciation, amortization,
change in control costs, extraordinary gains, reorganization items and,
with respect to fiscal 1994, certain other income items totalling $9.7
million ("EBITDA"). During fiscal 1995, the Company recognized change in
control costs totalling $45.5 million. While EBITDA should not be construed
as a substitute for operating income or as a better indicator of liquidity
than cash flows from operating activities, which are determined in
accordance with generally accepted accounting principles, it is included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditure and working
capital requirements. EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs. See the consolidated statements of cash
flows (including the notes relating thereto) in the Form 10-K. EBITDA is
included herein because the Company believes that certain investors find it
to be a useful tool for measuring the ability to service debt.
(7) Gives effect to the issuance of the Series A Notes and the application of
the net proceeds thereof as if they had occurred on January 29, 1995. See
"Use of Proceeds." Excludes approximately $6.0 million of non-cash deferred
financing costs associated with such issuance and application, the
establishment of the Revolving Credit Facility and a sale/leaseback
financing.
(8) Gives effect to the issuance of the Series A Notes and the application of
the net proceeds thereof as if they had occurred on February 3, 1996. See
"Capitalization" for long-term debt and common shareholders' equity pro
forma adjustments. Working capital increased by the net proceeds of the
Series A Notes, after giving effect to the redemption (or provision for
redemption) of $160.0 million in principal amount of 1993 Notes and the
tax effect of the write-off of deferred financing costs relating to the
1993 Notes. In addition to the increase in working capital, total assets
increased by the capitalization of $8.6 million in fees relating to the
issuance of the Series A Notes and the application of the net proceeds
thereof and decreased by a write-off of $2.0 million in fees relating to
the 1993 Notes, net of taxes. See "Use of Proceeds."
9
<PAGE> 13
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. The
Company's actual results could differ materially from the results contemplated
in the forward-looking statements as a result of a number of factors, including
the risk factors set forth below. In addition to the other information in this
Prospectus, the following risk factors should be considered in evaluating the
Company in connection with the offering made hereby.
HIGH LEVERAGE; ABILITY TO SERVICE OUTSTANDING INDEBTEDNESS
The Company is highly leveraged. At February 3, 1996, on a pro forma basis
after giving effect to the issuance of the Series A Notes, the application of
the net proceeds thereof and the exchange of all outstanding Series A Notes for
Series B Notes, the Company's total debt (including current maturities) would
have been $344.7 million, its preferred stock would have been $24.6 million and
its total common shareholders' equity would have been $252.5 million, resulting
in a total capitalization of $621.8 million and total debt as a percentage of
total capitalization of 55.4%. The Company's operating results have been and
will continue to be affected by significant fixed charges related to its
indebtedness. The Company's fixed charges in fiscal 1995, on a pro forma basis
after giving effect to the issuance of the Series A Notes, the application of
the net proceeds thereof and the exchange of all outstanding Series A Notes for
Series B Notes, would have exceeded its earnings in that year by $16.3 million
(including the effect of $45.5 million of change in control costs).
The Revolving Credit Facility contains significant financial and operating
covenants, including, among other things, requirements that the Company maintain
certain financial ratios and restrictions on the ability of the Company to incur
indebtedness, to make capital expenditures, to create or permit liens, to pay
dividends or to take certain other corporate actions. The Indenture contains
certain covenants including, among other things, limitations on indebtedness,
dividends, liens and transactions with stockholders and affiliates of the
Company. A breach of one or more of certain covenants under the Revolving Credit
Facility or the Indenture could result in acceleration of the Company's payment
obligations thereunder. See "Capitalization," "Selected Consolidated Financial
and Operating Data," "Description of Other Indebtedness--Revolving Credit
Facility" and "Description of Series B Notes."
The Company's ability to make scheduled payments of principal of, or to pay
interest or Liquidated Damages, if any, on, or to refinance, its indebtedness
(including the Series B Notes) will depend on its future performance, which, to
a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control. The Company
believes that amounts available under the Revolving Credit Facility, together
with cash from operations, will enable the Company to fund its current liquidity
and capital expenditure requirements, including scheduled payments of interest
on the Series B Notes and other indebtedness of the Company. There can be no
assurance that the Company's business will generate sufficient cash flow from
operations or that future borrowings will be available under the Revolving
Credit Facility in an amount sufficient to enable the Company to service its
indebtedness, including the Series B Notes, or make anticipated capital
expenditures. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Financial Condition, Liquidity and Capital Resources"
in the Form 10-K. The Company may need to refinance all or a portion of the
principal of the Series B Notes on or prior to maturity or in the event of a
Change of Control, and there can be no assurance that the Company will be able
to effect any such refinancing on commercially reasonable terms or at all.
Any or all of the restrictions, limitations or contingencies under the
Revolving Credit Facility and the Indenture, as well as the Company's leverage,
could adversely affect the Company's ability to obtain additional financing in
the future, to make capital expenditures, to effect store expansions, to make
acquisitions, to take advantage of business opportunities that may arise, and to
withstand adverse general economic and retailing industry conditions and
increased competitive pressures. Retail suppliers and their factors monitor
carefully the financial performance of retail companies such as the Company, and
may reduce credit availability quickly upon learning of actual or perceived
deterioration in the financial condition or results of operations of a retail
company.
10
<PAGE> 14
HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW; SUBORDINATION OF
SERIES B GUARANTEES
The Company is a holding company that conducts its operations solely
through HDSC and the Company's other subsidiaries, and has no material assets of
any kind other than the stock of HDSC. Consequently, the Company will depend on
dividends or distributions from HDSC for the funds necessary to, among other
things, pay principal of, and interest and Liquidated Damages (if any) on, the
Series B Notes. HDSC is a direct borrower under the Revolving Credit Facility,
and the Company is a guarantor thereunder. The Revolving Credit Facility
prohibits the payment of cash dividends from HDSC to the Company, except to the
extent necessary for the Company to make interest payments on the Series A Notes
and the Series B Notes and certain other limited payments. In the event of a
default under the Revolving Credit Facility, HDSC would be prohibited from
paying such dividends without the consent of its creditors under the Revolving
Credit Facility. In addition, the ability of HDSC to pay dividends to the
Company is subject to applicable provisions of the Delaware General Corporation
Law. No assurance can be given that HDSC will have sufficient funds to pay
principal of, and interest and Liquidated Damages (if any) on, the Series B
Notes or that, if such funds are available, HDSC will be permitted to make such
payments under the terms of the Revolving Credit Facility or applicable law.
The Series B Guarantees will rank pari passu in right of payment with all
existing and future senior Indebtedness of the Guarantors (including obligations
of the Guarantors under the Series A Guarantees), except that the Series A
Guarantees will be contractually subordinated to the prior payment in full of
the principal of and interest on indebtedness outstanding under the Revolving
Credit Facility and any successor credit facility. In the event of a bankruptcy,
liquidation or reorganization of any Guarantor, the assets of such Guarantor
will be available to pay obligations on the Series B Notes only after all
indebtedness under the Revolving Credit Facility (and any successor credit
facility) has been paid in full. No assurance can be given that, in such an
event, sufficient assets will be available to pay amounts due on any or all of
the Series B Notes. At May 31, 1996, an aggregate of $35.0 million in direct
borrowings was outstanding under the Revolving Credit Facility.
See "--Fraudulent Conveyance; Possible Invalidity of Series B Guarantees"
and "Description of Series B Notes."
RECENT OPERATING RESULTS
Although Hills' net sales increased by 1.5% to $1.90 billion for the
fifty-three weeks ended February 3, 1996 from $1.87 billion for the fifty-two
weeks ended January 28, 1995, same store net sales, excluding the fifty-third
week of fiscal 1995, declined by 3.9% to $1.78 billion from $1.85 billion.
Operating earnings decreased by 70.5% for the same periods, to $31.2 million in
fiscal 1995 from $105.8 million in fiscal 1994. After eliminating the effects of
change in control payments in fiscal 1995 and a one-time pension gain of $4.5
million in fiscal 1994, operating earnings decreased by 24.3% for these periods,
to $76.7 million in fiscal 1995 from $101.3 million in fiscal 1994. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Form 10-K. On May 24, 1996, Hills announced that it would
report a net loss of $14.7 million for the fiscal quarter ended May 4, 1996,
which included a pre-tax, non-cash charge of $11.7 million for the impairment of
long-lived assets. See "Recent Events."
Hills' merchandising strategy emphasizes higher margin products located in
"headquarters" departments. These products consist of softlines and selected
hardlines. Softlines generally provide higher margins than hardlines. The
percentage of Hills' net sales represented by softlines decreased to 48.4% in
fiscal 1995 from 50.6% in fiscal 1994, and Hills expects that this percentage
may decline further in fiscal 1996. As a result, Hills' margins have decreased
and may continue to decrease in the foreseeable future. Hills has experienced
further pressure on its margins as a result of the consolidation of companies in
the discount retailing industry, as well as competitive pricing pressures from
market leaders. Any further decrease in Hills' margins could have a material
adverse effect on Hills' financial condition and results of operations and could
have a material adverse effect on the Company's ability to make scheduled
interest payments on the Series B Notes and to repay the Series B Notes at
maturity.
Hills' quarterly and annual operating results have varied significantly in
the past, and may vary significantly in the future. In recent months, Hills and
other companies in the discount retailing industry have experienced
11
<PAGE> 15
significant volatility in sales levels. Hills' operating results have also
varied historically due to a number of factors, including national and regional
economic conditions, its ability to compete with national and regional discount
department store chains and specialty retailers, and its ability to finance its
operations on terms favorable to Hills. Any unfavorable changes in these or
other factors could have a material adverse effect on Hills' financial condition
and results of operations and could have a material adverse effect on the
Company's ability to make scheduled interest payments on the Series B Notes and
to repay the Series B Notes at maturity.
COMPETITION
The discount general merchandise retail business is highly competitive.
Hills considers price, merchandise presentation, product selection, merchandise
quality and store location to be the most significant competitive factors. There
can be no assurance that Hills will be able to compete successfully with respect
to any of such factors. Hills' principal competitors are national and regional
discount department store chains such as Wal-Mart Stores, Inc., Kmart Corp. and
Target Stores (a subsidiary of Dayton Hudson Corp.), as well as specialty
retailers of apparel and toys, such as Toys "R" Us, Inc. Hills currently
competes against Wal-Mart in approximately two-thirds of its markets, and
expects this percentage to increase as a result of continuing expansion by Wal-
Mart. Certain of Hills' competitors, including Wal-Mart, Kmart and Target, have
greater financial and other resources than Hills and may be able to initiate and
withstand significant price decreases more effectively than Hills. The discount
general merchandise industry has been the subject of significant consolidation
during the past several years, and it is likely that this trend will continue
for the foreseeable future as a result of the overall weakness in the retail
market, continuing competitive pricing pressures from market leaders, and
national and regional economic conditions. Hills is not presently able to
predict the effect any further industry consolidation will have upon its
competitive position, and there can be no assurance that future acquisitions or
mergers in the industry will not have a material adverse effect upon Hills'
financial condition and results of operations.
CONTROL OF THE COMPANY
Since July 5, 1995, the Board of Directors of the Company has consisted
entirely of individuals who were nominated by Dickstein Partners or who were
nominated by the Board at a time when it was comprised entirely of individuals
nominated by Dickstein Partners. There can be no assurance that these
circumstances will not have an adverse effect on Hills or on the market price of
the Series B Notes. At March 29, 1996, affiliates of Dickstein Partners
beneficially owned approximately 10.9% of the Company's outstanding voting
stock. On May 28, 1996, the Company filed a registration statement with the
Commission to permit the resale from time to time of substantially all of
the shares of the Company's common stock owned by affiliates of Dickstein
Partners. No assurance can be given, however, that a sufficient number of such
shares will be sold such that the ownership of common stock by affiliates of
Dickstein Partners will not have an adverse effect on Hills or on the market
price of the Series B Notes. As described under "Legal Proceedings" in the Form
10-K, the Company and HDSC are parties to certain litigation arising out of the
change in control effected by the election of the new Board in July 1995.
RECENT MANAGEMENT CHANGES
Following the election of the new Board of Directors of the Company in July
1995, the Company's President and Chief Executive Officer, its Executive Vice
President-Chief Financial Officer, its Executive Vice President-Store Operations
and its Executive Vice President-Human Resources resigned. On July 6, 1995, the
Company's former Executive Vice President-General Merchandise Manager was hired
as the Company's President and acting Chief Executive Officer. On February 7,
1996, he resigned and Gregory K. Raven was appointed as the Company's new
President and Chief Executive Officer. On February 12, 1996, the Treasurer of
the Company resigned. On April 23, 1996, C. Scott Litten was appointed as the
Company's new Chief Financial Officer. As of May 31, 1996, the Company had not
appointed an Executive Vice President-Store Operations or a Treasurer. These
management changes may have an ongoing disruptive effect on the business and
operations of the Company. The further loss of the services of any of the
Company's executive officers or other key personnel could have a material
adverse effect on the Company's financial condition and results of operations.
The Company's ability to manage its business will require it to attract,
motivate and retain additional skilled managerial and marketing personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting, motivating and retaining the
personnel required to maintain and improve its business and results of
operations.
12
<PAGE> 16
GEOGRAPHIC CONDITIONS; SEASONALITY
Substantially all of Hills' stores are located in the Mid-Western and
Mid-Atlantic regions of the United States. As a result, Hills' operations are
affected by local and regional economic, weather and other conditions that are
beyond Hills' control. Adverse developments in those conditions could have a
material adverse effect on Hills' financial condition and results of operations.
Hills' business is highly seasonal due to increased consumer buying for
back-to-school needs and Christmas. The second half of each year provides the
major portion of Hills' sales and operating earnings, both of which are
particularly concentrated in the Christmas selling season. As a result, Hills'
working capital requirements and cash flow vary substantially throughout the
year. Any substantial decrease in sales or profitability for the second half of
the fiscal year would have a material adverse effect on Hills' financial
condition and results of operations and could have a material adverse effect on
the Company's ability to make scheduled interest payments on the Series B Notes
and to repay the Series B Notes at maturity.
FUTURE CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of any Change of Control,
the Company will be required to make an offer (a "Change of Control Offer") to
redeem all of the Series A Notes and the Series B Notes (collectively, the
"Senior Notes") issued and then outstanding under the Indenture, at a purchase
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest thereon and Liquidated Damages, if any, to the redemption date. Any
Change of Control under the Indenture would constitute a default under the
Revolving Credit Facility. Therefore, upon the occurrence of a Change of
Control, the lenders under the Revolving Credit Facility would have the right to
accelerate their loans and holders of the Senior Notes would have the right to
require the Company to purchase their Senior Notes. Upon such event, such
lenders would be entitled to receive payment of all outstanding obligations
under the Revolving Credit Facility before the Company may purchase any of the
Senior Notes tendered pursuant to a Change of Control Offer. See "Description of
Other Indebtedness--Revolving Credit Facility" and "Description of Series B
Notes." If a Change of Control were to occur, it is unlikely that the Company
would be able to repay all of its obligations under the Revolving Credit
Facility and the Indenture unless it could obtain alternate financing. There can
be no assurance that the Company would be able to obtain any such financing on
commercially reasonable terms or at all, and consequently no assurance can be
given that the Company would be able to purchase any of the Senior Notes
tendered pursuant to a Change of Control Offer.
