-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, lPGsE09kvHf/4/4Jkgr7kgKY5sWxH2IOhb5npOXeHJIMVRpv/HF3cOGTftq+yTJA cKFmvMqxsygZC5EQUDzCkQ== 0000912057-95-004279.txt : 19950531 0000912057-95-004279.hdr.sgml : 19950531 ACCESSION NUMBER: 0000912057-95-004279 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950128 FILED AS OF DATE: 19950530 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILLS STORES CO /DE/ CENTRAL INDEX KEY: 0000786877 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 311153510 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09505 FILM NUMBER: 95543443 BUSINESS ADDRESS: STREET 1: 15 DAN RD CITY: CANTON STATE: MA ZIP: 02021 BUSINESS PHONE: 6178211000 MAIL ADDRESS: STREET 1: 15 DAN ROAD CITY: CANTON STATE: MA ZIP: 02021 FORMER COMPANY: FORMER CONFORMED NAME: HILLS STORES CO /NEW/ DATE OF NAME CHANGE: 19931103 FORMER COMPANY: FORMER CONFORMED NAME: HILLS STORES CO /NEW/ DATE OF NAME CHANGE: 19931015 FORMER COMPANY: FORMER CONFORMED NAME: THL HOLDINGS INC DATE OF NAME CHANGE: 19870506 10-K/A 1 10-K/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORM 10-K/A AMENDMENT NO. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 28, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-9505 HILLS STORES COMPANY (Exact name of registrant as specified in its charter) DELAWARE 31-1153510 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 15 DAN ROAD, CANTON, MASSACHUSETTS 02021 (Address of principal executive (Zip Code) offices)
Registrant's telephone number, including area code: (617) 821-1000 ------------------------ Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED Common Stock, Par Value $0.01 per share New York Stock Exchange 10.25% Senior Notes due 2003 New York Stock Exchange Series A Convertible Preferred Stock, Par Value $0.10 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED Series 1993 Warrants to Purchase Common Stock Boston Stock Exchange
------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 31, 1995 was $130,836,992 with respect to the Common Stock and $30,104,560 with respect to the Series A Convertible Preferred Stock, which has coextensive voting rights with the Common Stock. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes /X/ No / / The number of shares of Common Stock outstanding as of March 31, 1995 was 9,286,462. DOCUMENTS INCORPORATED BY REFERENCE The initial report on Form 10-K stated that Part III was being incorporated by reference from a proxy statement. Instead, such Part III is presented in this amendment, except for information regarding executive officers of the registrant which was filed in the initial report in a separate item, captioned "Executive Officers of the Registrant" in Part I thereof. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Part III of the Registrant's Annual Report on Form 10-K is hereby amended by deleting the text thereof in its entirety and substituting the following: PART III ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT INFORMATION ABOUT DIRECTORS All of the directors are currently directors of the Company and of its subsidiary, Hills Department Store Company. The directors are:
DIRECTOR NAME AGE POSITION SINCE - --------------------------------- --- ---------------------------- ----------- Thomas H. Lee.................... 51 Chairman of the Board 1985 Michael Bozic.................... 54 Director, President and 1991 Chief Executive Officer Susan E. Engel................... 48 Director 1993 Richard B. Loynd................. 67 Director 1993 Norman S. Matthews............... 62 Director 1990 James L. Moody, Jr............... 63 Director 1987 John G. Reen..................... 45 Director, Executive Vice 1993 President -- Chief Financial Officer
THOMAS H. LEE was elected Chairman of the Board of the Predecessor Company in November 1990. He was also Chief Executive Officer of the Predecessor Company from November 1990 to April 1991. He has been President since 1974 of Thomas H. Lee Company, a firm engaged in investment activities. In addition, he has been Chairman since 1987 of Thomas H. Lee Advisors I and the individual general partner since 1989 of Thomas H. Lee Advisors II, L.P. and THL Equity Advisors Limited Partnership, all of which are investment advisors. He is a director of J. Baker, Inc., General Nutrition, Inc., Playtex Family Products Corporation, Health o meter, Inc., Autotote Corporation, Finlay Fine Jewelry Corporation, Live Entertainment of Canada, Inc. and Gillett Holdings, Inc. He also is an individual general partner of ML-Lee Acquisition Fund, L.P., ML-Lee Acquisition Fund II, L.P., and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. MICHAEL BOZIC became the President and Chief Executive Officer of the Predecessor Company in May 1991. He was President and Chief Operating Officer from August 1990 to January 1991 and Chairman and Chief Executive Officer from 1987 to 1990 of the Sears Merchandise Group. He is a director of Domain, Inc., Eaglemark Financial Services, Inc., Weirton Steel Corporation and Dean Witter InterCapital, Inc. SUSAN E. ENGEL has been President and Chief Operating Officer of Department 56, Inc. since September 1994. She was a consultant from September 1993 to September 1994 and was President and Chief Executive Officer of Champion Products, a manufacturer of athletic apparel, from October 1991 to September 1993. She was Vice President of Booz, Allen and Hamilton prior to October 1991. She is a director of Penn Traffic and Ryka, Inc. RICHARD B. LOYND has been President and Chief Executive Officer of Interco Incorporated since 1989 and Chairman of Interco Incorporated since 1990. Interco Incorporated filed for Chapter 11 bankruptcy protection in January 1991 and emerged from bankruptcy protection in August 1992. He is a director of Interco Incorporated, Emerson Electric Co., The Florsheim Shoe Company and Converse, Inc. NORMAN S. MATTHEWS, former President of Federated Department Stores, Inc., has been a retail consultant since 1988. Mr. Matthews is a director of Lechter's, Inc., Loehman's Inc., Finlay Fine Jewelry Corporation, Progressive Corp. and Eye Care Centers of America. Mr. Matthews was Chairman of the Board and Chief Executive Officer of Home Ltd. from 1988 until October 1993. Home Ltd. filed for Chapter 11 bankruptcy protection in May 1993 and was liquidated in October 1993. 1 JAMES L. MOODY, JR. has been Chairman of the Board of Hannaford Bros. Co., a chain of food stores, since 1984 and was its Chief Executive Officer from 1973 to May 1992. Mr. Moody was a director of the Predecessor Company until October 4, 1993. He became a director of the Company November 19, 1993. He is also a director of Penobscot Shoe Company, UNUM Corporation, IDEXX Laboratories, Inc. and a Trustee of a number of mutual funds managed by The Colonial Group, Inc. JOHN G. REEN has been Executive Vice President-Chief Financial Officer of the Company since March 1992. He had been Senior Vice President-Chief Financial Officer since February 1991 and Vice President-Controller from December 1985 to January 1991. Directors of the Company and Hills Department Store Company are elected for a term of one year or until their successors are elected and qualified. During the fiscal year ended January 28, 1995, the Board of Directors of the Company met eleven times. No incumbent director attended fewer than 75% of the total number of meetings of the Board and Committees of the Board on which he or she served. The Board of Directors has a standing Audit Committee and a standing HR/Compensation Committee. The Board of Directors does not have a Nominating Committee. During the fiscal year ended January 28, 1995, the Audit Committee met three times and the HR/Compensation Committee met four times. The Audit Committee, consisting entirely of non-employee directors, is composed of Mr. Loynd, as Chairman, Ms. Engel and Mr. Moody. The Audit Committee's functions include the following: Recommendation to the full Board concerning the engagement or discharge of independent auditors; direction and supervision of investigations into matters within the scope of the Committee's duties; review with auditors of plans and results of auditing procedures; review, for Board approval, of each significant professional service provided by auditors and review of the independence of the auditors; consideration of the range of audit and nonaudit fees and the adequacy of the Company's system of internal accounting controls. The HR/Compensation Committee, consisting entirely of non-employee directors, is composed of Mr. Moody, as Chairman, Ms. Engel and Mr. Loynd. The HR/Compensation Committee's functions include the following: Reviewing the corporate compensation programs and policies, including the compensation of the Chief Executive Officer, to assure that said programs and policies are competitive and provide for internal equity; reviewing and advising the Chief Executive Officer on specific compensation matters for officers and executives; oversight of the Company's performance bonus program; and performance of such other duties as the Chairman of the Board may require. INFORMATION ABOUT EXECUTIVE OFFICERS Information regarding executive officers of the Company is furnished in a separate item captioned "Executive Officers of the Registrant" in Part I of this report. SECURITIES AND EXCHANGE COMMISSION FILINGS Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and the New York Stock Exchange. Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that for the fiscal year ended January 28, 1995, its officers, directors, and greater than 10% beneficial owners complied with all filing requirements applicable to them. 2 ITEM 11 -- EXECUTIVE COMPENSATION The following table sets forth the annual and long-term compensation for service in all capacities to the Company for the fiscal year ended January 28, 1995 and the two prior fiscal years of those persons who were at January 28, 1995, (i) the Chief Executive Officer and (ii) the other four most highly compensated executive officers of the Company whose salary and bonus exceed $100,000: SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION
LONG TERM COMPENSATION AWARDS: NAME AND OTHER ANNUAL STOCK ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION (1) - ------------------------------------------------- ---- ---------- ------------ ------------ ------------ ---------------- Michael Bozic ................................... 1994 $875,000 $ 537,500 -- 35,000 $3,000 President & Chief Executive Officer 1993 875,000 1,437,500(2) -- 170,000 -- 1992 834,289 437,500 -- -- -- John G. Reen .................................... 1994 284,583 215,000 -- 23,000 6,000 Executive Vice President 1993 256,250 447,947(2) -- 50,000 -- Chief Financial Officer 1992 250,000 362,339 -- -- -- Andrew J. Samuto ................................ 1994 288,333 175,000 -- 15,000 5,845 Executive Vice President 1993 280,000 326,656(2) -- 40,000 -- Real Estate and Support Services 1992 280,000 160,000 -- -- -- E. Jackson Smailes .............................. 1994 375,000 257,500 -- 18,000 3,000 Executive Vice President 1993 375,000 272,450(2) $210,988(4) 55,000 -- General Merchandise Manager 1992 217,361(3) 35,000(3) -- -- -- Robert J. Stevenish ............................. 1994 258,333 202,500 -- 18,000 3,000 Executive Vice President 1993 225,000 194,068(2) 41,934(5) 55,000 -- Store and Distribution Operations 1992 156,250(3) 30,000(3) -- -- -- - ------------------------------ (1) Represents Company Contributions to the Company's 401(k) Plan. (2) Includes both annual and emergence bonuses. Emergence bonuses were paid upon confirmation of the Company's Plan of Reorganization by the United States Bankruptcy Court for the Southern District of New York, effective October 4, 1993, pursuant to an emergence bonus plan approved by the Bankruptcy Court. (3) Amounts shown represent a partial year. Messrs. Smailes and Stevenish commenced their employment with the Company during fiscal 1992. (4) Consists of relocation expenses, including a "gross up" of $91,134 for federal and state taxes. (5) Consists of relocation expenses, including a "gross up" of $10,143 for federal and state taxes.
EMPLOYMENT CONTRACTS On September 30, 1994, the Company entered into employment agreements with the executive officers listed in the Summary Compensation Table which replaced existing employment agreements with such persons. The new employment agreements provided for a term of employment of each employee to December 31, 1996. The new agreements contain a rolling one-year extension provision if no notice to terminate is given by either party at least 90 days prior to the end of the term of the agreements. 3 There was no change in compensation amounts from that provided in the prior employment agreements. The new employment agreements establish minimum base salary (subject to annual increases approved by the Board) and bonus level (as a percentage of base salary if annual goals established by the Board are attained) for each employee as follows:
1995 BASE EMPLOYEE SALARY BONUS LEVEL - ------------------------------------------------------------------- ----------- ---------------- Michael Bozic...................................................... $ 925,000 50% John G. Reen....................................................... 315,000 50% Andrew J. Samuto................................................... 290,000 50% E. Jackson Smailes................................................. 390,000 50% Robert J. Stevenish................................................ 290,000 50%
The employment agreements provide that if the Company fails to pay amounts due under or otherwise is in material breach of the employment agreements or in the event of a significant diminution of an executive's responsibility and authority, it will be considered a "Good Reason" for such executive to terminate his agreement. The agreements further provide that an executive may terminate his agreement following a "Change in Control." A Change in Control is considered to have occurred if any person or group (i) becomes the beneficial owner of more than 50% of the Company's voting stock or (ii) elects more than 30% of the members of the Board of Directors (40% if there are nine or more directors), rounded down to the nearest whole number, as the result of an election contest. In the event an executive terminates his employment agreement for Good Reason (other than following a Change in Control) or the Company terminates his agreement without cause (including the failure of the Company to extend), such executive will receive a lump sum payment equal to (i) all earned but unpaid salary and a pro rated bonus to the time of termination and (ii) two times such executive's annual base salary in effect at the time of such termination; and such executive will continue to be entitled to benefits and perquisites during the stated term of the agreement. In the event an executive terminates his employment with Good Reason within one year after a Change in Control approved by a majority of the Company's continuing directors (an "Approved Change in Control"), such executive will receive a lump sum payment equal to (i) all earned but unpaid salary and a pro rated bonus to the time of termination and (ii) three times the sum of (a) such executive's annual base salary at the time of termination and (b) any bonus compensation to which such executive would have been entitled if such executive had remained as an employee to the end of the fiscal year in which such executive's employment terminated; and such executive will continue to be entitled to benefits and perquisites during the stated term of the agreement. In the event an executive terminates his employment agreement within one year after a Change in Control (other than an Approved Change in Control) such executive will receive a lump sum payment equal to (i) all earned but unpaid salary and a pro rated bonus to the time of termination and (ii) three times such executive's 1994 base salary and bonus, subject to adjustment under certain circumstances; and such executive will continue to be entitled to benefits and perquisites during the stated term of the agreement. The employment agreements provide that all options granted to an executive will immediately vest in the event of such executive's (i) death or disability, (ii) termination of his employment agreement for Good Reason or (iii) termination of his employment agreement following a Change in Control, other than an Approved Change in Control. The employment agreements also provide that an executive will be fully indemnified by the Company for any and all expenses, fees (including legal fees), liabilities and obligations resulting from the executive's employment with the Company or enforcement of the terms of his employment agreement. COMPENSATION OF DIRECTORS The Company pays to independent, non-employee directors a fee of $2,000 per month plus $1,000 for each meeting of the Board and $500 for each committee meeting attended, plus expenses. Committee Chairmen receive $750 for each committee meeting attended. 