FRAUDULENT CONVEYANCE; POSSIBLE INVALIDITY OF SERIES B GUARANTEES
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance laws, if the
Company, at the time it issues the Series B Notes, or any of the Guarantors, at
the time it issues its Series B Guarantee, (i) incurs such indebtedness with the
intent to hinder, delay or defraud creditors, or (ii)(a) receives less than
reasonably equivalent value or fair consideration for incurring such
indebtedness and (b)(1) is insolvent at the time of the incurrence, (2) is
rendered insolvent by reason of such incurrence (and the application of the
proceeds of the Series B Notes), (3) is engaged or is about to engage in a
business or transaction for which the assets that will remain with the Company
or such Guarantor constitute unreasonably small capital to carry on its
business, or (4) intends to incur, or believes that it will incur, debts beyond
its ability to pay such debts as they mature, then, in each such case, a court
of competent jurisdiction could avoid, in whole or in part, the Series B Notes
or such Series B Guarantee.
Among other things, a legal challenge of a Series B Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the Guarantor
as a result of the issuance by the Company of the Series B Notes. To the extent
any Series B Guarantee were to be avoided as a fraudulent conveyance or held
unenforceable for any other reason, holders of the Series B Notes would cease to
have any claim in respect of such Guarantor and would be creditors solely of the
Company and any Guarantor whose Series B Guarantee was not avoided or held
unenforceable. In such event, the claims of the holders of the Series B Notes
against the issuer of an invalid Series B Guarantee would be subject to the
prior payment of all other liabilities of such Guarantor. There can be no
assurance that, after providing for all prior claims, there would be sufficient
assets to satisfy the claims of the holders of the Series B Notes relating to
any avoided Series B Guarantee.
13
<PAGE> 17
The measure of insolvency for purposes of the foregoing will vary depending
upon the law applied in such case. Generally, however, the Company or any
Guarantor would be considered insolvent if the sum of its debts, including
contingent liabilities, was greater than all of its assets at fair valuation or
if the present fair saleable value of its assets was less than the amount that
would be required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured.
Based upon financial and other information currently available to it, the
Company believes that, for purposes of the United States Bankruptcy Code and
state fraudulent transfer or conveyance laws, (i) the Series B Notes and the
Series B Guarantees will be issued without the intent to hinder, delay or
defraud creditors and for proper purposes and in good faith, (ii) the Company
and the Guarantors will receive reasonably equivalent value or fair
consideration for incurring such indebtedness and (iii) the Company and the
Guarantors, after the issuance of the Series B Notes and the Series B Guarantees
and the application of the net proceeds of the Series B Notes, was solvent, will
have sufficient capital for carrying on their respective businesses and will be
able to pay their respective debts as they mature. There can be no assurance,
however, that a court passing on such questions would agree with the Company's
view. See "--High Leverage; Ability to Service Outstanding Indebtedness,"
"Description of Other Indebtedness" and "Description of Series B Notes."
LIMITED PUBLIC MARKET
The Series B Notes constitute a new class of securities with no established
trading market. While the Company intends to cause the Series B Notes to be
listed on the New York Stock Exchange, no assurance can be given that an active
public or other market will develop for the Series B Notes. If a trading market
does not develop or is not maintained, holders of the Series B Notes may
experience difficulty in reselling the Series B Notes or may be unable to sell
them at all. If a market for the Series B Notes develops, any such market may be
discontinued at any time. If a public trading market develops for the Series B
Notes, future trading prices of such Series B Notes will depend on many factors,
including, among other things, prevailing interest rates, Hills' financial
condition and results of operations, and the market for similar notes. Depending
on these and other factors, the Series B Notes may trade at a discount from
their principal amount.
14
<PAGE> 18
THE COMPANY
The Company was incorporated in Delaware in 1985. The Company's executive
offices are located at 15 Dan Road, Canton, Massachusetts 02021. Its telephone
number is (617) 821-1000.
RECENT EVENTS
On May 24, 1996, Hills announced its financial results for the first
quarter of fiscal 1996, which ended on May 4. The Company reported a net loss of
$14.7 million, compared with a net loss of $4.3 million in the first quarter
last year. The net loss was $1.45 per share in this year's quarter compared with
a $0.42 loss per share in the first quarter last year. Net sales for the
thirteen-week period ended May 4, 1996 increased by 2.0% to $370.2 million from
$362.9 million for the comparable period in fiscal 1995 and same store net sales
(which represent net sales for stores which reported sales throughout both
periods) decreased by 1.7% for the quarter. Gross profit margin decreased to
$99.3 million from $101.3 million and declined as a percentage of sales to 26.8%
from 27.9%. The margin rate decrease resulted primarily from competitive pricing
pressures across all lines of business, and also from soft sales of apparel
which shifted the sales mix more towards lower margin hardlines. Selling and
administrative expenses increased as a percentage of sales to 25.4% from 25.0%.
This rate increase reflected the relatively flat sales in existing stores and
additional operating expenses from new stores opened during mid-1995. This
year's first quarter loss included a pre-tax, non- cash charge of $11.7 million
($6.8 million after tax, or $0.67 per share) for the impairment of long-lived
assets. Net interest expense in the most recent quarter increased to $13.3
million from $9.5 million last year, primarily due to the net effect of lower
interest income and increased borrowing under the Company's revolving credit
line. Earnings before interest, taxes, depreciation, amortization and other
non-cash charges for the most recent quarter decreased to $5.4 million compared
with $10.7 million in the first quarter last year.
The Company's charge for impairment of long-lived assets resulted from the
required adoption of the new Statement of Financial Accounting Standards No.
121: "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." This non-cash charge reduced the current tangible and
intangible book value of certain under-performing stores to an estimate of those
assets' fair market value pursuant to the provisions of the Standard.
On May 28, 1996, the Company filed a registration statement with the
Commission to permit the resale from time to time of substantially all of
the shares of the Company's common stock owned by affiliates of Dickstein
Partners.
See "Risk Factors -- Recent Operating Results" and "-- Control of the
Company."
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. There will be no cash
proceeds to the Company from exchanges made pursuant to the Exchange Offer. In
consideration for issuing the Series B Notes, the Company will receive Series A
Notes in like principal amount, the terms of which are identical to the terms of
the Series B Notes that they replace, except as otherwise described herein.
Series A Notes surrendered in exchange for Series B Notes will be canceled and
will not be reissued. Accordingly, the issuance of Series B Notes in the
Exchange Offer will not result in any increase or decrease in the total
indebtedness of the Company.
The Company received net proceeds of $186.4 million from the issuance and
sale of the Series A Notes (after deduction of fees and estimated offering
expenses), of which (i) $156.5 million was used to pay the redemption prices of
1993 Notes redeemed pursuant to the Redemption Offer, (ii) $20.0 million was
used to reduce the amount outstanding under the Revolving Credit Facility, (iii)
$2.6 million will be used to pay the redemption prices of 1993 Notes redeemed
pursuant to a mandatory redemption, at a redemption price equal to 104% of
principal amount, of all outstanding 1993 Notes not tendered pursuant to the
Redemption Offer and (iv) $2.6 million will be deposited in trust with Fleet
National Bank, as trustee under the 1993 Note Indenture, for the redemption upon
issuance, at a redemption price equal to 104% of principal amount, of
approximately $2.5 million of 1993 Notes remaining subject to issuance as of the
date hereof under the Company's plan of reorganization relating to its emergence
from bank
15
<PAGE> 19
bankruptcy. See "Prospectus Summary--The Company," "Capitalization" and
"Description of Other Indebtedness--1993 Notes." The balance of the net
proceeds is available for working capital and other general corporate purposes.
16
<PAGE> 20
CAPITALIZATION
The following table sets forth as of February 3, 1996 the actual
capitalization of the Company and the capitalization of the Company as adjusted
to give effect to the issuance of the Series A Notes, the application of the net
proceeds thereof and the exchange of all or a portion of the Series A Notes for
Series B Notes in the Exchange Offer. The following information should be read
in conjunction with the information set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Form 10-K and
the consolidated financial statements (including the notes thereto) included in
the Form 10-K.
<TABLE>
<CAPTION>
February 3, 1996
----------------------
Actual As Adjusted
------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt, including current portion:
Revolving Credit Facility(1) ............................................... $ -- $ --
10.25% Senior Notes due 2003(2) ............................................ 160,000 --
12 1/2% Senior Notes due 2003 and 12 1/2% Senior Notes due 2003, Series B .. -- 195,000
Obligations under capital leases ........................................... 124,508 124,508
Financing obligation - sale/leaseback ...................................... 25,169 25,169
-------- --------
Total debt .............................................................. 309,677 344,677
-------- --------
Series A convertible preferred stock, $0.10 par value;
15,000,000 shares authorized; 1,231,795 shares
issued and outstanding ...................................................... 24,636 24,636
-------- --------
Common shareholders' equity:
Common stock, $0.01 par value; 50,000,000 shares
authorized; 9,982,842 shares issued and outstanding ..................... 100 100
Additional paid-in capital ................................................. 209,563 209,563
Retained earnings(3) ....................................................... 45,000 42,824
-------- --------
Total common shareholders' equity ....................................... 254,663 252,487
-------- --------
Total capitalization .............................................. $588,976 $621,800
======== ========
</TABLE>
(1) The Revolving Credit Facility provides for seasonal borrowings of up to
$300.0 million (subject to certain borrowing base requirements) for working
capital and other general corporate purposes. As of May 31, 1996, an
aggregate of $35.0 million in direct borrowings was outstanding under the
Revolving Credit Facility. See "Description of Other Indebtedness--
Revolving Credit Facility."
(2) At February 3, 1996, an aggregate principal amount of $157.5 million of the
1993 Notes was outstanding and an aggregate principal amount of $2.5
million of the 1993 Notes remained subject to issuance in accordance with
the Company's plan of reorganization relating to its emergence from
bankruptcy in October 1993. See Note 8 to the consolidated financial
statements included in the Form 10-K. An aggregate principal amount of
$155.0 million of the 1993 Notes was redeemed in connection with the
Redemption Offer. The remaining $2.5 million in principal amount of
outstanding 1993 Notes will be redeemed under the 1993 Note Indenture
pursuant to a mandatory redemption at a redemption price equal to 104% of
principal amount plus accrued interest. In addition, the Company will
deposit in trust with Fleet National Bank, as trustee under the 1993 Note
Indenture, funds for the redemption upon issuance, at a redemption price
equal to 104% of principal amount plus accrued interest, of the $2.5
million in principal amount of 1993 Notes remaining subject to issuance as
of the date hereof. See "Description of Other Indebtedness--1993 Notes."
(3) Retained earnings, as adjusted, reflects the after-tax effect of the
elimination of deferred financing costs associated with the 1993 Notes, a
one percent premium payable in connection with the redemption of the 1993
Notes pursuant to the Redemption Offer, and a four percent premium payable
in connection with the mandatory redemption of all of the 1993 Notes not
purchased in the Redemption Offer, including 1993 Notes remaining subject
to issuance as of the date hereof as described in footnote (2) above.
17
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following statement of operations data for the fifty-three weeks ended
February 3, 1996 and the balance sheet data at February 3, 1996 have been
derived from the Company's consolidated financial statements, which have been
audited by Deloitte & Touche LLP, independent auditors, not included herein.
The other statement of operations and balance sheet data have been derived from
the Company's consolidated financial statements, which have been audited by
Coopers & Lybrand L.L.P., independent auditors, not included herein. The
following data should be read in conjunction with the information set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements (including the notes
thereto) included in the Form 10-K.
<TABLE>
<CAPTION>
Successor Company(1) Predecessor Company(1)
-------------------------------------------------------------------------------------
Fifty-Three Fifty-Two Seventeen Thirty-Five Fifty-Two Fifty-Two
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
Feb. 3, 1996 Jan. 28, 1995 Jan. 29, 1994 Oct. 2, 1993 Jan. 30, 1993 Feb. 1, 1992
------------ ------------- ------------- ------------ ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> | <C> <C> <C>
STATEMENT OF OPERATIONS DATA: |
Net sales ................................ $1,900,104 $1,872,021 $ 772,685 | $ 992,848 $1,750,266 $1,679,866
Cost of sales ............................ 1,384,421 1,340,221 549,651 | 710,299 1,249,812 1,214,090
Selling and administrative expenses ...... 399,934 390,397 138,360 | 239,997 383,581 377,039
Depreciation and amortization ............ 39,052 35,648 11,328 | 27,978 38,959 36,223
Operating earnings ....................... 31,168 105,755 73,346 | 14,574 77,914 52,514
Interest expense ......................... 49,497 38,712 13,141 | 13,648 22,016 25,551
Income tax provision ..................... 3,187 35,853 26,609 | -- 26,588 12,537
Earnings (loss) before extraordinary items (16,666) 40,431 36,235 | (8,085) 26,817 10,032
Net earnings (loss)(2) ................... (16,666) 40,431 36,235 | 250,154 49,696 22,512
Ratio of earnings to fixed charges(3) .... -- 2.33x 4.16x | -- 2.17x 1.46x
|
OPERATING AND OTHER FINANCIAL DATA: |
Gross margin ............................. 27.1 % 28.4% 28.9% | 28.5% 28.6% 27.7 %
Comparable store sales growth(4) ......... (3.9)% 5.1% N/A | N/A 4.2% (1.8)%
Number of stores open at end of period ... 164 154 151 | 151 154 154
Number of stores remodeled in period ..... 33 38 -- | 32 40 6
Capital expenditures(5) .................. $ 56,714 $ 38,458 $ 3,070 | $ 27,162 $ 40,066 $ 11,487
EBITDA(6) ................................ 119,344 138,133 86,682 | 42,803 117,578 89,485
Pro forma cash interest expense(7) ....... 52,354 |
Pro forma ratio of EBITDA |
to cash interest expense(7) .......... 2.28x |
|
BALANCE SHEET DATA (AT END OF PERIOD): |
Working capital .......................... $ 147,090 $ 241,486 $ 171,440 | $ 301,980 $ 299,927 $ 261,007
Total assets ............................. 858,723 992,378 907,621 | 972,838 922,745 846,906
Total debt, including current portion(8) . 309,677 315,798 296,158 | 127,590 138,686 142,504
Preferred stock .......................... 24,636 64,144 100,000 | 33,143 31,481 29,049
Total common shareholders' |
equity (deficiency) ................... 254,663 306,741 230,235 | (186,934) (183,172) (230,446)
</TABLE>
- -------------
(1) The Company adopted fresh-start accounting upon its emergence from
bankruptcy proceedings in October 1993. Financial statements for periods
prior to the Company's adoption of fresh-start accounting are designated as
those of the Predecessor Company. Under fresh-start accounting, a new
reporting entity is created and the recorded amounts of assets and
liabilities are adjusted to reflect estimated fair market values. As a
result, the financial statements of the Successor Company have been
prepared on a basis that is not comparable with the financial statements of
the Predecessor Company. See Notes 1 and 2 to the consolidated financial
statements included in the Form 10-K.
(2) Net earnings for the thirty-five weeks ended October 2, 1993 include the
effect of an extraordinary gain of $258.2 million resulting from the
discharge of prepetition debt in bankruptcy proceedings.