4 Pursuant to a consulting agreement entered into on September 30, 1994 with Norman S. Matthews, which replaced his previous consulting agreement, Mr. Matthews agreed to devote two-thirds of his professional time (determined on an annual basis) to the Company's business until December 31, 1996. Under the agreement, Mr. Matthews receives an annual fee of $500,000 (subject to annual increases approved by the Board), annual bonuses at the 50% level, based upon the attainment of annual goals established by the Board, and reimbursement of expenses. In addition, for the fiscal year ended January 28, 1995, Mr. Matthews received a special discretionary bonus of $70,000. Mr. Matthews' consulting agreement contains substantially similar provisions with respect to termination for Good Reason or following a Change in Control as the employment agreements described above under "Employment Agreements". Mr. Lee, who is Chairman of the Board, is a financial consultant to the Company with a fee of $250,000 per year. Outside Directors will each receive a non-discretionary grant of a stock option to purchase 2,000 shares of Common Stock pursuant to the 1995 Stock Option Plan (as defined below) on the last day of January of each year if the 1995 Stock Option Plan is approved by shareholders at the Company's Annual Meeting of Shareholders. STOCK OPTION PLANS The Hills Stores Company 1993 Stock Option Plan (the "1993 Stock Option Plan") was adopted in connection with the Company's Chapter 11 Plan of Reorganization. The 1993 Stock Option Plan covers 1,053,763 shares of Common Stock. As of May 24, 1995, 15,979 shares of Common Stock have been issued pursuant to stock options which have been exercised, options to purchase 998,021 shares of Common Stock are outstanding and options to purchase 39,763 shares of Common Stock are available for grant under the 1993 Stock Option Plan. The Hills Stores Company 1995 Incentive and Nonqualified Stock Option Plan (the "1995 Stock Option Plan") was adopted, subject to obtaining shareholder approval, by the Board of Directors on March 30, 1995, and was amended on May 23, 1995. The 1995 Stock Option Plan covers 500,000 shares of Common Stock. As of May 24, 1995, options to purchase 337,500 shares of Common Stock have been granted (none of which has vested), and options to purchase 112,500 shares of Common Stock are available for grant under the 1995 Stock Option Plan. If the 1995 Stock Option Plan is not approved by shareholders at the Company's Annual Meeting of Shareholders, all grants thereunder will be rescinded. STOCK OPTION TABLE The following table sets forth grants of options to purchase shares of the Company's Common Stock under the Company's 1993 Stock Option Plan to the individuals named in the Summary Compensation Table during the fiscal year ended January 28, 1995:
POTENTIAL REALIZABLE VALUE OF ASSUMED ANNUAL NUMBER OF RATES OF STOCK PRICE SECURITIES % OF TOTAL APPRECIATION FOR OPTION UNDERLYING OPTIONS GRANTED EXERCISE OR TERM (2) OPTIONS TO EMPLOYEES IN BASE EXPIRATION ------------------------ NAME GRANTED (1) FISCAL YEAR PRICE (2) DATE 5% 10% - ---------------------------------- ----------- --------------- ----------- ------------ ---------- ------------ Michael Bozic..................... 35,000 18.3% $ 19.50 04/21/2004 $ 429,221 $ 1,087,729 John G. Reen...................... 23,000 12.0% 19.50 04/21/2004 282,059 714,793 Andrew J. Samuto.................. 15,000 7.9% 19.50 04/21/2004 183,952 466,170 E. Jackson Smailes................ 18,000 9.4% 19.50 04/21/2004 220,742 559,404 Robert J. Stevenish............... 18,000 9.4% 19.50 04/21/2004 220,742 559,404 - ------------------------ (1) The options vest over the first five years following the grant as follows: After 12 Months -- 20.0% Vested After 24 Months -- 45.0% Vested After 36 Months -- 75.0% Vested After 48 Months -- 87.5% Vested After 60 Months -- 100.0% Vested
5 (2) The exercise price is equal to the market value on the date of the grant. The amounts shown as potential realizable value illustrate what might be realized upon exercise immediately prior to expiration using the 5% and 10% appreciation rates established in regulations of the SEC, compounded annually. The potential realizable value is not intended to predict future appreciation of the price of the Company's Common Stock. The values shown do not consider nontransferability, vesting over five years or termination of the options upon termination of employment.
OPTION EXERCISES IN FISCAL 1994 Mr. Bozic exercised 5,479 stock options on November 29, 1994 and 5,000 stock options on January 10, 1995. Mr. Smailes exercised 1,000 stock options on January 27, 1995. No other directors or executive officers exercised stock options during the fiscal year ended January 28, 1995. In addition, Mr. Stevenish exercised 1,000 stock options on April 17, 1995. As of January 28, 1995, the following table sets forth information regarding the number and value of unexercised stock options.
VALUE OF UNEXERCISED IN NUMBER OF UNEXERCISED THE MONEY OPTIONS AT YEAR SHARES OPTIONS AT FISCAL YEAR END END (2) ACQUIRED ON VALUE ---------------------------- -------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - --------------------------------- ------------- ----------- ------------- ------------- ----------- ------------- Michael Bozic.................... 10,479 $ 22,653(1) 23,521 171,000 $ 70,563 $ 469,250 John G. Reen..................... 0 0 10,000 63,000 30,000 160,250 Andrew J. Samuto................. 0 0 8,000 47,000 24,000 122,250 E. Jackson Smailes............... 1,000 3,000(2) 10,000 62,000 30,000 163,500 Robert J. Stevenish.............. 0 0 11,000 62,000 33,000 163,500 - ------------------------------ (1) Based on the difference between the exercise price of $18.25 and (a) the closing price of the Company's Common Stock on November 29, 1994 of $19.875 as to 5,479 shares and (b) the closing price of the Company's Common Stock on January 10, 1995 of $21.00 as to 5,000 shares. (2) Based on the difference between the closing price of the Company's Common Stock on January 27, 1995 of $21.25 per share and the exercise price of $18.25 per share, as to options granted November 4, 1993 and $19.50 per share as to options granted April 21, 1994.
LONG TERM INCENTIVE PLAN AWARDS Except for the Company's Stock Option Plans described above, the Company does not have a long term incentive plan, and the Company made no long term incentive plan awards in fiscal 1994. PENSION PLAN The following table shows the estimated annual retirement benefit payable on a straight life annuity basis to participating associates, including officers, in the earnings and years of service classifications indicated, under the Company's retirement plan which covered most officers and other salaried associates on a contributory basis. Such benefits reflect an integration of Social Security benefits. The Company's plan also provides for the payment of benefits to an associate's surviving spouse or other beneficiary, under alternative options.
HIGHEST AVERAGE ANNUAL COMPENSATION DURING ANY FIVE CONSECUTIVE YEARS YEARS OF CREDITED SERVICE BETWEEN 1965 AND NORMAL --------------------------------------------------------------- RETIREMENT AGE OF 65 15 20 25 30 35 - ------------------------ ----------- ----------- ----------- ----------- ----------- $ 250,000 $ 58,331 $ 77,775 $ 97,219 $ 116,663 $ 136,107* 300,000 71,456 95,275 119,094* 142,913* 166,732* 400,000 97,706 130,280* 162,850* 195,420* 227,990* 500,000 123,956* 165,275* 206,594* 247,913* 289,232* 1,000,000 255,210* 340,280* 425,350* 510,420* 595,490* 1,500,000 386,460* 515,280* 644,100* 772,920* 901,740* - ------------------------ *Subject to limitations imposed by the Employees Retirement Income Security Act of 1974 ("ERISA"), as amended. The current maximum annual benefit allowed by ERISA is $118,800.