(footnotes continued on following page)
18
<PAGE> 22
(3) Calculated by dividing income from continuing operations before income
taxes plus fixed charges by fixed charges. Fixed charges consist of
interest expense, including amortization of financing costs, the pre-tax
equivalent of preferred stock dividend requirements and that portion of
rental expense deemed to be representative of the interest component of
rental expense. The deficit of earnings to fixed charges was $13.5 million
for fiscal 1995 and $0.5 million for the thirty-five weeks ended
October 2, 1993. On a pro forma basis after giving effect to the issuance
of the Series A Notes and the application of the net proceeds thereof,
earnings were insufficient to cover fixed charges for fiscal 1995 by
$16.3 million.
(4) Comparable store sales growth for fiscal 1993 was 1.8%. Net sales for
stores which reported sales for every month in fiscal 1995 and fiscal 1994,
excluding net sales from such stores in the fifty-third week of fiscal
1995, totalled $1.78 billion in fiscal 1995 and $1.85 billion in fiscal
1994.
(5) Capital expenditures during fiscal 1995 consisted principally of costs
associated with the opening of ten new stores and the remodeling of 33
stores.
(6) Represents net earnings before interest, taxes, depreciation, amortization,
change in control costs, extraordinary gains, reorganization items and,
with respect to fiscal 1994, certain other income items totalling $9.7
million. During fiscal 1995, the Company recognized change in control costs
totalling $45.5 million. While EBITDA should not be construed as a
substitute for operating income or as a better indicator of liquidity than
cash flows from operating activities, which are determined in accordance
with generally accepted accounting principles, it is included herein to
provide additional information with respect to the ability of the Company
to meet its future debt service, capital expenditure and working capital
requirements. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs. See the consolidated statements of cash flows
(including the notes relating thereto) in the Form 10-K. EBITDA is included
herein because the Company believes that certain investors find it to be a
useful tool for measuring the ability to service debt.
(7) Gives effect to the issuance of the Series A Notes and the application of
the net proceeds thereof as if they had occurred on January 29, 1995. See
"Use of Proceeds." Excludes approximately $6.0 million of non-cash deferred
financing costs associated with such issuance and application, the
establishment of the Revolving Credit Facility and a sale/leaseback
financing.
(8) Excludes liabilities subject to compromise of the Predecessor Company.
19
<PAGE> 23
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Series A Notes were sold by the Company on April 19, 1996 (the "Closing
Date") to Lehman Brothers, Inc., which subsequently placed the Series A Notes
with qualified institutional buyers in reliance on Rule 144A under the
Securities Act. As a condition to the sale of the Series A Notes, the Company,
the Guarantors and Lehman Brothers, Inc. entered into the Registration Rights
Agreement under which the Company and the Guarantors agreed that, unless the
Exchange Offer is not permitted by applicable law or Commission policy (after
compliance with certain procedures contained in the Registration Rights), they
would (i) cause the Registration Statement to be filed with the Commission, (ii)
cause all necessary filings in connection with the registration and
qualification of the Senior Notes to be made under the "blue sky" laws of such
jurisdictions of the United States as are necessary to permit the Exchange Offer
to be consummated, and (iii) upon effectiveness of the Registration Statement,
to commence the Exchange Offer, maintain the effectiveness of the Registration
Statement for at least 20 business days (or a longer period if required by law)
and deliver Series B Notes to the Exchange Agent in the same aggregate principal
amount as the Series A Notes properly tendered pursuant to the Exchange Offer. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement.
RESALE OF SERIES B NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to Morgan Stanley & Co., Incorporated (dated June 5,
1991) and Exxon Capital Holdings Corporation (dated May 13, 1988) and similar
no-action letters issued with respect to other third parties, the Company
believes that a holder that exchanges Series A Notes for Series B Notes in the
ordinary course of business and that is not engaged in, does not intend to
engage in, and has no arrangement with any person to engage in a distribution of
Series B Notes, will be allowed to resell the Series B Notes to the public
without further registration under the Securities Act and without delivering to
the purchasers of the Series B Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act, except that the foregoing will
not apply to a holder that is (i) a broker-dealer who purchased Series A Notes
directly from the Company for resale pursuant to Rule 144A or any other
available exemption under the Securities Act or (ii) an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act, . If any holder
acquires Series B Notes in the Exchange Offer for the purpose of distributing or
participating in the distribution of Series B Notes or is a broker- dealer,
however, such holder cannot rely on the position of the staff of the Commission
enumerated in those no-action letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives Series B Notes for its own account
in exchange for Series A Notes, that were acquired by such broker-dealer as a
result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Series B Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Series B Notes received in exchange for Series A
Notes that were acquired by such broker-dealer as a result of market-making or
other trading activities. Pursuant to the Registration Rights Agreement, the
Company has agreed that for a period of one year from the date of this
Prospectus, it will make this Prospectus, as amended or supplemented, available
to broker-dealers for use in connection with any resale. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Series A
Notes properly tendered and not withdrawn prior to the Expiration Time. The
Company will issue $1,000 principal amount of Series B Notes in exchange for
each $1,000 principal amount of outstanding Series A Notes surrendered pursuant
to the Exchange Offer. Series A Notes may be tendered only in integral multiples
of $1,000.
20
<PAGE> 24
The terms of the Series B Notes are the same as the terms of the Series A
Notes, except that the Exchange Offer has been registered under the Securities
Act and therefore the Series B Notes will not bear legends restricting the
transfer thereof. Series B Notes will evidence the same debt as the Series A
Notes that they replace and will be issued under, and be entitled to the
benefits of, the Indenture. The Indenture also governs the Series A Notes, such
that the Series A Notes and the Series B Notes will be treated as a single class
of debt securities under the Indenture.
As of the date of this Prospectus, $195,000,000 aggregate principal amount
of Series A Notes are outstanding and registered in the name of Cede & Co., as
nominee for the Depository. Only a registered holder of the Series A Notes (or
such holder's legal representative or attorney-in-fact) as reflected on the
records of the Trustee under the Indenture may participate in the Exchange
Offer. There is no fixed record date for determining registered holders of the
Series A Notes entitled to participate in the Exchange Offer.
Holders of the Series A Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted properly tendered Series A
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Series A Notes for the purposes of receiving the Series B Notes from
the Company.
Holders who tender Series A Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Series
A Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION TIME; EXTENSIONS; AMENDMENTS
The term "Expiration Time" shall mean 5 P.M., New York City time, on
, 1996 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Time" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) provide written
or oral notice of the extension to the Exchange Agent, (ii) mail notice of the
extension to the registered holders of the Series A Notes, (iii) issue a press
release or other public announcement that includes a statement as to the
approximate number of Series A Notes deposited to date. All such actions shall
be taken by no later than 9 A.M., New York City time, on the business day
immediately following the previously scheduled Expiration Time. Without limiting
the manner in which the Company may choose to make a public announcement of any
delay, extension, amendment or termination of the Exchange Offer, the Company
shall have no obligation to publish, advertise, or otherwise communicate any
such public announcement, other than by making a timely release to an
appropriate news agency.
The Company reserves the right, in its sole discretion, to delay accepting
any Series A Notes, to extend the Exchange Offer, or if any conditions set forth
below under "--Procedures for Tendering" shall not have been satisfied, to
terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to the registered holders. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of the
Series A Notes, and the Company will extend the Exchange Offer for a period of
five to ten business days, depending upon the significance of the amendment and
the manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period.
21
<PAGE> 25
INTEREST ON SERIES B NOTES
The Series B Notes bear interest at a rate equal to 12 1/2% per annum.
Interest on Series B Notes is payable semi-annually on each January 1 and July
1, commencing on January 1, 1997. Holders of Series B Notes will receive
interest on January 1, 1997 from the date of initial issuance of the Series B
Notes, plus an amount equal to the accrued interest on the Series A Notes from
July 1, 1996, the most recent date as of which interest will not have been paid
on the Series A Notes as of the Expiration Time. Holders whose Series A Notes
are accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Series A Notes on or after July 1, 1996.
PROCEDURES FOR TENDERING
Only a registered holder may tender Series A Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile to the Exchange Agent at
the address set forth below under "--Exchange Agent" for receipt prior to the
Expiration Time. In addition, either (i) certificates for the Series A Notes
must be received by the Exchange Agent along with the Letter of Transmittal,
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of the Series A Notes, if such procedure is available, into the
Exchange Agent's account at the Depositary pursuant to the procedure described
under "--Book-Entry Transfer" below, must be received by the Exchange Agent
prior to the Expiration Time, or (iii) the holder must comply with the
procedures described under "--Guaranteed Delivery Procedures" below.
A tender of Series A Notes by a holder that is not withdrawn prior to the
Expiration Time will constitute an agreement between the holder and the Company
in accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal.
THE METHOD OF DELIVERY OF SERIES A NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION TIME. NO SERIES A NOTES OR LETTER OF TRANSMITTAL SHOULD BE SENT TO
THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS ON BEHALF OF
SUCH HOLDERS.
Any beneficial owner of Series A Notes whose Series A Notes are registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender Series A Notes should contact the registered holder
promptly and instruct such registered holder to tender the Series A Notes on
such beneficial owner's behalf. If such beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the Letter of Transmittal
and delivering its Series A Notes, either make appropriate arrangements to
register ownership of the Series A Notes in its name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders" below), as the case may be, must be
guaranteed by an Eligible Institution (as defined below) unless the Series A
Notes tendered pursuant thereto are tendered (i) by a registered holder that has
not completed the box entitled "Special Issuance Instructions" or the box
entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii)
for the account of an Eligible Institution. In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, the signature guarantee must be made by a member firm
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act that is a member of
one of the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
22
<PAGE> 26
If the Letter of Transmittal is signed by a person other than the
registered holder of any Series A Notes listed therein, the Series A Notes must
be endorsed or accompanied by an appropriate power of attorney, which power of
attorney shall be signed by such registered holder as such registered holder's
name appears on the Series A Notes. Signatures on Series A Notes or powers of
attorney must be guaranteed by an Eligible Institution.
If the Letter of Transmittal, any Series A Notes or any powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Company, should submit with the Letter of Transmittal proper evidence
satisfactory to the Company of their authority to so act.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Series A Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Series A Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Series A Notes not properly tendered or any Series A Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Series A Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Series A Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Series A Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Series A Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived.
While the Company has no present plan to acquire any Series A Notes that
are not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Series A Notes that are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Series A Notes that remain outstanding
subsequent to the Expiration Time or, as set forth under "--Conditions" below,
to terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Series A Notes in the open market, in privately negotiated transactions
or otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, a holder will represent and agree that, among other things,
(i) the Series B Notes to be acquired by the holder in the Exchange Offer are
being acquired in the ordinary course of business of the holder, (ii) the holder
is not an "affiliate," as defined in Rule 405 of the Securities Act, of the
Company, (iii) the holder has no arrangement or understanding with any person to
engage in any distribution of Series B Notes and if the holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, a
distribution of the Series B Notes, (iv) any person who is a broker-dealer
registered under the Exchange Act or is participating in the Exchange Offer for
purposes of distributing Series B Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Series B Notes acquired by such person and
cannot rely on the position of the staff of the Commission set forth in certain
no-action letters (see "--Resale of Series B Notes" below), and (v) any
secondary resale transaction described in clause (iv) above and any resale of
Series B Notes obtained by such holder in exchange for Series A Notes acquired
by such holder directly from the Company should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or 508, as applicable, of Regulation S-K of the Commission.
If the holder is a broker-dealer that will receive Series B Notes for its own
account in exchange for Series A Notes that were acquired as a result of
market-making or other trading activities, the holder is required to acknowledge
in the Letter of Transmittal that it will deliver a prospectus in connection
with any resale of such Series B Notes; by so acknowledging and by delivering a
prospectus, however, the holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
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RETURN OF SERIES A NOTES
If any tendered Series A Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer, are withdrawn or are submitted
for a greater principal amount than the holder desires to exchange, the
unaccepted, withdrawn or non- exchanged Series A Notes will be returned without
expense to the tendering holder thereof (or, in the case of Series A Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Depositary pursuant to the procedures described under "--Book-Entry Transfer"
below, will be credited to an account maintained with the Depositary) as
promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Series A Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make
book-entry delivery of Series A Notes by causing the Depositary to transfer such
Series A Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. Although delivery of Series A
Notes may be effected through book-entry transfer at the Depositary, the Letter
of Transmittal (or a facsimile thereof), with any required signature guarantees
and any other required documents, must, in any case, be transmitted to and
received by the Exchange Agent at the address set forth below under "--Exchange
Agent" on or prior to the Expiration Time or pursuant to the procedures
described under "--Guaranteed Delivery Procedures" below.
GUARANTEED DELIVERY PROCEDURES
A holder who wishes to tender Series A Notes (i) whose Series A Notes are
not immediately available, (ii) who cannot deliver its Series A Notes, the
Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Time or (iii) who is unable to complete the procedures
for book-entry transfer on a timely basis, may effect a tender if:
(a) the tender is made by or through an Eligible Institution;
(b) prior to the Expiration Time, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery) (1) setting
forth the name and address of the holder, the certificate number or numbers
of such Series A Notes and the principal amount of Series A Notes tendered,
(2) stating that the tender is being made thereby and (3) guaranteeing
that, within five New York Stock Exchange trading days after the Expiration
Time, the Letter of Transmittal (or a facsimile thereof), together with the
certificate or certificates representing the Series A Notes in proper form
for transfer or a confirmation of a book-entry transfer (a "Book-Entry
Confirmation"), as the case may be, and any other documents required by the
Letter of Transmittal, will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly executed Letter of Transmittal (or a facsimile
thereof), together with the certificate or certificates representing all
tendered Series A Notes in proper form for transfer or a Book-Entry
Confirmation, together with any other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Time.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Series A Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Notes may be
withdrawn at any time prior to the Expiration Time.
To withdraw a tender of Series A Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received prior to the
Expiration Time by the Exchange Agent at its address under "--Exchange
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Agent" below. Any notice of withdrawal must (i) specify the name of the person
having tendered the Series A Notes to be withdrawn, (ii) identify the Series A
Notes to be withdrawn (including the certificate number or numbers and aggregate
principal amount), and (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which the Series A Notes were
tendered (including any required signature guarantees). All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company in its sole discretion, whose determination shall
be final and binding on all parties. Any Series A Notes so withdrawn will be
deemed not to have been properly tendered for purposes of the Exchange Offer and
no Series B Notes will be issued with respect thereto unless the Series A Notes
so withdrawn are properly re-tendered. Properly withdrawn Series A Notes may be
re-tendered by following one of the procedures described under "--Procedures for
Tendering" above at any time prior to the Expiration Time.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange the Series B Notes for, any
Series A Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Series A Notes, if the Exchange Offer violates any
applicable law, rule or regulation or any applicable interpretation of the staff
of the Commission.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Series A
Notes and return all tendered Series A Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Series A Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Series A Notes (see "--Withdrawal of Tenders" above) or (iii)
waive such unsatisfied conditions with respect to the Exchange Offer and accept
all properly tendered Series A Notes that have not been withdrawn. If any such
waiver constitutes a material change to the Exchange Offer, the Company will
promptly disclose the terms of the waiver by means of a prospectus supplement
that will be distributed to registered holders of Series A Notes, and the
Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the waiver and the manner of disclosure
to the registered holders, if the Exchange Offer would otherwise expire during
such five to ten business day period.
TERMINATION OF CERTAIN RIGHTS
All benefits under the Registration Rights Agreement of holders of Series A
Notes eligible to participate in this Exchange Offer will cease to exist upon
consummation of the Exchange Offer except with respect to the Company's
continuing obligations (i) to indemnify holders (including broker-dealers) and
certain parties related to the holders against certain liabilities, including
liabilities under the Securities Act, (ii) to provide, upon the request of any
holder of Series A Notes, the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Series A Notes pursuant to
Rule 144A and (iii) to use its best efforts to keep the Registration Statement
effective to the extent necessary to ensure that it is available for resales of
transfer-restricted Series A Notes by broker-dealers for a period of one year
from the date of this Prospectus and, in connection therewith, to provide copies
of the latest version of the Prospectus to broker-dealers upon their request
during such one-year period.
LIQUIDATED DAMAGES
Under the Registration Rights Agreement, if (i) the Exchange Offer is not
consummated by August 29, 1996 or (ii) subject to certain exceptions, the
Registration Statement ceases to be effective or fails to be used for its
intended purposes without being succeeded within seven business days by a
post-effective amendment that cures such failure and that is immediately
declared effective, the Company is required to pay liquidated damages to each
holder of Transfer Restricted Securities (as defined below), during the first
90-day period immediately following the occurrence of such Registration Default
in an amount equal to $0.05 per week per $1,000 principal amount of Transfer
Restricted Securities held by such holder. "Transfer Restricted Securities" mean
each Series A Note until the earliest to occur of (i) the date on which such
Series A Note is exchanged in the Exchange Offer and entitled to be resold to
the public by the holder thereof without complying with the prospectus delivery
requirements of the Securities Act, (ii) the date on which such Series A Note
has been effectively registered under the Securities Act and disposed of in
accordance with a Shelf Registration Statement (as defined in the Registration
Rights Agreement) or (iii) the date on which such Series A Note is distributed
to the public pursuant to Rule 144 under the Securities Act or by a
broker-dealer as
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described under "Plan of Distribution" below. The amount of the liquidated
damages will increase by an additional $0.05 per week per $1,000 principal
amount of Transfer Restricted Securities for each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of liquidated
damages of $0.50 per week per $1,000 principal amount of Transfer Restricted
Securities. Following the cure of all Registration Defaults relating to any
particular Transfer Restricted Securities, the accrual of liquidated damages
with respect to such Transfer Restricted Securities will cease.
EXCHANGE AGENT
Fleet National Bank has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or the Letter of Transmittal, and requests for copies of the
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
By Registered or Certified Mail: By Hand Delivery:
By Overnight Delivery: By Facsimile:
Confirm by Telephone:
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail. Additional solicitation may be
made by telecopier, telephone or in person by officers, employees or agents of
Hills.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company will pay the Exchange
Agent reasonable and customary fees for its services and will reimburse it for
its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$500,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees, and printing costs.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Series A Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Series A Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to the tendering holder.
CONSEQUENCES OF FAILURES TO EXCHANGE
PARTICIPATION IN THE EXCHANGE OFFER IS VOLUNTARY. HOLDERS OF THE SERIES A
NOTES ARE URGED TO CONSULT THEIR FINANCIAL AND TAX ADVISORS IN MAKING THEIR OWN
DECISIONS ON WHAT ACTION TO TAKE.
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The Series A Notes which are not exchanged for the Series B Notes pursuant
to the Exchange Offer will remain restricted securities. Accordingly, such
Series A Notes may be resold only (i) to a person whom the seller reasonably
believes is a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in a transaction meeting the requirements of Rule 144A, (ii) in
a transaction meeting the requirements of Rule 144 under the Securities Act,
(iii) outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act or (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Series B Notes.
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DESCRIPTION OF OTHER INDEBTEDNESS
REVOLVING CREDIT FACILITY
HDSC, as borrower, and the Company, as guarantor, have entered into a
Credit Agreement dated August 21, 1995, with the lenders named therein and
Chemical Bank, as administrative agent and fronting bank (the "Credit
Agreement"). The Credit Agreement replaced a credit agreement dated October 4,
1993, among HDSC, the Company, the lenders named therein and Chemical Bank, as
administrative agent and fronting bank (the "Old Credit Agreement"). The Credit
Agreement provides for a $300.0 million secured revolving credit facility (the
"Revolving Credit Facility"), of which up to $100.0 million is available as a
letter of credit facility. The Old Credit Agreement provided a $225.0 million
partially secured facility, of which up to $75.0 million was available as a
letter of credit facility.
Proceeds from the Revolving Credit Facility are to be used for (i) working
capital for HDSC and the other Guarantors, (ii) other general corporate purposes
in the ordinary course of business and (iii) payment of certain costs in
connection with the 1995 Change in Control. See "The Company." The maturity date
of the Revolving Credit Facility is April 30, 1998.
Borrowings under the Revolving Credit Facility are limited by a borrowing
base approximately equal to the sum of 55% of Eligible Inventory and up to 55%
of Purchase Accrual Inventory (each as defined in the Credit Agreement) and bear
interest, at the option of HDSC, at either (1) the Adjusted London Interbank
Offered Rate plus 2.75%, or (2) the highest of (a) Chase Manhattan Bank's Prime
Rate plus 1.75%, (b) the Federal Funds Effective Rate plus 2.25% and (c) the
Base CD Rate plus 2.75% (each such rate as defined in the Credit Agreement).
HDSC pays commitment fees at an annual rate of 0.50% of the average daily unused
portion of the commitment. HDSC also pays letter of credit fees on the aggregate
face amount of outstanding standby letters of credit at an annual rate equal to
2.75%, and on the face amount of outstanding trade letters of credit at an
annual rate of 2.25%.
The Revolving Credit Facility is secured by a pledge of all of the capital
stock of HDSC and each of its direct or indirect subsidiaries and a security
interest in all tangible and intangible assets of HDSC. The Revolving Credit
Facility is guaranteed by the Company and each of the direct and indirect
subsidiaries of HDSC. The Revolving Credit Facility provides that, on a date
determined at the discretion of HDSC between December 1 and April 1 of each year
(the "Clean-Up Date"), HDSC is to pay or prepay all of the outstanding loans.
For a period of at least thirty consecutive days following the Clean-Up Date
(the "Clean-Up Period"), HDSC shall have no direct borrowings outstanding under
the Revolving Credit Facility.
At February 3, 1996, HDSC had maintained a Clean-Up Period of at least
thirty days, had no direct borrowing outstanding under the Revolving Credit
Facility and had outstanding letters of credit totalling $32.1 million. At May
31, 1996, an aggregate of $35.0 million in direct borrowings was outstanding
under the Revolving Credit Facility.
The Credit Agreement contains significant covenants. Under the Credit
Agreement, Hills may not:
(i) incur indebtedness other than under (a) the Credit Agreement, (b)
the 1993 Notes, (c) the Senior Notes, (d) intercompany obligations, (e)
capital lease obligations up to $165.0 million, (f) sale and leaseback
transactions completed during the term of the Old Credit Agreement, (g)
additional sale and leaseback transactions involving an aggregate maximum
of $45.0 million of indebtedness, (h) certain other types of indebtedness
and (i) up to $25.0 million of indebtedness otherwise not permitted; after
May 31, 1996, the aggregate principal amount of 1993 Notes and Senior Notes
outstanding may not exceed $200 million;
(ii) permit any liens on Hills' properties, subject to several
exceptions, including exceptions for liens securing indebtedness otherwise
permitted under the Credit Agreement (such as obligations under capital
leases and associated with sale and leaseback transactions);
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(iii) enter into any sale and leaseback transactions other than the
transactions entered into by HDSC during the term of the Old Credit
Agreement and additional sale and leaseback transactions that do not, in
the aggregate, result in more than $45.0 million of additional
indebtedness;
(iv) make loans or investments or purchase any stock, subject to
several exceptions, including exceptions for individual store deposit
accounts, loans to officers and employees in the ordinary course not to
exceed $1.0 million in the aggregate, and certain intercompany loans;
(v) acquire any business or properties or merge or consolidate with
any other entity, subject to exceptions, including intercompany mergers and
consolidations and acquisitions of inventory, equipment or real estate in
the ordinary course of HDSC's business even where the acquired property
constitutes a substantial part of the assets or business of the seller;
(vi) sell, assign, lease or otherwise dispose of assets outside the
ordinary course of business, subject to exceptions, including sales of
assets in connection with permitted sale and leaseback transactions and up
to $6.0 million of other asset sales outside the ordinary course of
business;
(vii) pay cash dividends from HDSC to the Company or from the Company
to its shareholders, except that HDSC may make dividend payments to the
Company to make interest payments on the 1993 Notes and the Senior Notes,
to pay taxes, to pay reasonable fees and expenses of directors of the
Company, to pay reasonable legal fees of up to $2.0 million in connection
with the 1995 Change in Control and to pay various filing, listing and
other fees;
(viii) engage in transactions with affiliates except on an
arm's-length basis;
(ix) materially alter or modify the nature of their respective
businesses;
(x) optionally prepay debt other than indebtedness under the Revolving
Credit Facility and the redemption of the 1993 Notes with proceeds from the
Senior Notes;
(xi) make cash capital expenditures in excess of $43.0 million in the
fiscal year ending February 1, 1997 and $38.0 million in any subsequent
fiscal year (subject to a permitted carryforward of up to $10.0 million of
unused capital expenditures permitted in the preceding year);
(xii) permit modification of the Indenture, the charter documents,
sale and leaseback documents or agreements with management without the
consent of a majority of the holders of certain of the debt under the
Revolving Credit Facility or permit entry into certain new agreements with
management without following certain specified procedures, including having
certain findings made by the Board of Directors; or
(xiii) contribute to a multiemployer employee pension plan.
The Credit Agreement also provides that Hills, on a consolidated basis,
must meet the following financial ratios and tests:
(i) Interest Expense and Consolidated Rental Expense Coverage Ratio.
The ratio of (1) EBITDA plus consolidated rental expense to (2) interest
expense plus consolidated rental expense for any period of four consecutive
fiscal quarters shall not be less than 1.5:1 for the period ended November
1, 1997, and 1.6:1 thereafter.
(ii) Consolidated Fixed Charge Coverage Ratio. The ratio of (1) EBITDA
minus capital expenditures to (2) interest expense for any period of four
consecutive fiscal quarters shall not be less than 1.25:1 for period ended
May 4, 1996; 1.35:1 for the period from May 5, 1996 to August 3, 1996;
1.45:1 for the period from August 4, 1996 to May 3, 1997; 1.55:1 for the
period from May 4, 1997 to August 2, 1997 and 1.65:1 thereafter.
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(iii) Leverage Ratio. The ratio of (1) consolidated funded debt
(including the indebtedness under the Credit Agreement and the 1993 Notes,
the Senior Notes, sale and leaseback indebtedness and capital lease
obligations) to (2) the sum of consolidated net worth and consolidated
funded debt, shall not be more than .70 for the period ended January 30,
1997 and .65 thereafter.
(iv) Consolidated Net Worth. Consolidated net worth shall not be less
than $275.0 million on any date through November 1, 1996; $285.0 million
between November 2, 1996 and January 31, 1997; $300.0 million between
February 1, 1997 and January 30, 1998; and $320.0 million thereafter.
(v) Limitation of Consolidated Rental Expense. The consolidated rental
expense shall not exceed $60.0 million in the fiscal year ending February
1, 1997; $63.0 million in the fiscal year ending January 31, 1998; and
$16.0 million during the three-month period ending April 30, 1998.
The Credit Agreement provides that each of the following constitutes an
Event of Default: (i) breach of any representation or warranty in any material
respect; (ii) default in payment of any principal payment due under the
Revolving Credit Facility; (iii) default of any interest or fee due under the
Revolving Credit Facility, which default is unremedied for a period of five
business days following the due date thereof; (iv) default in the due observance
or performance of covenants, conditions or agreements, subject to cure periods
in certain circumstances of up to thirty days; (v) payment defaults with respect
to other indebtedness of Hills in aggregate principal amount in excess of $2.5
million; (vi) non-payment defaults with respect to other indebtedness of Hills
in excess of $2.5 million which result in the acceleration of such indebtedness;
(vii) certain events of bankruptcy or insolvency with respect to Hills; (viii)
an entry of a judgment for payment of money in an amount in excess of $2.5
million which is not covered by insurance or which remains undischarged for a
period of sixty consecutive days during which execution shall not be effectively
stayed; (ix) a reportable event shall have occurred with respect to Hills'
pension plans resulting in a liability to Hills or the applicable pension plan
in an aggregate amount exceeding $5.0 million, subject to a thirty- day cure
period; (x) a change of control (as defined in the Credit Agreement) occurs with
respect to the Company or HDSC; (xi) the security interest granted with respect
to the Credit Agreement ceases to be a valid, perfected first-priority security
interest in the collateral covered thereby; (xii) the related guaranty
agreements, whereby the subsidiaries of HDSC guarantee HDSC's obligations under
the Credit Agreement, shall not be in full force or effect and enforceable under
the terms thereof; and (xiii) the obligations of HDSC cease to constitute senior
indebtedness under the subordination provisions of the subordinated guarantees
granted by HDSC and its subsidiaries in connection with the 1993 Notes. If any
such Event of Default occurs and is continuing, the administrative agent or the
holders of a majority of the commitments under the terms of the Revolving Credit
Facility may terminate the Revolving Credit Facility, declare the loans that are
outstanding to be forthwith due and payable, foreclose on the collateral, or
otherwise execute remedies available under the Credit Agreement and the Uniform
Commercial Code.
Based upon its current operating plan, HDSC does not expect to default on
or exceed any covenant limitation in its Credit Agreement. Actual results of
future operations, however, may vary from the expected results contained in its
operating plan. If HDSC were to default on any of its covenants, the lenders
under the Credit Agreement would have recourse to a number of remedies including
acceleration of amounts owed and foreclosure on collateral.
1993 NOTES
In connection with its emergence from bankruptcy in October 1993, the
Company entered into an indenture (the "1993 Note Indenture"), dated as of
October 1, 1993, with HDSC, as guarantor, and Fleet Bank of Massachusetts, N.A.,
as trustee, pursuant to which the Company has authorized for issuance $160.0
million of unsecured, redeemable 1993 Notes due October 1, 2003. An aggregate of
approximately $155.0 million in principal amount of 1993 Notes were redeemed on
or before May 20, 1996 in connection with the Redemption Offer. As of the date
hereof, an aggregate principal amount of $2.5 million of the 1993 Notes was
outstanding and an aggregate principal amount of $2.5 million of the 1993 Notes
remained subject to issuance in accordance with the Company's plan of
reorganization relating to its emergence from bankruptcy in October 1993. See
Note 8 to the consolidated financial statements included in the Form 10-K. All
of the outstanding 1993 Notes will be redeemed under the 1993 Note Indenture
pursuant to a mandatory redemption at a redemption price equal to 104% of
principal amount plus accrued interest. In addition, the Company will deposit
in trust with Fleet National Bank, as trustee under the 1993 Note Indenture,
funds for the
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redemption upon issuance, at a redemption price equal to 104% of principal
amount plus accrued interest, of the $2.5 million in principal amount of 1993
Notes remaining subject to issuance as of the date hereof. Upon the completion
of these and certain related actions, the 1993 Note Indenture shall cease to be
of further effect (except as to rights of registration of transfer or exchange
of 1993 Notes expressly provided for and rights to receive payments of principal
thereof and premium, if any, and interest thereon).