6 Benefits under the plan are calculated based upon 100% of cash compensation (salary and bonus) actually received during any calendar year, subject to any limitations imposed by law. The compensation upon which benefit calculations are based differs from compensation reported in the Cash Compensation Table set forth above because the Internal Revenue Service limits to $150,000 the amount of 1994 compensation to be used in calculating benefits under the pension plan. At April 30, 1994, the plan termination date, Messrs. Bozic, Reen, Samuto, Smailes and Stevenish had 3.0, 17.7, 29.2, 2.7 and 2.4 years of credited service, respectively, and the individual compensation for calendar year 1993 for purposes of the plan was $150,000 for each of Messrs. Bozic, Samuto and Reen. Messrs. Smailes and Stevenish do not participate in the pension plan. Subject to receiving necessary approvals from the Internal Revenue Service, the pension plan was terminated effective April 30, 1994. On May 12, 1995, the Company received a favorable determination from the Internal Revenue Service. The Company expects that during the current fiscal year accrued benefits will be transferred to associates participating in the pension plan in the form of either an annuity or a rollover into the associate's 401(k) savings account at the option of the associate. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN During the fiscal year ended January 28, 1995, the Company instituted a Supplemental Executive Retirement Plan ("SERP") which will provide certain benefits to 20 key executives of the Company, including each of the executives named in the Summary Compensation Table. The Company did not make any payments pursuant to the SERP in the fiscal year ended January 28, 1995. However, during the current fiscal year, the Company anticipates making contributions pursuant to the SERP for each of the executives named in the Summary Compensation Table. Said contributions are expected to be included in the "All Other Compensation" column of the Summary Compensation Table in the proxy statement for the 1996 Annual Meeting of Shareholders. The SERP provides that in the event of a Change in Control, all participants in the SERP will immediately be fully vested, and, depending on a participant's age, there may be adjustments in the actuarial calculations used to compute a participant's benefits. The foregoing could require substantial additional funding of the SERP by the Company. If there is a Change in Control in 1995, for example, in connection with the May 1995 unsolicited proposals by Dickstein Partners Inc. and certain of its affiliates to acquire the Company's outstanding Common Stock in a merger transaction or the related proxy solicitation, the Company estimates that such additional funding will be approximately $5.5 million. "Change in Control" is defined in the SERP in the same manner as it is defined in the employment agreements for the Company's senior executive officers. See "Employment Contracts". COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During the fiscal year ended January 28, 1995, no executive officer of the Company (i) served on the board of directors of any company of which Mr. Moody, Ms. Engel or Mr. Loynd (the members of the Company's HR/Compensation Committee) was an executive officer or (ii) served as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of such a committee, on the board) of another entity, one of whose executive officers is a member of the Board of Directors of the Company. 7 ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT BENEFICIAL OWNERSHIP The following table sets forth as of May 5, 1995 information with respect to beneficial ownership of shares of the Company's Common Stock and Series A Preferred Stock. The information was obtained from Company records and information supplied by the shareholders, including information on Schedules 13D and 13G and Forms 4 prescribed by the SEC. Each share of Series A Preferred Stock is immediately convertible into one share of Common Stock, and the Series A Preferred Stock has coextensive voting rights with the Company's Common Stock.
AMOUNT AND NATURE TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT OF PERCENT OF VOTING CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS STOCK (1) - ------------ ----------------------------------------------- --------------------- ----------- ----------------- Common Dickstein Partners Inc. (2) 1,113,459(2) 11.73 10.38 Dickstein Partners, L.P. Dickstein & Co., L.P. Dickstein Focus Fund L.P. Mark Dickstein 9 West 57th Street Suite 4630 New York, NY 10019 Dickstein International Limited 129 Front Street Hamilton HM12 Bermuda Common Heine Securities Corporation (3) 952,885(3) 9.96 8.88 51 John F. Kennedy Parkway Short Hills, NJ 07078 Common FMR Corp. (4) 808,814(4) 8.52 7.54 Fidelity Management and Trust Company 82 Devonshire Street Boston, MA 02109-3614 Common ML-Lee Acquisition Fund II, L.P. (5), ML-Lee 786,683(5) 8.22 7.28 Acquisition Fund (Retirement Accounts) II, L.P., Thomas H. Lee Advisors II, L.P. Thomas H. Lee World Financial Center South Tower, 23rd Fl. New York, NY 10080-6123 Common Wellington Management Company 677,245 7.14 6.31 75 State Street Boston, MA 02109 Common Richard S. Karpin, Assistant Special Deputy 591,047(6) 6.08 5.51 Superintendent of Insurance of the State of New York, as Agent of the Rehabilitator of Executive Life Insurance Company of New York 123 William Street New York, NY 10038-3889 - ------------------------ (1) Represents the percentage of shares of Common Stock and Series A Preferred Stock owned beneficially to the aggregate of 9,490,183 shares of Common Stock and 1,234,713 shares of Series A Preferred Stock.
8 (2) Dickstein Partners Inc., Dickstein Partners, L.P., Dickstein & Co., L.P., Dickstein Focus Fund L.P., Dickstein International, Limited and Mark Dickstein have filed a Schedule 13D and amendments thereto showing beneficial ownership of an aggregate of 1,113,459 shares. Of the 1,113,459 total shares owned beneficially, Dickstein & Co., L.P. owned beneficially 727,315 of such shares. Dickstein Focus Fund L.P. owned beneficially 90,995 of such shares and Dickstein International Limited owned beneficially 295,149 of such shares. Dickstein Partners, L.P. is the general partner of Dickstein & Co., L.P. and Dickstein Focus Fund L.P. Dickstein Partners Inc. is the general partner of Dickstein Partners, L.P. and is the advisor to Dickstein International Limited. Since Mark Dickstein is the President and sole director of Dickstein Partners Inc., he may be deemed to own beneficially all shares shown. (3) Michael F. Price is the President of Heine Securities Corporation and he may be deemed to own beneficially all the shares owned by Heine Securities Corporation. (4) FMR Corp. has filed a Schedule 13D and amendments thereto showing beneficial ownership of 808,814 shares. The Company believes that FMR Corp. and Fidelity Management and Trust Company may be deemed a "group" as that term is used in Rule 13d5(b) of the Exchange Act. The shares listed are owned beneficially by Fidelity Management and Trust Company, a trustee or managing agent for various private investment accounts, primarily employee benefit plans, and an investment advisor to certain other funds which are generally offered to limited groups of investors. (5) ML-Lee Acquisition Fund II, L.P. owns beneficially 458,432 shares of Common Stock, and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. owns beneficially 244,818 shares of Common Stock. Thomas H. Lee Advisors II, L.P., as the investment advisor to both Funds, shares the power to vote and to direct the disposition of securities held by the Funds and therefore may be deemed to own beneficially the 703,250 shares of Common Stock owned beneficially in the aggregate by the Funds. Thomas H. Lee, Chairman of the Board, is a General Partner of both Funds. The shares listed include 83,433 shares of Common Stock owned beneficially by Mr. Lee individually, including 441 shares of Common Stock issuable upon conversion of Series A Preferred Stock and 77,759 shares of Common Stock issuable upon exercise of Series 1993 Warrants. Mr. Lee disclaims beneficial ownership of 87 shares of Common Stock issuable upon exercise of Series 1993 Warrants he holds as custodian for his son. (6) The shares listed include 229,559 shares of Common Stock issuable upon conversion of 229,559 shares of Series A Preferred Stock (18.59% of the Series A Preferred) and 5,929 shares of Common Stock issuable upon exercise of Series 1993 Warrants.