SERIES A NOTES
The terms of the Series A Notes are identical in all respects (including
principal amount, interest rate and maturity and the terms of the guarantees
thereof) to the terms of the Series B Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the Series A Notes are not freely
transferable by holders thereof. See "Description of Series B Notes."
CAPITAL LEASES
HDSC has entered into various capital leases, primarily for department
store properties. At May 4, 1996, obligations under these capital leases
totalled $117.1 million, net of the current portion of $5.7 million. HDSC's
minimum future lease commitments, including interest, under all capital leases
in effect at May 4, 1996 totalled $261.8 million, of which $14.1 million is
payable in fiscal 1996. None of HDSC's capital leases contains any limitation
upon its ability to pay dividends or distributions to the Company.
SALE/LEASEBACK FINANCINGS
During fiscal 1994, HDSC obtained $25.2 million of financing, which
includes transaction costs, for certain of its real properties through
sale/leaseback arrangements. All of the leases have terms of ten years. HDSC's
minimum rental commitments under the leases at May 4, 1996 totalled $41.5
million, of which $4.3 million is payable in fiscal 1996. The lease terms
include options to purchase some or all of the properties, either at the end of
the initial lease terms or renewal periods, for amounts not greater than the
then-current fair market values of the respective properties. See Note 10 to
the consolidated financial statements included in the Form 10-K.
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DESCRIPTION OF SERIES B NOTES
GENERAL
The Series B Notes will be issued as a separate series of notes pursuant to
the Indenture dated April 19, 1996 (the "Indenture") between the Company and
Fleet National Bank, as trustee (the "Trustee") pursuant to which the Series A
Notes have been issued by the Company. The terms of the Series B Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Series B
Notes are subject to all such terms, and holders of Series B Notes considering
whether to participate in the Exchange Offer are referred to the Indenture and
the Trust Indenture Act for a statement thereof. The following summary of
certain provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. Copies of the proposed form of
Indenture are available as set forth under "--Additional Information" below. The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions" below.
RANKING; SUBORDINATION OF GUARANTEES
The Series B Notes are general obligations of the Company and rank pari
passu in right of payment with all current and future senior Indebtedness of the
Company, including the Series A Notes. The Series B Notes will rank senior in
right of payment to all subordinated Indebtedness of the Company issued in the
future, if any. However, the Company and its Subsidiaries are parties to the
Revolving Credit Facility and all borrowings under the Revolving Credit
Facility are secured by a first priority Lien on substantially all of the
assets of the Company and its Subsidiaries. The Subsidiaries have guaranteed
the Company's obligations with respect to the Series B Notes, but the
obligations under such Guarantees are contractually subordinated to the prior
payment in full of all obligations under the Revolving Credit Facility and any
successor credit facility or facilities. See "Risk Factors--Holding Company
Structure; Limitations on Access to Cash Flow; Subordination of Series B
Guarantees."
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Series B Notes. Any
right of the Company to receive assets of any of its Subsidiaries upon a
Subsidiary's liquidation or reorganization will be effectively subordinated to
the claims of that Subsidiary's creditors, except to the extent that the Company
is itself recognized as a creditor of such Subsidiary, in which case the claims
of the Company would still be subordinate to any security in the assets of such
Subsidiary and any Indebtedness of such Subsidiary senior to that held by the
Company. In addition, the terms of the Revolving Credit Facility restrict the
ability of the Company to obtain access to the cash flow of its Subsidiaries.
See "Description of Other Indebtedness."
SERIES B GUARANTEES
The Company's payment obligations under the Series B Notes are jointly and
severally guaranteed (the "Series B Guarantees") by the Guarantors. The terms of
the Series B Guarantees will be identical to those of joint and several
guarantees of the Series A Notes (the "Series A Guarantees") issued by the
Guarantors. The Series B Guarantees will rank pari passu in right of payment
with all existing and future senior Indebtedness (as defined hereinafter) of the
Guarantors (including obligations under the Series A Guarantees), except that
the Series B Guarantees will be contractually subordinated to all of the
Guarantors' current and future obligations under the Revolving Credit Facility
(as defined hereinafter) and any successor credit facility ("Senior Debt"). As
of May 31, 1996, Senior Debt consisted of approximately $35.0 million in direct
borrowings outstanding under the Revolving Credit Facility. The obligations of
each Guarantor under its Series B Guarantee are limited so as not to constitute
a fraudulent conveyance under applicable law. See "Risk Factors--Fraudulent
Conveyance; Possible Invalidity of Series B Guarantees."
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person) another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions described in the following paragraph, the
Person formed by or surviving any such consolidation or merger (if other than
such Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Series B Notes and
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the Indenture, (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and (iii) the Company would be permitted by
virtue of its pro forma Fixed Charge Coverage Ratio, immediately after giving
effect to such transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant
described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock;" provided that clauses (ii) and
(iii) above do not apply with respect to a merger of one Guarantor with and into
another Guarantor.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Series B Guarantee; provided
that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "--Redemption at
Option of Holders--Asset Sales."
SUBORDINATION OF SERIES B GUARANTEES
The payment of principal of, and premium (if any), interest and Liquidated
Damages (if any) on, the Series B Notes pursuant to the Series B Guarantees will
be subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Debt of the Guarantors, whether outstanding on the
date of the Indenture or thereafter incurred.
Upon any distribution to creditors of any Guarantor in a liquidation or
dissolution of any Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to any Guarantor or its property, an
assignment for the benefit of creditors or any marshalling of any Guarantor's
assets and liabilities, the holders of Senior Debt of such Guarantor will be
entitled to receive payment in full of all Obligations due in respect of such
Senior Debt (including interest after the commencement of any such proceeding at
the rate specified in the applicable Senior Debt) before the Holders of Series B
Notes will be entitled to receive any payment with respect to any Series B
Guarantee, and until all Obligations with respect to all Senior Debt of such
Guarantor are paid in full, any distribution to which the Holders of Series B
Notes would be entitled shall be made to the holders of Senior Debt of such
Guarantor (except that Holders of Series B Notes may receive securities that are
subordinated at least to the same extent as the Series B Guarantees of the
Series B Notes to Senior Debt of such Guarantor and any securities issued in
exchange for Senior Debt of such Guarantor).
In addition, no Guarantor may make any payment upon or in respect of the
Series B Notes (except in such subordinated securities) if (i) a default in the
payment of the principal of, premium, if any, or interest on Senior Debt of such
Guarantor occurs and is continuing beyond any applicable period of grace or (ii)
any other default occurs and is continuing with respect to Senior Debt of such
Guarantor that permits holders of such Senior Debt to accelerate its maturity
and the Trustee receives a notice of such default (a "Payment Blockage Notice")
from such Guarantor or the holders of any Senior Debt of such Guarantor.
Payments in respect of any Series B Guarantee may and shall be resumed (a) in
the case of a payment default, upon the date on which such default is cured or
waived and (b) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity of any
Senior Debt of such Guarantor has been accelerated. No new period of payment
blockage may be commenced unless and until 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice unless such default shall have been cured or waived for
a period of not less than 90 days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt of the Guarantors if payment of the Series B Notes is accelerated
because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of any of the Guarantors, Holders of Series B
Notes may recover less ratably than creditors of the Company or the
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Guarantors who are holders of Senior Debt of such Guarantors. The principal
amount of Senior Debt of the Guarantors outstanding at May 31, 1996 was
approximately $35.0 million. The Indenture limits, subject to certain financial
tests, the amount of additional Indebtedness, including Senior Debt of the
Guarantors, that the Company and its Subsidiaries can incur. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
PRINCIPAL, MATURITY AND INTEREST
The Series A Notes and Series B Notes are collectively limited in aggregate
principal amount to $195,000,000 and will mature on July 1, 2003. Interest on
Series B Notes will accrue at the rate of 12 1/2% per annum and will be payable
semi-annually in arrears on January 1 and July 1, commencing on January 1, 1997,
to Holders of record on the immediately preceding December 15 and June 15.
Interest on Series B Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from July 1, 1996.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. Principal of, and premium (if any), interest and Liquidated
Damages (if any) on, the Series B Notes will be payable at the office or agency
of the Company maintained for such purpose in New York City or, at the option of
the Company, payment of interest and Liquidated Damages (if any) may be made by
check mailed to the Holders of the Series B Notes at their respective addresses
set forth in the register of Holders of Series B Notes; provided that all
payments with respect to Series B Notes the Holders of which have given wire
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency in New York City will be the office of the Trustee maintained for such
purpose. The Series B Notes will be issued in denominations of $1,000 and
integral multiples thereof.
OPTIONAL REDEMPTION
The Series B Notes will not be redeemable at the Company's option prior to
maturity.
MANDATORY REDEMPTION
Except as set forth below under "--Redemption at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Series B Notes.
REDEMPTION AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Series B Notes
will have the right to require the Company to redeem all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Series B Notes pursuant
to the offer described below (the "Change of Control Offer") at an offer price
in cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages (if any) thereon to the date of purchase
(the "Change of Control Payment"). Within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to redeem Series B Notes pursuant to the procedures required by the Indenture
and described in such notice. The Company will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the redemption of the Series B Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Series B Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Series
B Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Series B Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Series B Notes or portions
thereof being redeemed by the Company. The Paying Agent will promptly mail to
each Holder of Series B Notes so tendered the Change of Control Payment for such
Series B Notes, and the Trustee will promptly authenticate and mail (or cause to
be
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transferred by book entry) to each Holder a new Series B Note equal in principal
amount to any unredeemed portion of the Series B Notes surrendered, if any;
provided that each such new Series B Note will be in a principal amount of
$1,000 or an integral multiple thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Change of Control covenant provides that prior to redeeming the Series
B Notes in compliance with the terms thereof, but in any event within 60 days of
a Change of Control, the Company will either (i) repay in full all Indebtedness
under the Revolving Credit Facility and any successor credit facility or
facilities or (ii) obtain the requisite consents of the lenders party to the
Revolving Credit Facility and any successor credit facility or facilities to
permit the offer to redeem the Series B Notes required by the Change of Control
covenant.
The Change of Control provisions described above are applicable whether or
not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Series B Notes to require that the
Company repurchase or redeem the Series B Notes in the event of a takeover,
recapitalization or similar transaction.
The Revolving Credit Facility contains provisions limiting the ability of
the Company's Subsidiaries to pay dividends and successor facilities may contain
similar provisions. As a result, the Company may not be permitted by the terms
of the Revolving Credit Facility to obtain funds from its Subsidiaries in the
event of a Change of Control. The subordination provisions of the Series B
Guarantees will restrict payments by the Guarantors in respect of the Series B
Notes in certain circumstances. See "Risk Factors--Holding Company Structure;
Limitations on Access to Cash Flow; Subordination of Series B Guarantees."
Further, the exercise by the Holders of Series B Notes of their right to require
the Company to redeem Series B Notes could cause a default under the Revolving
Credit Facility. Finally, the Company's ability to pay cash to the Holders of
Series B Notes upon a repurchase may be limited by the Company's then existing
financial resources.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Series B Notes validly tendered and not withdrawn under such
Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), (ii) the filing by any "person" (as defined above) with the Commission of
a report under or in response to Schedule 13D or 14D-1 (or any successor
schedule, form or report) and the delivery of such report to the Company, which
report discloses that such "person" (as defined above) has become the beneficial
owner (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act) of more than 50% of the voting stock of the Company, or the Company
otherwise becomes aware that any "person" (as defined above) has become the
beneficial owner (as defined above) of more than 50% of the voting stock of the
Company, (iii) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors or (iv) the first day on
which the Company ceases to own 100% of the outstanding Equity Interests of
HDSC.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Series B Notes to require the
Company to repurchase such Series B Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for
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election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee, provided that such Officers' Certificate shall be delivered only in the
event of any Asset Sale involving $10 million or more of consideration) of the
assets or Equity Interests issued or sold or otherwise disposed of and (ii) at
least 85% of the consideration therefor received by the Company or such
Subsidiary is in the form of cash or Cash Equivalents; provided that the amount
of (x) any liabilities (as shown on the Company's or such Subsidiary's most
recent balance sheet), of the Company or any Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Senior
Notes or any guarantee thereof) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the Company or
such Subsidiary from further liability and (y) any notes or other obligations
received by the Company or any such Subsidiary from such transferee that are
immediately converted by the Company or such Subsidiary into cash (to the extent
of the cash received), shall be deemed to be cash for purposes of this
provision.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or the applicable Subsidiary may apply such Net Proceeds, at its
option, (a) to reduce Indebtedness under the Revolving Credit Facility, (b) to
permanently reduce Existing Indebtedness or (c) to the acquisition of a
controlling interest in another business, the making of a capital expenditure or
the acquisition of other long-term assets, in each case, in the same or a
similar line of business as the Company and its Subsidiaries were engaged in on
the date of such Asset Sale. Pending the final application of any such Net
Proceeds, the Company or the applicable Subsidiary may temporarily reduce
Indebtedness under the Revolving Credit Facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will
be required to make an offer to all Holders of Senior Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Senior Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages (if any) thereon to the date of purchase, in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
amount of Senior Notes tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company or the applicable Subsidiary may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Senior Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Senior Notes to be purchased on a
pro rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
The Revolving Credit Facility restricts the sale of substantial assets
outside of the ordinary course of business and restricts the ability of the
Company to obtain access to the cash flows of its Subsidiaries, including net
proceeds of Asset Sales. The subordination provisions of the Series B Guarantees
will restrict payments by the Guarantors in respect of the Series B Notes in
certain circumstances. As a result, the Company may not be able to elect to
offer to redeem Series B Notes with the Net Proceeds of an Asset Sale. See "Risk
Factors--Holding Company Structure; Limitations on Access to Cash Flow;
Subordination of Series B Guarantees."
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution to the holders of the Company's Equity
Interests in their capacity as such (including, without limitation, any payment
in connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of
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the Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent or other
Affiliate of the Company; (iii) make any principal payment on, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness that
is subordinated to the Series B Notes; or (iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company or the relevant Subsidiary would, at the time of such
Restricted Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described below under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indenture (excluding Restricted Payments permitted by clauses (x)
and (y) of the next succeeding paragraph), is less than the sum of (i) 50%
of the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of
the Company or of debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or convertible
debt securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost
of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) $5.0 million.
The foregoing provisions do not prohibit (w) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (x) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (y) the defeasance, redemption
or repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Debt or the substantially concurrent sale
(other than to a Subsidiary of the Company) of Equity Interests of the Company
(other than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; and (z) the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company or any Subsidiary of the
Company held by any member of the Company's (or any of its Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option agreement entered into in the ordinary course of business; provided that
the aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $750,000 in any twelve-month period plus, to
the extent not included in clause (c)(ii) of the immediately preceding
paragraph, the aggregate cash proceeds received by the Company during such
twelve- month period from any reissuance of Equity Interests by the Company to
members of management of the Company and its Subsidiaries; and no Default or
Event of Default shall have occurred and be continuing immediately after such
transaction.
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The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, which calculations may be
based upon the Company's latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company and any of its Subsidiaries may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if
the Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.5 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The foregoing provision does not apply to the incurrence of the following
Indebtedness:
(i) the incurrence by the Company and its Subsidiaries of Indebtedness
and letters of credit pursuant to the Revolving Credit Facility (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company and its Subsidiaries
thereunder); provided that the aggregate principal amount of all
Indebtedness outstanding under the Revolving Credit Facility does not
exceed the amount of the Borrowing Base as of any date of incurrence;
(ii) the incurrence by the Company and its Subsidiaries of Existing
Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Senior Notes;
(iv) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing or refinancing all or any part of the purchase price
or cost of construction or improvement of property, plant or equipment used
in the business of the Company or such Subsidiary (collectively, "Purchase
Money Debt"), in an aggregate principal amount at any time outstanding
(excluding Existing Indebtedness) not to exceed 10% of Total Assets;
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund,
Indebtedness (other than Indebtedness incurred pursuant to clause (i) of
this paragraph) that was permitted by the Indenture to be incurred;
(vi) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries; provided, however, that (i) if the Company is
the obligor of such Indebtedness, such Indebtedness is expressly
subordinate to the payment in full of all Obligations with respect to the
Senior Notes and (ii)(A) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person
other than the Company or a Wholly Owned Subsidiary and (B) any sale or
other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be;
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(vii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding;
(viii) Guarantees by the Guarantors of Indebtedness of the Company
permitted by the Indenture to be incurred;
(ix) the incurrence by the Company or any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $25.0 million;
(x) the incurrence by the Company or any of its Subsidiaries of
Indebtedness arising from Guarantees to suppliers, lessors, licensees,
contractors, franchisees or customers, in each case incurred in the
ordinary course of business;
(xi) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in respect of performance bonds provided in the ordinary
course of business, and refinancings thereof; and
(xii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in respect of standby letters of credit incurred in the
ordinary course of business.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, enter into any sale and leaseback transaction; provided
that the Company or any of its Subsidiaries may enter into a sale and leaseback
transaction if (i) the Company or the relevant Subsidiary could have incurred
Indebtedness in an amount equal to the Attributable Debt relating to such sale
and leaseback transaction either pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock" or
pursuant to subparagraph (iv) or (ix) of the covenants described above under
such caption, (ii) the total consideration received in such sale and leaseback
transaction is at least equal to the fair market value (as determined in good
faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee, provided that such Officers' Certificate shall be
delivered only in the event of any sale and leaseback transaction involving
consideration in excess of $10.0 million) of the property that is the subject of
such sale and leaseback transaction and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and the Company or the
applicable Subsidiary applies the proceeds of such transaction in compliance
with, the covenant described above under the caption "--Redemption at the Option
of Holders--Asset Sales."
Liens
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries, directly or indirectly, to create, incur, assume or suffer
to exist any Lien securing Indebtedness on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
No Senior Subordinated Debt of Guarantors
The Indenture provides that no Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to any other Indebtedness of such Guarantor and
senior in any respect in right of payment to any Series B Guarantee or any
Series A Guarantee.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
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ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the Revolving Credit Facility as in effect from time to time,
provided that such provisions are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Revolving
Credit Facility as in effect on the date of the Indenture, (c) the Indenture and
the Senior Notes, (d) applicable law, (e) any instrument governing Indebtedness
or Capital Stock of a Person acquired by the Company or any of its Subsidiaries
as in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (f) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, or (h) Permitted Refinancing Debt,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Debt are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
Additional Series A Guarantees and Series B Guarantees
The Indenture provides that if the Company shall, after the date of the
Indenture, create or acquire any new Subsidiary, then such newly created or
acquired Subsidiary shall execute a Series A Guarantee and a Series B Guarantee
and deliver an opinion of counsel in accordance with the terms of the Indenture.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Senior Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except in
the case of a merger of the Company with or into a Wholly Owned Subsidiary of
the Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee
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with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person and (ii) the Company delivers to the Trustee (a) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $3.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Company of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing experienced in the appraisal or
similar review of similar types of transactions (or if an opinion is unavailable
as to the fairness from a financial point of view of any transaction for which a
fairness opinion is not customarily rendered, then an opinion that such
transaction meets the requirements of clause (i) above); provided that (x) any
employment or consulting agreement entered into by the Company or any of its
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Subsidiary, (y) transactions between or among
the Company and/or its Subsidiaries and (z) Restricted Payments and Permitted
Investments that are permitted by the provisions of the Indenture described
above under the caption "--Restricted Payments," in each case, shall not be
deemed Affiliate Transactions.
Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Wholly Owned Subsidiary of the
Company to any Person (other than the Company or a Wholly Owned Subsidiary of
the Company), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Capital Stock of such Wholly Owned Subsidiary and (b)
the cash Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above under
the caption "--Asset Sales," and (ii) will not permit any Wholly Owned
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Subsidiary of
the Company. The Capital Stock of the Company's Wholly Owned Subsidiaries is
currently pledged as collateral under the Credit Agreement.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Series B Notes for or
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Series B Notes unless such consideration is
offered to be paid or is paid to all Holders of the Series B Notes that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Senior Notes are outstanding, the
Company will furnish to the Holders of Senior Notes (i) all quarterly and annual
financial information that would be required to be contained in filings with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to annual consolidated financial
statements and schedules only, a report thereon by the independent auditors of
the Company, and (ii) all information that would be required to be contained in
filings with the Commission on Form 8-K if the Company were required to file
such form. In addition, whether or not required by the rules and regulations of
the Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition, the Company has agreed
that, for so long as any Senior Notes remain outstanding, it will furnish to the
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Holders, and to securities analysts and prospective investors upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest or
Liquidated Damages on the Senior Notes; (ii) default in payment when due of the
principal of or premium, if any, on the Senior Notes; (iii) failure by the
Company to comply with the provisions described under the captions "--Asset
Sales," "--Restricted Payments" or "--Incurrence of Indebtedness and Issuance of
Preferred Stock;" (iv) failure by the Company for 60 days after notice to comply
with any of its other agreements in the Indenture or the Senior Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness
or guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $15.0 million or more; (vi) failure by the Company or
any of its Subsidiaries to pay final judgments aggregating in excess of $15.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vii) the Series A Guarantee or Series B Guarantee of any Guarantor is
held in a judicial proceeding to be unenforceable or invalid, the Series A
Guarantee or Series B Guarantee of any Guarantor that constitutes a Significant
Subsidiary ceases to be in full force and effect or any Guarantor disavows any
of its obligations under its Series A Guarantee or Series B Guarantee; and
(viii) certain events of bankruptcy or insolvency with respect to the Company
or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Senior Notes
may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Senior Notes will become
due and payable without further action or notice. Holders of the Senior Notes
may not enforce the Indenture or the Senior Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Senior Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Senior Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest or Liquidated Damages on, or the principal of, the
Senior Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Series B Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Series B Notes by
accepting a Series B Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Series B Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Senior Notes to
receive payments in respect of the principal of, and premium (if any), interest
and Liquidated Damages (if any) on, such Senior Notes when such payments are due
from the trust referred to below, (ii) the Company's obligations with respect to
the Senior Notes concerning issuing temporary Senior Notes, registration of
Senior Notes, mutilated, destroyed, lost or stolen Senior Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company and the
Guarantors released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Senior Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default and Remedies" will no
longer constitute an Event of Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, and premium (if any), interest and
Liquidated Damages (if any) on, the outstanding Senior Notes on the stated
maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the Senior Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Senior Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Senior Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the ninety-first day
after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will
not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the ninety-first day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Senior Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Senior Notes may be amended or supplemented with the consent of the Holders
of at least a majority in principal amount of the Senior Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or
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<PAGE> 47
exchange offer for, Senior Notes), and any existing default or compliance with
any provision of the Indenture or the Senior Notes may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
Senior Notes (including consents obtained in connection with a tender offer or
exchange offer for Senior Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non- consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Senior Note or alter the provisions with respect to the redemption of the
Senior Notes (other than provisions relating to the covenants described above
under the caption "--Redemption at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest or Liquidated Damages on or
with respect to any Senior Note, (iv) waive a Default or Event of Default in the
payment of principal of, or premium (if any), interest or Liquidated Damages (if
any) on, the Senior Notes (except a rescission of acceleration of the Senior
Notes by the Holders of at least a majority in aggregate principal amount of the
Senior Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Senior Note payable in money other than that stated
in the Senior Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Senior Notes to
receive payments of principal of, or premium (if any), interest or Liquidated
Damages (if any) on, the Senior Notes, (vii) waive a redemption payment with
respect to any Senior Note (other than a payment required by one of the
covenants described above under the caption "--Redemption at the Option of
Holders") or (viii) make any change in the foregoing amendment and waiver
provisions. Without the consent of the Holders of at least 66 2/3% in principal
amount of the Senior Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for Senior Notes), no waiver or
amendment to the Indenture may make any change in the provisions described above
under the captions "--Change of Control" and "--Assets Sales" that adversely
affect the rights of any Holder of Senior Notes.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Senior Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Senior Notes in addition to or in place of certificated Senior
Notes, to provide for the assumption of the Company's obligations to Holders of
Senior Notes in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the Holders of Senior Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, or to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it will be
required to eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Senior Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Senior Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture or
the Registration Rights Agreement without charge by writing to William K.
Friend, Vice President-Secretary and Corporate Counsel, Hills Stores Company, 15
Dan Road, Canton, Massachusetts, 02021.
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BOOK-ENTRY, DELIVERY AND FORM
All of the Series B Notes offered pursuant to the Exchange Offer will
initially be issued in the form of a fully registered global note (the "Global
Note"). The Global Note will be deposited with, or on behalf of, the Depositary
and registered in the name of Cede & Co., as nominee of the Depositary (such
nominee being referred to herein as the "Global Note Holder").
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, "Depositary
Participants") and to facilitate the clearance and settlement of transactions in
such securities between Depositary Participants through electronic book-entry
changes in accounts of Depositary Participants. Depositary Participants include
securities brokers and dealers, banks and trust companies, clearing corporations
and certain other organizations. Access to the Depositary's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, "Depositary Indirect Participants") that clear through or
maintain a custodial relationship with a Depositary Participant, either directly
or indirectly. Persons who are not Depositary Participants may beneficially own
securities held by or on behalf of the Depositary only thorough Depositary
Participants or Depositary Indirect Participants.
The Company expects that, pursuant to procedures established by the
Depositary, (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Depositary Participants with portions of the principal amount of the
Global Note and (ii) ownership of the Series B Notes evidenced by the Global
Note will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by the Depositary (with respect to the
interests of Depositary Participants), Depositary Participants and Depositary
Indirect Participants. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer Series B Notes evidenced by the Global Note will be
limited to such extent.
So long as the Global Note Holder is the registered owner of any Series B
Notes, the Global Note Holder will be considered the sole Holder under the
Indenture of any Series B Notes evidenced by the Global Note. Beneficial owners
of Series B Notes evidenced by the Global Note will not be considered the owners
or Holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records of the Depositary or for maintaining,
supervising or reviewing any records of the Depositary relating to the Series B
Notes.
Payments in respect of the principal of, and premium (if any), interest and
Liquidated Damages (if any) on, any Series B Notes registered in the name of the
Global Note Holder on the applicable record date will be payable by the Trustee
to or at the direction of the Global Note Holder in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names Series B Notes,
including the Global Note, are registered as the owners thereof for the purpose
of receiving such payments. Consequently, neither the Company nor the Trustee
has or will have any responsibility or liability for the payment of such amounts
to beneficial owners of Series B Notes. The Company believes, however, that it
is currently the policy of the Depositary to immediately credit the accounts of
the relevant Depositary Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by
Depositary Participants and Depositary Indirect Participants to the beneficial
owners of Series B Notes will be governed by standing instructions and customary
practice and will be the responsibility of Depositary Participants or Depositary
Indirect Participants.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Series B Notes in the form of a definitive registered certificate
("Certificated Securities"). Upon any such issuance, the Trustee is required to
register such Certificated Securities in the name of, and cause the same to be
delivered to, such person or persons (or the nominee of any thereof). In
addition, if (i) the Company notifies the Trustee in writing that the Depositary
is no longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Series B
Notes in the form of Certificated
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Securities under the Indenture, then, upon surrender by the Global Note Holder
of its Global Note, Series B Notes in such form will be issued to each person
that the Global Note Holder and the Depositary identify as being the beneficial
owner of the related Series B Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Series B Notes and the Company and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Series B Notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. With
respect to Certificated Securities, the Company will make all payments of
principal, premium (if any), interest and Liquidated Damages (if any) by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address. The Company expects that secondary trading in the
Certificated Securities will also be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale (other than sales of inventory), lease,
conveyance or other disposition of any assets (including, without limitation, by
way of a sale and leaseback) other than in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "Redemption at the Option of
Holders--Change of Control" and/or the provisions described above under the
caption "--Merger, Consolidation or Sale of Assets" and not by the provisions of
the Asset Sale covenant), and (ii) the issue or sale by the Company or any of
its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in
the case of either clause (i) or (ii), whether in a single transaction or a
series of related transactions (a) that have a fair market value in excess of
$2.5 million or (b) for net proceeds in excess of $2.5 million. Notwithstanding
the foregoing: (i) a transfer of assets by the Company to a Wholly Owned
Subsidiary or by a Wholly Owned Subsidiary to the Company or to another Wholly
Owned Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned
Subsidiary to the Company or to another Wholly Owned Subsidiary, and (iii) a
Restricted Payment that is permitted by the covenant described above under the
caption "Certain Covenants--Restricted Payments" will not be deemed to be Asset
Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP)
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of the obligation of the lessee for net rental payments during the remaining
term of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
75% of all accounts receivable of the Company and its Subsidiaries as of such
date that are not more than 45 days past due (including accounts receivable
relating to any layaway or similar plan), plus (ii) 75% of the book value of all
inventory owned by the Company and its Subsidiaries as of such date, in each
case calculated on a consolidated basis and in accordance with GAAP. To the
extent that information is not available as to the amount of accounts receivable
or inventory as of a specific date, the Company may utilize the most recent
available information for purposes of calculating the Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million and a Thomson Bank Watch Rating of
"B" or better, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within six months after the date of
acquisition.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
(a) an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income) or (b) the disposition of any securities or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries,
plus (ii) provision for taxes based on income or profits of such Person and its
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles) and other non-cash charges (excluding any such non-cash charge to
the extent that it represents an accrual of or reserve for cash charges in any
future period) of such Person and its Subsidiaries for such period to the extent
that such depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, plus (v) with respect to any quarter of
the Company ending on or prior to the date of the Indenture, all expenses shown
on the Company's income statement under the caption "Costs related to change of
control," in each case, on a consolidated basis and determined in accordance
with GAAP.
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"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof that is a Guarantor, (ii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded and (iii) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the Holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Senior Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Revolving Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated
interest expense of such Person and its Subsidiaries that was capitalized during
such period, and (iii) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Subsidiaries or secured by a
Lien on assets of such Person or one of its Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Subsidiary) on any series of preferred stock of such Person, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed
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Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions involving consideration in excess of $1.0 million that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (ii) of the
proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of on or prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each of (i) HDSC, HDS Transport, Inc., C.R.H.