9 BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth as of May 5, 1995 the beneficial ownership of the Company's Common Stock and Series A Preferred Stock held by each director, the nominees for director, the executive officers named in the Summary Compensation Table and directors and executive officers as a group. Each share of Series A Preferred Stock is immediately convertible into one share of Common Stock, and the Series A Preferred Stock has coextensive voting rights with the Common Stock.
AMOUNT AND NATURE TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT OF PERCENT OF CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS VOTING STOCK (1) - ------------ ------------------------------------ --------------------- ------------- ----------------- Common Thomas H. Lee 786,683(2)(13) 8.22 7.28 Common Michael Bozic 41,000(3) * * Common Susan E. Engel 500(4) * * Common Richard B. Loynd 1,500(5) * * Common Norman S. Matthews 26,307(6)(13) * * Common James L. Moody, Jr. 1,763(7)(13) * * Common John G. Reen 15,799(8)(13) * * Common Andrew J. Samuto 11,968(9)(13) * * Common E. Jackson Smailes 14,600(10) * * Common Robert J. Stevenish 14,600(11) * * Common Directors and Executive Officers 925,064(12)(13) as a Group (13 Persons) 9.55 8.47 - ------------------------ * Represents less than 1% of outstanding shares. (1) Represents the percentage of shares of Common Stock and Series A Preferred Stock owned beneficially to the aggregate of 9,490,183 shares of Common Stock and 1,234,713 shares of Series A Preferred Stock, which have coextensive voting rights. (2) Includes 703,250 shares of Common Stock owned beneficially by ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. of which Mr. Lee is a general partner, 5,674 shares of Common Stock, including 441 shares of Common Stock issuable upon conversion of Series A Preferred Stock, and 77,759 shares issuable upon exercise of Series 1993 Warrants held by the 1989 Thomas H. Lee Nominee Trust, of which Mr. Lee is the beneficiary and settlor. Mr. Lee disclaims beneficial ownership of 87 shares issuable upon exercise of Series 1993 Warrants he holds as custodian for his son. (3) Consists of 5,479 shares issued upon exercise of stock options exercised November 19, 1994, 5,000 shares issued upon exercise of stock options exercised January 10, 1995 and 30,521 exercisable stock options. (4) Consists of exercisable stock options. (5) Includes 1,000 shares of Common Stock and 500 exercisable stock options. (6) Includes 26,000 exercisable stock options and 307 shares issuable upon exercise of Series 1993 Warrants to purchase Common Stock. (7) Includes 1,000 shares of Common Stock, 500 exercisable stock options and 263 shares issuable upon exercise of Series 1993 Warrants to purchase Common Stock. (8) Includes 270 shares of Common Stock, 14,600 exercisable options and 929 shares issuable upon exercise of Series 1993 Warrants to purchase Common Stock. (9) Includes 858 shares of Common Stock, 11,000 exercisable options and 110 shares issuable upon exercise of Series 1993 Warrants to purchase Common Stock. (10) Consists of 1,000 shares issued upon exercise of stock options exercised January 27, 1995 and 13,600 exercisable stock options. (11) Consists of 1,000 shares issued upon exercise of stock options exercised April 17, 1995 and 13,600 exercisable stock options. (12) Consists of 724,089 shares of Common Stock including 441 shares of Common Stock issuable upon conversion of Series A Preferred Stock, 120,921 exercisable stock options and 80,054 shares issuable upon exercise of Series 1993 Warrants to purchase Common Stock. (13) Although each Series 1993 Warrant is immediately exercisable for one share of Common Stock, each such Series 1993 Warrant is, at present, significantly "out of the money" ($30 per share exercise price versus $23.00 per share closing price on the New York Stock Exchange on May 5, 1995.)
10 ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Lee, who is Chairman of the Board, is a director of J. Baker, Inc. and owns less than 1% of the outstanding capital stock of J. Baker, Inc. The Company and J. Baker, Inc. are parties to a license agreement pursuant to which J. Baker, Inc. operates footwear departments in Hills Department Stores and pays the Company a license fee. * * * Part IV of the Registrant's Annual Report on Form 10-K is hereby amended by adding the following Exhibit 10.14 in Item 14(a)(3) thereof: 10.14* Hills Department Store Company Supplemental Executive Retirement Plan. - ------------------------ *Executive Compensation Plans and Arrangements.
11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (and Rule 12b-15 promulgated thereunder), the Registrant has duly caused this Amendment to Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Canton, Commonwealth of Massachusetts, on May 30, 1995. HILLS STORES COMPANY By: /s/ WILLIAM K. FRIEND -------------------------------------- William K. Friend Vice President-Secretary 12 EXHIBIT INDEX Pursuant to Item 601 of Regulation S-K
EXHIBIT TITLE - ----------- --------------------------------------------------------------------------------------------------------- 10.14 Hills Department Store Company Supplemental Executive Retirement Plan.
13 EX-99. 2 EXHIBIT 10.14 HILLS DEPARTMENT STORE COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (Effective February 1, 1995) HILLS DEPARTMENT STORE COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (Effective February 1, 1995) --------------------------------------- WHEREAS, in recognition of the services provided to Hills Department Store Company (the "Company") and participating Affiliates by certain management and highly compensated employees, the Company and participating Affiliates desire to establish a Supplemental Executive Retirement Plan as an unfunded plan to provide such employees with additional retirement benefits; NOW, THEREFORE, effective February 1, 1995, the Company adopts the HILLS DEPARTMENT STORE COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN, as follows: ARTICLE I DEFINITIONS Where the following words and phrases appear in this Plan, they shall have the respective meanings set forth below, unless the context clearly requires otherwise: 1.1 ACTUARIAL EQUIVALENT: A benefit of equal value, when computed on the basis of the assumptions and factors described in Appendix A which is attached to and made a part of this Plan. 1.2 AFFILIATE: A member of a group of employers, of which the Company or other Participating Company is a member and which group constitutes: (a) A controlled group of corporations (as defined in section 414(b) of the Code); (b) Trades or businesses (whether or not incorporated) which are under common control (as defined in section 414(c) of the Code); (c) Trades or businesses (whether or not incorporated) which constitute an affiliated service group (as defined in section 414 (m) of the Code); or - 1 - (d) Any other entities required to be aggregated with the Company or other Participating Company pursuant to section 414 (o) of the Code and Treasury regulations thereunder. 1.3 AGE: For any Eligible Executive, his age on his last birthday. 1.4 ANNUITY STARTING DATE: The first day of the first period for which an amount is paid to a Participant as an annuity or in any other form under the Plan. 1.5 BENEFICIARY: Such person or persons or legal entity or entities designated by a Participant to receive benefits under Article V after such Participant's death, or the personal or legal representative of the Participant, all as herein described and provided. 1.6 BENEFIT: The benefit payable in accordance with the Plan. 1.7 BOARD: The Board of Directors or other governing body of the Company. 1.8 CHANGE IN CONTROL: A Change in Control shall be deemed to have occurred if: (a) any person (an "Acquiring Person"), together with its affiliates and associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, or any successor rule thereto) becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), including by merger or otherwise, of more than fifty percent (50%) of the total voting power of all classes of voting stock of the Company, or (b) one or more Acquiring Persons has succeeded, as the result of or in response to, actual or threatened election contests, whether by settlement or otherwise, in having elected to the Board of Directors of the Company, whether at one time or on a cumulative basis, a sufficient number of its nominees to constitute (1) more than thirty percent (30%) of the members of the Company's Board of Directors, rounded down to the nearest whole number, if the number of directors on the Company's Board is eight or less, or (2) more than forty percent (40%) of the members of the Company's Board, rounded down to the nearest whole number, if the number of directors on the Company's Board is nine or more. 1.9 CODE: The Internal Revenue Code of 1986, as it may be amended from time to time. 1.10 COMMITTEE: The Committee appointed by the Company under the provisions of Article VII to administer the Plan. - 2 - 1.11 COMPANY: Hills Department Store Company and any successor to it if such successor adopts the Plan and any wholly-owned subsidiary of Hills Department Store Company. Wholly-owned subsidiary shall mean any corporation in an unbroken chain of corporations beginning with Hills Department Store Company, each of which corporations, other than the last in the unbroken chain, owns all of the voting stock in one of the other corporations in such chain. 1.12 COMPENSATION: All compensation reported on the Participant's Form W-2 (Wages, tips, other compensation box) for a calendar year, including, but not limited to, any bonuses actually paid by a Participating Company to a Participant during the calendar year, but adding thereto any amount which is contributed by a Participating Company pursuant to a salary reduction agreement and which is not includible in a Participant's gross income under section 125, 402(e)(3), 402(h), or 403(b) of the Code, and excluding therefrom any taxable employee benefits of any kind (E.G., reimbursements of moving and relocation expenses, insurance premiums, automobile, health, medical, and dental expenses, the cost of group-term life insurance, compensation arising from the exercise of a nonqualified stock option or from a stock grant, and any fringe benefit which is not excluded from gross income under section 132 of the Code). 1.13 DISABILITY: During the waiting period and the subsequent portion of any period of disability not exceeding 24 months after the end of the waiting period, the Participant's complete inability to perform any and every duty of the Participant's occupation with the Company and during the remainder, if any, of such period of Disability, the Participant's complete inability to engage in any and every gainful occupation for which the Participant is reasonable fit by education, training or experience, as certified by the Social Security Administration. For purposes of this definition of Disability, "waiting period" shall mean a period of six consecutive months during which a Participant must suffer a Disability before a monthly benefit is payable. 1.14 EARLY RETIREMENT DATE: The first day of any month coincident with, or immediately following, the Participant's 55th birthday, provided he is vested in his Benefit, and further provided he has not reached his Normal Retirement Date. 1.15 EFFECTIVE DATE: February 1, 1995. 1.16 ELIGIBLE EXECUTIVE: Any Employee of the rank of Vice President of the Company or higher provided he is a member of a select group of management or highly compensated employees within the meaning of section 201(2) of ERISA as determined by the President of the Company and the HR/Compensation Committee of the Board. - 3 - 1.17 ERISA: The Employee Retirement Income Security Act of 1974, as amended from time to time. 1.18 FINAL AVERAGE COMPENSATION: The average of the Participant's Compensation received by a Participant from a Participating Company for the 3 calendar years during his final five years of employment with the Participating Company during which such Compensation was the highest. 1.19 LATE RETIREMENT DATE: Any first day of the month following a Participant's Normal Retirement Date. 1.20 NORMAL RETIREMENT AGE: The date a Participant attains age 60. 1.21 NORMAL RETIREMENT DATE: The first day of the month coincident with, or immediately following, the Participant's Normal Retirement Age. 1.22 PARTICIPANT: An Eligible Executive participating in the Plan in accordance with the provisions of Section 2.1 and Article III or any former Eligible Executive having deferred vested rights under the Plan. 1.23 PARTICIPATING COMPANY: The Company and each Affiliate which adopts the Plan in accordance with Article X. 1.24 PLAN: The HILLS DEPARTMENT STORE COMPANY SUPPLEMENTAL EXECUTIVE BENEFIT PLAN, as set forth herein, which plan is intended to be a plan solely covering a select group of management or highly compensated employees within the meaning of section 201(2) of ERISA and the Department of Labor regulations thereunder. 1.25 PLAN YEAR: The 12-month period beginning on the day next following the last Saturday in January, corresponding to the Company's fiscal year. 1.26 SPOUSE OR SURVIVING SPOUSE: The spouse or surviving spouse of a Participant who is legally married to the Participant on the Participant's Annuity Starting Date or his date of death. 1.27 YEAR OF SERVICE: The service credited to an Eligible Executive for purposes of determining his Benefit under the Plan. Years of Service shall be measured in whole years only, without credit for a fractional Year of Service, except as provided below. Years of Service shall be calculated on the basis that twelve (12) consecutive months of employment equal one (1) year. Notwithstanding the above, (1) an Eligible Executive will be credited with a fractional Year of Service, on the basis that thirty (30) - 4 - days equal one completed month or one-twelfth (1/12) of a year, in such Eligible Executive's final year of employment with a Participating Company, and (2) in the year that an employee is promoted to the position of Vice President on or after the Effective Date, or in the case of an individual hired at the level of Vice President or higher on or after the Effective Date, such employee will be credited with a full Year of Service in the Plan Year of promotion or hire. Years of Service at the level of Vice President or higher prior to the Effective Date shall be counted in determining a Participant's Year of Service. Prior Years of Service credited to an Eligible Executive on the Effective Date are indicated in Schedule B. ARTICLE II PARTICIPATION 2.1 ELIGIBILITY TO PARTICIPATE: (1) The Eligible Executives listed in Appendix B shall become a Participant in the Plan with respect to the Benefit provided under Article III as of the Effective Date. (2) Any Employee who becomes an Eligible Executive after the Effective Date shall be eligible to become a Participant in the Plan provided that the Eligible Executive is designated and approved for participation by the President of the Company and the HR/Compensation Committee of the Board. 