International, Inc., Canton Advertising, Inc., Corporate Vision, Inc. and Hills
Distributing Company and (ii) any other Subsidiary of the Company that executes
a Series A Guarantee or Series B Guarantee in accordance with the provisions of
the Indenture, and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade or other payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of assets, Equity Interests or other securities by the Company
for consideration consisting of common equity securities of the Company shall
not be deemed to be an Investment. If the Company or any of its Subsidiaries
sells or otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a
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Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary gain (but not loss), together with any related provision
for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Subsidiary of the Company in a Person,
if as a result of such Investment (i) such Person becomes a Wholly Owned
Subsidiary of the Company or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of
the Company; (d) any Restricted Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Repurchase at
the Option of Holders--Asset Sales;" (e) any obligations or shares of Capital
Stock received in connection with or as a result of a bankruptcy, workout or
reorganization of the issuer of such obligations or shares of Capital Stock; (f)
any Investment received involuntarily; and (g) other Investments in any Person
(other than an Affiliate of the Company that is not also a Subsidiary of the
Company) having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (g)
that are at the time outstanding, not to exceed $10.0 million.
"Permitted Liens" means (i) Liens on assets of the Company or any of its
Subsidiaries securing Indebtedness under the Revolving Credit Facility that was
permitted by the terms of the Indenture to be incurred; (ii) Liens securing
Existing Indebtedness; (iii) Liens in favor of the Company or any of its
Subsidiaries; (iv) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Subsidiary of the
Company; provided that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with the Company or any Subsidiary of
the Company; (v) Liens on property existing at the time of acquisition thereof
by the Company or any Subsidiary of the Company, provided that such Liens were
in existence prior to the contemplation of such acquisition and do not extend to
any assets other than those so acquired by the Company or any Subsidiary of the
Company; (vi) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature and
mechanics', carriers', warehousemen's, materialmen's and vendors' Liens, in each
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case incurred in the ordinary course of business; (vii) Liens to secure Purchase
Money Debt permitted to be incurred by any provision of the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the
assets constructed, improved upon or acquired with such Indebtedness and only to
the extent that such Liens attach to the assets so constructed, improved upon or
acquired within 180 days of construction, improvement or acquisition or, in the
case of refinanced property, within 180 days of refinancing; (viii) Liens
existing on the date of the Indenture; (ix) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (x)
Liens on manufactured products as security for any drafts or bills of exchange
drawn in connection with the importation of such product in the ordinary course
of business and Liens incurred in connection with agreements with customs
brokers in the ordinary course of business; (xi) Liens representing interests of
retail buyers in layaway goods being sold in the ordinary course of business;
(xii) Liens in favor of credit card processing companies in the ordinary course
of business; (xiii) leases, subleases and license agreements arising in the
ordinary course of business and not otherwise prohibited by the Indenture and
(xiv) Liens incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not exceed $5.0
million at any one time outstanding.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of the Company or any of its Subsidiaries; provided that: (i) the principal
amount (or accreted value, if applicable), of such Permitted Refinancing Debt
does not exceed the principal amount (or accreted value, if applicable), of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable premiums and expenses incurred in connection
therewith); (ii) such Permitted Refinancing Debt has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Senior
Notes, such Permitted Refinancing Debt has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Senior
Notes on terms at least as favorable to the Holders of Senior Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Revolving Credit Facility" means, for purposes of this "Description of
Senior Notes," that certain Credit Agreement, dated as of August 21, 1995, among
the Company, HDSC, the lenders named therein and Chemical Bank, as
administrative agent and as fronting bank, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith and, in each case, any amendment thereof, restatement
thereof, supplement thereto or other modification thereof or any superseding or
other replacement credit agreement or agreements entered into from time to time,
including any credit agreement or agreements extending the maturity of,
refinancing, modifying, increasing, substituting for or otherwise restructuring
(including the addition of one or more Subsidiaries as borrowers thereunder or
the inclusion of additional or substitute lenders or agents thereunder) all or
any portion of the Indebtedness, including changing the borrowing limits, under
any such agreement or any successor or replacement credit agreement or
agreements.
"Senior Debt" means, with respect to any Guarantor, all borrowings by such
Guarantor under the Revolving Credit Facility or any successor credit facility
or facilities. Notwithstanding the foregoing, Senior Debt will not include trade
payables or any Indebtedness that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
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"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Total Assets" means, as of any date, the Company's total consolidated
assets as of such date, as determined in accordance with GAAP.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
It is the opinion of Foley, Hoag & Eliot, counsel to the Company, that the
material federal income tax consequences to holders whose Series A Notes are
exchanged for Series B Notes in the Exchange Offer are as described herein,
subject to the limitations and qualifications set forth below. Because the
Series B Notes should not be considered to differ materially either in kind or
in extent from the Series A Notes, the exchange of the Series B Notes for the
Series A Notes pursuant to the Exchange Offer should not be treated as an
"exchange" for federal income tax purposes pursuant to Section 1001 of the
Internal Revenue Code of 1986, as amended (the "Code"), and proposed Treasury
Regulation Section 1.1001-3. As a result, no material federal income tax
consequences should result to holders exchanging Series A Notes for Series B
Notes. If, however, the exchange of Series A Notes for Series B Notes were
treated as a taxable event, such transaction should constitute a
recapitalization for federal income tax purposes and holders should not
recognize any gain or loss upon such exchange.
The foregoing opinion is based upon the current provisions of the Code,
applicable existing and proposed Treasury Regulations promulgated thereunder,
judicial authority and current administrative rulings and practice. There can be
no assurance that the final Treasury Regulations will not differ materially from
those which are presently proposed nor that the Internal Revenue Service will
not take a contrary view. No ruling from the Internal Revenue Service has been
or will be sought. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements or
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to holders. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and individuals who are not
citizens or residents of the United States) may be subject to special rules not
discussed herein. AS A RESULT, EACH HOLDER OF SERIES A NOTES SHOULD CONSULT HIS
OR HER OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF
EXCHANGING HIS OR HER SERIES A NOTES FOR SERIES B NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with the resales of Series B Notes received in
exchange for Series A Notes acquired by such broker-dealer as a result of
market-making or other trading activities. The Company has agreed that for a
period of one year from the date of this Prospectus, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
The Company will not receive any proceeds from any sale of Series B Notes
by broker-dealers or any other persons. Series B Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Series B Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such Series
B Notes. Any broker-dealer that resells Series B Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Series B Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of Series B Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The Company and the Guarantors have agreed to pay all expenses incident to
the Company's performance of, or compliance with, the Registration Rights
Agreement and will indemnify the holders and certain parties related to the
holders against certain liabilities, including liabilities under the Securities
Act.
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LEGAL MATTERS
Legal matters in connection with the issuance of the Series B Notes will be
passed upon for the Company by Foley, Hoag & Eliot, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company at February 3, 1996
and for the fifty-three weeks then ended incorporated in this Prospectus by
reference to the Form 10-K have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report with respect thereto, and are so
incorporated herein in reliance upon such reports given upon the authority of
that firm as experts in accounting and auditing. The consolidated financial
statements of the Company at January 28, 1995 and for the year then ended, the
seventeen weeks ended January 29, 1994 and the thirty-five weeks ended October
2, 1993, incorporated in this Prospectus by reference to the Form 10-K have been
audited by Coopers & Lybrand L.L.P., independent auditors and are so
incorporated herein in reliance upon the authority of that firm as experts in
accounting and auditing.
As previously reported by the Company in the Current Report on Form 8-K
dated November 8, 1995, Deloitte & Touche LLP have replaced Coopers & Lybrand
L.L.P. ("Coopers & Lybrand") as the Company's auditors. The Company has agreed
to hold Coopers & Lybrand harmless against legal costs and expenses incurred in
a successful defense of a legal action or proceeding related to the inclusion of
its report in this registration statement, whereby Coopers & Lybrand is not
found culpable nor pays any part of the Plaintiff's damages, legal costs and
expenses as a result of a judgment or a settlement of a claim against it. The
Company has deposited a total of $500,000 in escrow to fund payments under this
indemnification arrangement. In addition, the Company and the affiliates of
Dickstein Partners who own shares of the Company's common stock have released
Coopers & Lybrand from any and all claims, demands and liabilities whatsoever on
account of professional services that Coopers & Lybrand performed, as
independent auditors, for either of or both of Hills Stores Company and Hills
Department Store Company through November 8, 1995. The Company has further
agreed to reimburse Coopers & Lybrand for its professional time and expenses,
including reasonable attorney's fees, incurred in responding to subpoena or
other legal process to produce its documents relating to the Company in a legal
action or proceeding in which Coopers & Lybrand is not a party.
54
<PAGE> 58
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL IN CONNECTION WITH THE OFFER MADE IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR
WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SERIES A NOTES
IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD
NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE OR SALE MADE HEREUNDER, SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
-----------------
TABLE OF CONTENTS
-----------------
Page
----
Available Information ..................................................... 2
Information Incorporated by Reference ..................................... 2
Prospectus Summary ........................................................ 3
Risk Factors .............................................................. 10
The Company ............................................................... 15
Recent Events ............................................................. 15
Use of Proceeds ........................................................... 15
Capitalization ............................................................ 16
Selected Consolidated Financial and Operating Data ........................ 17
The Exchange Offer ........................................................ 19
Description of Other Indebtedness ......................................... 27
Description of Series B Notes ............................................. 31
Certain Federal Income Tax Considerations ................................. 51
Plan of Distribution ...................................................... 52
Legal Matters ............................................................. 52
Experts ................................................................... 52
================================================================================
================================================================================
HILLS STORES COMPANY
OFFER TO EXCHANGE
12 1/2% SENIOR NOTES DUE 2003, SERIES B
FOR
12 1/2% SENIOR NOTES DUE 2003
----------
PROSPECTUS
----------
, 1996
================================================================================
<PAGE> 59
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law affords a Delaware
corporation the power to indemnify its present and former directors and officers
under certain conditions. Article Seventh of the Company's Amended and Restated
Certificate of Incorporation provides that the Company shall indemnify each
person, who, at any time, is, or shall have been, a director or officer of the
Company and was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any such action, suit or proceeding, to
the maximum extent permitted by the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended.
Section 102(b)(7) of the Delaware General Corporation Law gives a Delaware
corporation the power to adopt a charter provision eliminating or limiting the
personal liability of the directors to the corporation or its stockholders
provided that such provision may not eliminate or limit the liability of
directors for (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) any acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) any
payment of a dividend or approval of a stock purchase that is illegal under
Section 174 of the Delaware Corporation Law, or (iv) any transaction from which
the director derived an improper personal benefit. Article Ninth of the
Company's Amended and Restated Certificate of Incorporation provides that no
director of the Company shall be personally liable to the Company or to any of
its stockholders for monetary damages arising out of such director's breach of
fiduciary duty as a director of the Company, except to the extent that the
elimination or limitation of such liability is not permitted by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter be
amended.
The effect of these provisions would be to permit indemnification by the
Company for, among other liabilities, liabilities arising out of the Securities
Act of 1933, as amended.
Section 145 of the Delaware General Corporation Law also affords a Delaware
corporation the power to obtain insurance on behalf of its directors and
officers against liabilities incurred by them in those capacities. The Company
has procured a directors' and officers' liability and company reimbursement
liability insurance policy that (a) insures directors and officers of the
Company against losses (above a deductible amount) arising from certain claims
made against them by reason of certain acts done or attempted by such directors
and officers and (b) insures the Company against losses (above a deductible
amount) arising from any such claims, but only if the Company is required or
permitted to indemnify such directors or officers for such losses under
statutory or common law or under provisions of the Company's Certificate of
Incorporation or By-Laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. Certain of the exhibits listed hereunder have previously been
filed with the Commission as exhibits to certain registration statements and
periodic reports set forth in the footnotes following this exhibit list and are
hereby incorporated by reference pursuant to Rule 411 promulgated under the
Securities Act and Rule 24 of the Commission's Rules of Practice. The location
of such document, so incorporated by reference, is indicated by footnote (the
number in parentheses).
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.1(1) Amended and Restated Certificate of Incorporation of Hills
Stores Company.
1.2(2) Amended and Restated By-Laws of Hills Stores Company.
1.3* Certificate of Incorporation of Hills Department Store Company.
1.4* By-Laws of Hills Department Store Company.
II-1
<PAGE> 60
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.5* Articles of Organization of Canton Advertising, Inc.
1.6* By Laws of Canton Advertising, Inc.
1.7* Articles of Organization of Corporate Vision, Inc.
1.8* By Laws of Corporate Vision, Inc.
1.9* Articles of Incorporation of C.R.H. International, Inc.
1.10* By-Laws of C.R.H. International, Inc.
1.11* Articles of Incorporation of HDS Transport, Inc.
1.12* Code of Regulations of HDS Transport, Inc.
1.13* Certificate of Incorporation of Hills Distributing Company.
1.14* By-Laws of Hills Distributing Company.
4.1* Indenture dated as of April 19, 1996 among Hills Stores Company,
as issuer, Hills Department Store Company, C.R.H. International,
Inc., Canton Advertising, Inc., Corporate Vision, Inc., HDS
Transport, Inc. and Hills Distributing Company, as guarantors,
and Fleet National Bank, as trustee, relating to the 12 1/2%
Senior Notes due 2003 of the Hills Stores Company (including
form of note).
4.2* Registration Rights Agreement, dated as of April 19, 1996, by
and among Hills Stores Company, Hills Department Store Company,
C.R.H. International, Inc., Canton Advertising, Inc., Corporate
Vision, Inc., HDS Transport, Inc., Hills Distributing Company
and Lehman Brothers Inc.
4.3* Purchase Agreement, dated April 17, 1996 by and among Hills
Stores Company, Hills Department Store Company, HDS Transport,
Inc., C.R.H. International, Inc., Canton Advertising, Inc.,
Corporate Vision, Inc., Hills Distributing Company and Lehman
Brothers Inc.
5.1* Opinion of Foley, Hoag & Eliot.
12.1* Statement re computation of ratio of earnings to fixed charges.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3* Consent of Foley, Hoag & Eliot (included in opinion filed as
Exhibit 5.1).
24.1 Powers of Attorney of directors and officers of Hills Stores
Company (included on signature page at page II-5).
24.2 Powers of Attorney of directors and officers of Hills Department
Store Company (included on signature page at page II-7).
24.3 Powers of Attorney of directors and officers of Canton
Advertising, Inc. (included on signature page at page II-9).
II-2
<PAGE> 61
EXHIBIT NO. DESCRIPTION
- ----------- -----------
24.4 Powers of Attorney of directors and officers of Corporate
Vision, Inc. (included on signature page at page II-10).
24.5 Powers of Attorney of directors and officers of C.R.H.
International, Inc. (included on signature page at page II- 11).
24.6 Powers of Attorney of directors and officers of HDS Transport,
Inc. (included on signature page at page II-12).
24.7 Powers of Attorney of directors and officers of Hills
Distributing Company (included on signature page at page II-
13).
25* Statement of Eligibility of Fleet National Bank, as trustee.
27(3) Financial Data Schedule.
99.1(4) Indenture dated October 4, 1993 among Hills Stores Company, as
issuer, Hills Department Store Company, as guarantor, and Fleet
National Bank, as trustee, governing 10.25% Senior Notes due
2003 of Hills Stores Company (including form of note).
99.2(5) First Supplemental Indenture dated as of January 1, 1995 to
Indenture included as Exhibit 99.1.
99.3(5) Second Supplemental Indenture dated as of August 1, 1995 to
Indenture included as Exhibit 99.1.
99.4(6) Third Supplemental Indenture dated as of January 15, 1996 to
Indenture included as Exhibit 99.1.
- ---------
* To be filed by amendment.
(1) Incorporated by reference from the Annual Report on Form 10-K of the
Company for the fiscal year ended January 28, 1995.