2.2 TERMINATION OF PARTICIPATION: Once an Eligible Executive becomes a Participant, the Eligible Executive shall remain a Participant until termination of employment with the Participating Company and thereafter until all benefits to which the Participant or the Participant's Beneficiary is entitled under the Plan have been paid. An Eligible Executive whose employment is terminated (including voluntary resignation) prior to vesting, or whose Benefit is divested for Cause under Section 4.2, shall cease to be a Participant. 2.3 TRANSFER TO AN INELIGIBLE CLASSIFICATION OF EMPLOYEE: An Eligible Executive who transfers to a classification of employee who is not eligible to participate in the Plan shall continue to receive credit for purposes of vesting under Article IV but shall cease to accrue a Benefit under the Plan as of his date of transfer. - 5 - ARTICLE III RETIREMENT BENEFITS 3.1 GENERAL RULES: (a) ELIGIBILITY: Each Participant shall be eligible to receive a Benefit under the Plan on the Participant's Early, Normal, or Late Retirement Date, as the case may be, unless the Benefit is forfeited as hereinafter provided. (b) AMOUNT AND MANNER OF PAYMENT OF RETIREMENT BENEFITS: The Benefit shall be in the amount provided by the benefit formula under Section 3.2 and as determined in accordance with the provisions of this Plan, and shall be paid in the form of payment elected by the Participant as described in Section 3.8. At least 30 days prior to the Participant's retirement date, the Committee shall take all necessary steps and shall execute or have requested execution by the Participant of all documents required to provide for the payment of the Participant's Benefit. (c) DISTRIBUTION OF BENEFIT: Upon an Eligible Executive's participation in the Plan, the Participant shall elect the form of payment in which his Benefit is to be paid. In any calendar year prior to the date amounts become payable pursuant to paragraph (a), and at least six months prior to the Participant's termination of employment, a Participant who is an employee and who has completed five or more years of active employment with one or more Participating Companies (including years of active employment prior to the Effective Date of the Plan) may change the form of payment he has elected subject to the approval of the Committee. 3.2 NORMAL RETIREMENT BENEFIT: (a) IN GENERAL: Each Participant shall accrue a retirement benefit payable at his Normal Retirement Date in the form of a single life annuity (normal retirement benefit) equal to the following: (1) Participants at the level of Vice President - 2% of the Participant's Final Average Compensation multiplied by such Participant's Years of Service, up to 25 Years of Service. For each full Year of Service in excess of 25, the Participant's accrued retirement benefit shall be increased by 4% (not compounded). - 6 - (2) Participants at the level of Executive Vice President and President - 3% of the Participant's Final Average Compensation multiplied by such Participant's Years of Service, up to 20 Years of Service (including Years of Service as a Vice President). For each full Year of Service in excess of 20, the Participant's accrued retirement benefit shall be increased by 4% (not compounded). (3) The maximum Benefit under the Plan shall be equal to 60% of the Participant's Final Average Compensation reduced by (a) the Actuarial Equivalent of the Participant's benefit under the Hills Department Store Company Pension Plan, as determined on the date such benefit is distributed to the Participant or transferred to the Hills 401(k) Retirement & Savings Incentive Plan and Trust following the termination of such plan, (b) the Actuarial Equivalent of the Participant's benefit under the Sun Life Annuity Contract and (c) the Actuarial Equivalent of the Participant's benefit under the Retirement Make-whole Plan. (b) MONTHLY BENEFIT: A Participant who retires on his Normal Retirement Date shall be entitled to receive one-twelfth of his normal retirement benefit monthly, as calculated under Section 3.2 (a), in accordance with the provisions of Section 3.1 (a), commencing on his Normal Retirement Date and payable for his lifetime. (c) NORMAL FORM OF PAYMENT: The form of benefit paid under Section 3.2(b) (I.E., payment of the benefit calculated under Section 3.2(a) to the Participant for his life as a single life annuity) is the normal form of benefit under the Plan. 3.3 EARLY RETIREMENT: A Participant may retire on his Early Retirement Date. A Participant retiring under this Section 3.3 shall be entitled to receive the Benefit described in Section 3.2 commencing as of the date which would have been his Normal Retirement Date, unless he irrevocably elects, no later than the later of (a) 30 days prior to his termination of employment with the Participating Companies, or (b) 30 days prior to the beginning of his taxable year in which occurs the Annuity Starting Date, to have payment commence on a date specified by him which date must be (i) after the date he terminates employment with the Participating Companies, (ii) no earlier than the first day of his taxable year following the date of his election, and (iii) prior to the date which would have been his Normal Retirement Date. If payment commences prior to the date the Participant attains his Normal Retirement Age, said Benefit shall be reduced by five percent (5%) for each year by which the Participant's Annuity Starting Date precedes the date he attains his Normal Retirement Age. No reduction shall be - 7 - made if the Participant's Annuity Starting Date occurs on or after the date he attains his Normal Retirement Age. 3.4 LATE RETIREMENT: A Participant who retires after his Normal Retirement Date shall receive a monthly benefit commencing as of the first day of the month coincident with or next following the date on which he actually retires, which shall be his Late Retirement Date. Such pension shall be in an amount based on his Final Average Compensation and his Years of Service with a Participating Company, as calculated under Section 3.2, rendered up to his retirement date, except that in no event shall there be accruals for years in excess of the maximum years of service taken into account under Section 3.2. 3.5 DISABILITY RETIREMENT PENSION: (a) ELIGIBILITY AND COMMENCEMENT DATE: A Participant who separates from service by reason of Disability shall be eligible for a Benefit under the Plan. The Benefit shall commence on the first day of the month coincident with or next following the determination by the Committee of the Participant's Disability. Disability shall be considered to have ended, and entitlement to a Benefit shall cease, if, prior to his Normal Retirement Date, the Participant: (a) Is reemployed by a Participating Company; (b) Engages in any substantially gainful activity, except for such employment as is found by the Committee to be for the primary purpose of rehabilitation or not incompatible with a finding of total and permanent disability; (c) Has sufficiently recovered in the opinion of the Committee, based on a medical examination by a doctor or clinic appointed by the Committee, to be able to engage in regular employment with a Participating Company and refuses an offer of employment by a Participating Company; or (d) Refuses to undergo any medical examination requested by the Committee, provided that a medical examination shall not be required more frequently than twice in any calendar year. If entitlement to a Benefit ceases in accordance with the provisions of this Section 3.5(a), such Participant shall not be prevented from qualifying for a Benefit under another provision of the Plan, and the - 8 - Disability Benefit payments received shall be disregarded in computing the amount of such Benefit. However, the Participant shall not be credited with Years of Service during the period he receives or could have received a Disability retirement pension pursuant to this Section 3.5(a). (b) AMOUNT AND MANNER OF PAYMENT: (1) AMOUNT: The amount of the Disability Benefit, on a single-life basis, shall be determined in the same manner as the normal retirement benefit under Section 3.2, based upon his Years of Service rendered to the date of Disability, calculated in the same manner as set forth in Section 3.2, and reduced by three percent (3%) for each year by which the commencement of payment precedes the date he attains his Normal Retirement Age. 3.6 SEPARATION: A Participant shall be fully vested in his Benefit under the Plan pursuant to the schedule set forth in Section IV. Any Participant who separates from the service of a Participating Company (other than for purposes of transferring to another Participating Company) after he is vested in his Benefit but before his Early Retirement Date shall be entitled to a deferred pension commencing at the date which would have been his Normal Retirement Date, unless the Participant irrevocably elects no later than the later of (a) 30 days prior to his termination of employment with the Participating Companies, or (b) 30 days prior to the beginning of his taxable year in which occurs his Annuity Starting Date, to have payment commence on a date specified by him which date must be (i) after the date he terminates employment with the Participating Companies, (ii) no earlier than the first day of his taxable year following the date of his election, (iii) no earlier than the date which would have been his Early Retirement Date, and (iv) prior to the date which would have been his Normal Retirement Date. The amount of the deferred pension shall be in accordance with the Participant's vested Accrued Benefit calculated as of the date of his separation from service, but reduced by 5% for each year by which the Participant's Annuity Starting Date precedes the date on which he attains his Normal Retirement Age. 3.7 MAXIMUM ANNUAL DOLLAR BENEFIT: The maximum annual dollar Benefit under the Plan shall be equal to $100,000 for those Participants who are at the level of Vice President and $200,000 for those Participants who are at the level of Executive Vice President and $250,000 for the President. The maximum Benefit provided under this Section 3.7 shall be increased annually as of each February 1, at 4% compounded annually. 