(2) Incorporated by reference from the Current Report on Form 8-K of the
Company dated January 18, 1996.
(3) Incorporated by reference from the Annual Report on Form 10-K of the
Company for the fiscal year ended February 3, 1996.
(4) Incorporated by reference from the Form 8-A of the Company filed on
October 5, 1993.
(5) Incorporated by reference from the Quarterly Report on Form 10-Q of the
Company for the quarter ended July 29, 1995.
(6) Incorporated by reference from the Current Report on Form 8-K of the
Company January 15, 1996.
(b) Financial Statement Schedules.
Incorporated by reference from the Annual Report on Form 10-K of the
Company for the fiscal year ended February 3, 1996.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required to Section 10(a)(3) of
the Securities Act of 1933;
II-3
<PAGE> 62
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the charges in volume and price represent no more than 20
percent charge in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration, by means of a post-effective
amendment, any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became
effective.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Hills Stores
Company, one of the Registrants, has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
Town of Canton, Commonwealth of Massachusetts, on May 30, 1996.
HILLS STORES COMPANY
By: /s/ Gregory K. Raven
_____________________________________
Gregory K. Raven
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Gregory K. Raven,
C. Scott Litten and William K. Friend and each of them severally, acting alone
and without the other, his true and lawful attorney-in-fact with the authority
to execute in the name of each such person, and to file with the Securities and
Exchange Commission, together with any exhibits thereto and other documents
therewith, any and all amendments (including without limitation post-effective
amendments) to this registration statement necessary or advisable to enable
Hills Stores Company, one of the registrants, to comply with the Securities Act
of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, with amendments may make
such other changes in the registration statement as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
CHAIM Y. EDELSTEIN
_________________________________ Chairman of the Board May 30, 1996
CHAIM Y. EDELSTEIN
GREGORY K. RAVEN
_________________________________ Director, President and Chief May 30, 1996
GREGORY K. RAVEN Executive Officer
(Principal Executive Officer)
C. SCOTT LITTEN
_________________________________ Chief Financial Officer May 30, 1996
C. SCOTT LITTEN (Principal Financial Officer)
KIM D. AHLHOLM
_________________________________ Vice President-Controller May 30, 1996
KIM D. AHLHOLM (Principal Accounting Officer)
MARK B. DICKSTEIN
_________________________________ Director May 30, 1996
MARK B. DICKSTEIN
STANTON J. BLUESTONE
_________________________________ Director May 30, 1996
STANTON J. BLUESTONE
II-5
<PAGE> 64
SAMUEL L. KATZ
_________________________________ Director May 30, 1996
SAMUEL L. KATZ
JOHN W. BURDEN III
_________________________________ Director May 30, 1996
JOHN W. BURDEN III
ALAN S. COOPER
_________________________________ Director May 30, 1996
ALAN S. COOPER
II-6
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Hills
Department Store Company, one of the Registrants, has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Town of Canton, Commonwealth of Massachusetts, on May
30, 1996.
HILLS DEPARTMENT STORE COMPANY
/s/ Gregory K. Raven
By:________________________________________
Gregory K. Raven
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Gregory K. Raven,
C. Scott Litten and William K. Friend and each of them severally, acting alone
and without the other, his true and lawful attorney-in-fact with the authority
to execute in the name of each such person, and to file with the Securities and
Exchange Commission, together with any exhibits thereto and other documents
therewith, any and all amendments (including without limitation post-effective
amendments) to this registration statement necessary or advisable to enable
Hills Department Store Company, one of the registrants, to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, with amendments
may make such other changes in the registration statement as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
CHAIM Y. EDELSTEIN
_________________________________ Chairman of the Board May 30, 1996
CHAIM Y. EDELSTEIN
GREGORY K. RAVEN
_________________________________ Director, President and Chief May 30, 1996
GREGORY K. RAVEN Executive Officer
(Principal Executive Officer)
C. SCOTT LITTEN
_________________________________ Chief Financial Officer May 30, 1996
C. SCOTT LITTEN (Principal Financial Officer)
KIM D. AHLHOLM
_________________________________ Vice President-Controller May 30, 1996
KIM D. AHLHOLM (Principal Accounting Officer)
MARK B. DICKSTEIN
_________________________________ Director May 30, 1996
MARK B. DICKSTEIN
II-7
<PAGE> 66
STANTON J. BLUESTONE
_________________________________ Director May 30, 1996
STANTON J. BLUESTONE
SAMUEL L. KATZ
_________________________________ Director May 30, 1996
SAMUEL L. KATZ
JOHN W. BURDEN III
_________________________________ Director May 30, 1996
JOHN W. BURDEN III
ALAN S. COOPER
_________________________________ Director May 30, 1996
ALAN S. COOPER
II-8
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Canton
Advertising, Inc., one of the Registrants, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Canton, Commonwealth of Massachusetts, on May 30,
1996.
CANTON ADVERTISING, INC.
/s/ Gregory K. Raven
By:________________________________________
Gregory K. Raven
President
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Gregory K. Raven
and William K. Friend and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with the authority to execute in the
name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including without limitation post-effective amendments)
to this registration statement necessary or advisable to enable Canton
Advertising, Inc., one of the registrants, to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, with amendments may make such other
changes in the registration statement as the aforesaid attorney-in-fact
executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
GREGORY K. RAVEN
______________________________ Director and President May 30, 1996
GREGORY K. RAVEN (Principal Executive Officer and
Principal Financial Officer)
WILLIAM K. FRIEND
______________________________ Director and May 30, 1996
WILLIAM K. FRIEND Vice President-Secretary/Clerk
KIM D. AHLHOLM
______________________________ Vice President-Controller May 30, 1996
KIM D. AHLHOLM (Principal Accounting Officer)
II-9
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Corporate
Vision, Inc., one of the Registrants, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Canton, Commonwealth of Massachusetts, on May 30,
1996.
CORPORATE VISION, INC.
By: /s/ GREGORY K. RAVEN
________________________________________
Gregory K. Raven
President
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Gregory K. Raven
and William K. Friend and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with the authority to execute in the
name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including without limitation post-effective amendments)
to this registration statement necessary or advisable to enable Corporate
Vision, Inc., one of the registrants, to comply with the Securities Act of 1933,
as amended, and any rules, regulations and requirements of the Securities and
Exchange Commission in respect thereof, with amendments may make such other
changes in the registration statement as the aforesaid attorney-in-fact
executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GREGOY L. RAVEN Director and President May 30, 1996
______________________________ (Principal Executive Officer and
GREGORY K. RAVEN Principal Financial Officer)
/s/ WILLIAM K. FRIEND Director and May 30, 1996
______________________________ Vice President-Secretary/Clerk
WILLIAM K. FRIEND
/s/ KIM D. AHLHOLM Vice President-Controller May 30, 1996
______________________________ (Principal Accounting Officer)
KIM D. AHLHOLM
II-10
<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, C.R.H.
International, Inc., one of the Registrants, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Canton, Commonwealth of Massachusetts, on May 30,
1996.
C.R.H. INTERNATIONAL, INC.
By: /s/ Gregory K. Raven
________________________________________
Gregory K. Raven
President
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Gregory K. Raven
and William K. Friend and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with the authority to execute in the
name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including without limitation post-effective amendments)
to this registration statement necessary or advisable to enable C.R.H.
International, Inc., one of the registrants, to comply with the Securities Act
of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, with amendments may make
such other changes in the registration statement as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gregory K. Raven
______________________________ Director and President May 30, 1996
GREGORY K. RAVEN (Principal Executive Officer and
Principal Financial Officer)
/s/ William K. Friend
______________________________ Director and May 30, 1996
WILLIAM K. FRIEND Vice President-Secretary/Clerk
/s/ Kim D. Ahlholm
______________________________ Vice President-Controller May 30, 1996
KIM D. AHLHOLM (Principal Accounting Officer)
II-11
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, HDS Transport,
Inc., one of the Registrants, has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the Town
of Canton, Commonwealth of Massachusetts, on May 30, 1996.
HDS TRANSPORT, INC.
By: /s/ Gregory K. Raven
________________________________________
Gregory K. Raven
President
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Gregory K. Raven
and William K. Friend and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with the authority to execute in the
name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including without limitation post-effective amendments)
to this registration statement necessary or advisable to enable HDS Transport,
Inc., one of the registrants, to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission in respect thereof, with amendments may make such other
changes in the registration statement as the aforesaid attorney-in-fact
executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gregory K. Raven
______________________________ Director and President May 30, 1996
GREGORY K. RAVEN (Principal Executive Officer and
Principal Financial Officer)
/s/ William K. Friend
______________________________ Director and May 30, 1996
WILLIAM K. FRIEND Vice President-Secretary/Clerk
/s/ Kim D. Ahlholm
______________________________ Vice President-Controller May 30, 1996
KIM D. AHLHOLM (Principal Accounting Officer)
II-12
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Hills
Distributing Company, one of the Registrants, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Canton, Commonwealth of Massachusetts, on May 30,
1996.
HILLS DISTRIBUTING COMPANY
By: /s/ GREGORY K. RAVEN
________________________________________
Gregory K. Raven
President
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Gregory K. Raven
and William K. Friend and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with the authority to execute in the
name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including without limitation post-effective amendments)
to this registration statement necessary or advisable to enable Hills
Distributing Company, one of the registrants, to comply with the Securities Act
of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, with amendments may make
such other changes in the registration statement as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GREGORY K. RAVEN Director and President May 30, 1996
- --------------------------- (Principal Executive Officer and
GREGORY K. RAVEN Principal Financial Officer)
/s/ WILLIAM K. FRIEND Director and May 30, 1996
- --------------------------- Vice President-Secretary/Clerk
WILLIAM K. FRIEND
/s/ KIM D. AHLHOLM Vice President-Controller May 30, 1996
- --------------------------- (Principal Accounting Officer)
KIM D. AHLHOLM
II-13
<PAGE> 72
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.5* Articles of Organization of Canton Advertising, Inc.
1.6* By Laws of Canton Advertising, Inc.
1.7* Articles of Organization of Corporate Vision, Inc.
1.8* By Laws of Corporate Vision, Inc.
1.9* Articles of Incorporation of C.R.H. International, Inc.
1.10* By-Laws of C.R.H. International, Inc.
1.11* Articles of Incorporation of HDS Transport, Inc.
1.12* Code of Regulations of HDS Transport, Inc.
1.13* Certificate of Incorporation of Hills Distributing Company.
1.14* By-Laws of Hills Distributing Company.
4.1* Indenture dated as of April 19, 1996 among Hills Stores Company,
as issuer, Hills Department Store Company, C.R.H. International,
Inc., Canton Advertising, Inc., Corporate Vision, Inc., HDS
Transport, Inc. and Hills Distributing Company, as guarantors,
and Fleet National Bank, as trustee, relating to the 12 1/2%
Senior Notes due 2003 of the Hills Stores Company (including
form of note).
4.2* Registration Rights Agreement, dated as of April 19, 1996, by
and among Hills Stores Company, Hills Department Store Company,
C.R.H. International, Inc., Canton Advertising, Inc., Corporate
Vision, Inc., HDS Transport, Inc., Hills Distributing Company
and Lehman Brothers Inc.
4.3* Purchase Agreement, dated April 17, 1996 by and among Hills
Stores Company, Hills Department Store Company, HDS Transport,
Inc., C.R.H. International, Inc., Canton Advertising, Inc.,
Corporate Vision, Inc., Hills Distributing Company and Lehman
Brothers Inc.
5.1* Opinion of Foley, Hoag & Eliot.
12.1* Statement re computation of ratio of earnings to fixed charges.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3* Consent of Foley, Hoag & Eliot (included in opinion filed as
Exhibit 5.1).
24.1 Powers of Attorney of directors and officers of Hills Stores
Company (included on signature page at page II-5).
24.2 Powers of Attorney of directors and officers of Hills Department
Store Company (included on signature page at page II-7).
24.3 Powers of Attorney of directors and officers of Canton
Advertising, Inc. (included on signature page at page II-9).
<PAGE> 73
EXHIBIT NO. DESCRIPTION
- ----------- -----------
24.4 Powers of Attorney of directors and officers of Corporate
Vision, Inc. (included on signature page at page II-10).
24.5 Powers of Attorney of directors and officers of C.R.H.
International, Inc. (included on signature page at page II- 11).
24.6 Powers of Attorney of directors and officers of HDS Transport,
Inc. (included on signature page at page II-12).
24.7 Powers of Attorney of directors and officers of Hills
Distributing Company (included on signature page at page II-
13).
25* Statement of Eligibility of Fleet National Bank, as trustee.
27(3) Financial Data Schedule.
99.1(4) Indenture dated October 4, 1993 among Hills Stores Company, as
issuer, Hills Department Store Company, as guarantor, and Fleet
National Bank, as trustee, governing 10.25% Senior Notes due
2003 of Hills Stores Company (including form of note).
99.2(5) First Supplemental Indenture dated as of January 1, 1995 to
Indenture included as Exhibit 99.1.
99.3(5) Second Supplemental Indenture dated as of August 1, 1995 to
Indenture included as Exhibit 99.1.
99.4(6) Third Supplemental Indenture dated as of January 15, 1996 to
Indenture included as Exhibit 99.1.
- ---------
* To be filed by amendment.
(1) Incorporated by reference from the Annual Report on Form 10-K of the
Company for the fiscal year ended January 28, 1995.
(2) Incorporated by reference from the Current Report on Form 8-K of the
Company dated January 18, 1996.
(3) Incorporated by reference from the Annual Report on Form 10-K of the
Company for the fiscal year ended February 3, 1996.
(4) Incorporated by reference from the Form 8-A of the Company filed on
October 5, 1993.
(5) Incorporated by reference from the Quarterly Report on Form 10-Q of the
Company for the quarter ended July 29, 1995.
(6) Incorporated by reference from the Current Report on Form 8-K of the
Company January 15, 1996.
<PAGE> 1
EXHIBIT 23.1
------------
INDEPENDENT AUDITOR'S CONSENT
-----------------------------
We consent to the incorporation by reference in this Registration Statement
of Hills Stores Company, Hills Department Store Company, Canton Advertising,
Inc., Corporate Vision, Inc., C.R.H. International, Inc., HDS Transport, Inc.
and Hills Distributing Company on Form S-4 of our reports dated March 14, 1996
(April 5, 1996 with respect to the fifth paragraph of Note 8), included in the
Annual Report on Form 10-K of Hills Stores Company for the year ended February
3, 1996 and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE L.L.P.
Boston, Massachusetts
May 30, 1996
<PAGE> 1
EXHIBIT 23.2
------------
INDEPENDENT ACCOUNTANT'S CONSENT
We consent to the incorporation by reference in the registration statement
of Hills Stores Company, Hills Department Store Company, Canton Advertising,
Inc., Corporate Vision, Inc., C.R.H. International, Inc., HDS Transport, Inc.
and Hills Distributing Company on Form S-4 (File no. 333- ) of our report
dated March 10, 1995 on our audits of the Consolidated Financial Statements and
Financial Statement Schedules of Hills Stores Company as of January 28, 1995 and
January 29, 1994 and for the year ended January 28, 1995, the seventeen week
period ended January 29, 1994 and the thirty-five week period ended October 2,
1993, which report is included in the Hills Stores Company Annual Report on
Form 10-K for the year ended February 3, 1996. We also consent to the reference
to our firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 30, 1996