3.8 FORMS OF BENEFIT: A Participant's Benefit under this Plan may be paid in any one of the following forms, each of which shall be the Actuarial Equivalent - 9 - of the vested Benefit (I.E. , the single life annuity under Section 3.2(c)) to which such Participant would otherwise be entitled: (a) SINGLE LIFE ANNUITY: A single life annuity for the Participant's life commencing on his Annuity Starting Date and ending on the date of his death. (b) JOINT AND SURVIVOR ANNUITY: An immediate annuity for the life of the Participant with a survivor annuity for the life of any individual designated Beneficiary which is equal to 50%, 66-2/3%, 75% or 100% of the amount of the annuity payable during the joint lives of the Participant and his Beneficiary. (c) SINGLE LUMP SUM PAYMENT: A single sum payment in lieu of any other benefits under the Plan in complete discharge of all obligations to the Participant under the Plan. (d) Any other form of benefit as the Committee, in its sole discretion, may determine. 3.9 BENEFICIARY DESIGNATION AND PROOF: (a) DESIGNATION OF BENEFICIARY: At any time, and from time to time, each Participant and former Participant shall have the unrestricted right to designate the Beneficiary to receive the benefits due such Participant or former Participant under the Plan upon his death, and to revoke any such designation. Each such designation, or revocation thereof, shall be evidenced on the form signed by the Participant and filed with the Committee. If no such designation is on file with the Committee at the time of the death of a Participant or former Participant, or if such designation is not effective for any reason, as determined by the Committee, then the Surviving Spouse shall be the Beneficiary, or if there is no Surviving Spouse, the executor of the will or administrator of the estate of such Participant or former Participant shall be conclusively deemed to be the Beneficiary designated to receive such death benefit. (b) DOCUMENTARY PROOF: The Committee and the Trustee may require the execution and delivery of such documents, papers, and receipts as they may deem reasonably necessary in order to be assured that the payment of any death benefit is made to the person or persons entitled thereto. - 10 - ARTICLE IV VESTING 4.1 GENERAL: (a) A Participant shall become fully vested in his Benefit in accordance with the following schedule: AGE OF PARTICIPANT YEARS OF PARTICIPATION ------------------ ---------------------- 45 or under 10 46 9 47 8 48 7 49 6 50 and over 5 (b) Notwithstanding the above, a Participant's Benefit under the Plan shall become nonforfeitable should any one of the following events occur prior to the Participant becoming fully vested in his Benefit as described in Subsection (a) above: (i) The Company undergoes a Change in Control. (ii) The Participant incurs a Disability. (iii) The death of the Participant. (c) For purposes of this Section 4.1, "Year of Participation" shall mean each Plan Year that an Eligible Executive is a Participant in the Plan and Years of Service at the level of Vice President or higher prior to the Effective Date. (d) If a Participant terminates employment prior to vesting, his Years of Participation and Years of Service prior to his termination of employment shall be cancelled. 4.2 DIVESTMENT FOR CAUSE: Notwithstanding any provision in the Plan to the contrary, any Benefit payable under this Plan shall be forfeited in the event it is found by the Committee that a Participant during employment with a Participating Company: - 11 - (a) willfully failed to perform the functions and assume the responsibilities of his position in accordance with the terms of his employment agreement, if applicable, which failure amounts to material neglect of the duties of his position, after a written demand for substantial performance is delivered to the Participant by the Participating Company; (b) willfully engaged in conduct which is materially injurious to the Participating Company or any of its subsidiaries or Affiliates, monetarily or otherwise; (c) misappropriated (including the unauthorized use of disclosure of confidential or proprietary information of the Participating Company or any of its subsidiaries or Affiliates) or embezzled with respect to the Participating Company or any of its subsidiaries or Affiliates; (d) was convicted of, or pleaded guilty or confessed to any fraud, conversion, misappropriation, embezzlement or felony; or (e) failed to substantially perform any material covenant under his employment agreement after a written demand for substantial performance is delivered by the Participating Company, or the taking of any action in the course of the Participant's employment under his employment agreement, if applicable, that is known by the Participant to have been prohibited by the Participating Company's policy or by his employment agreement, if applicable. The Committee's decision as to Divestment for Cause shall be final and binding on all persons interested in the Plan. ARTICLE V DEATH BENEFITS 5.1 DEATH PRIOR TO TERMINATION OF EMPLOYMENT: If a Participant dies prior to termination of employment with the Company, a death benefit shall be payable to a Participant's Beneficiary within a reasonable period of time following the death of the Participant. The amount of the death benefit shall be the Participant's Benefit at the time of the Participant's death determined as though the Participant was vested and retired on the day before his death. The death benefit payable under this Section 5.1 shall be paid in a single lump sum distribution. - 12 - ARTICLE VI PAYMENT OF BENEFITS 6.1 PLAN UNFUNDED: Benefits under this Plan shall not be funded and shall be paid out of the general assets of the Participating Company. However, the Company may establish a grantor trust within the meaning of section 671 of the Code, to which the Company may make contributions in order to provide for the payment of Benefits under the Plan. No Participant, former Participant, Spouse, or Beneficiary shall have any property interest whatsoever in any specific assets of the Company as a result of this Plan. A Participant, former Participant, Spouse, or Beneficiary shall have only the rights of a general, unsecured creditor against the Participating Company for any distributions due under this Plan. 6.2 ACCELERATION OF PAYMENTS: Notwithstanding any other provision of the Plan, if the Committee determines, based on a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his delegate, a decision by a court of competent jurisdiction involving a Participant, or a closing agreement involving a Participant made under section 7121 of the Code that is approved by the Commissioner, that such Participant or Beneficiary has recognized or will recognize income for Federal income tax purposes with respect to deferred Benefits that are or will be payable to the Participant under Article III before they otherwise would be paid to the Participant or the Beneficiary (as applicable), upon the request of the Participant or Beneficiary, the Committee shall immediately make distribution from the Plan to the Participant or Beneficiary of the amount so taxable. Moreover, in the event of a Change in Control, payment of Benefits provided under Article III shall be made to the Participant immediately. Payments made as a result of a Change in Control shall be in the form of a single lump sum and shall equal the "Present Value" of the Benefit payable to the Participant under Article III as determined on the date of the Change in Control. For purposes of this Section 6.2, "Present Value" shall be calculated using the interest assumption used in determining the Actuarial Equivalent of the Participant's Benefit under the Plan, provided, however, that in the event of a Change in Control, a Participant who has not attained age 55 as of the date of the Change in Control shall be treated as if such Participant has attained age 55 for purposes of determining the Actuarial Equivalent of the Participant's Benefit and the reduction described in Section 3.3. - 13 - ARTICLE VII ADMINISTRATION 7.1 APPOINTMENT OF COMMITTEE: To supervise and administer the Plan, the Board shall appoint a Committee consisting of not less than three persons who shall serve without compensation and at the pleasure of the Board. Any member of the Committee may be removed at any time by the Board, which shall fill all vacancies in the Committee, however occurring (if there are less than three persons remaining on the Committee; if there are more than three persons remaining on the Committee the Board may, but is not required to, fill such vacancy or vacancies). Until a new appointment is made, the Committee shall have full authority to act. In the absence of such appointments, the senior human resources, financial and legal officers of the Company shall serve as the Committee with the full authority to take all Committee actions permitted under the Plan. 7.2 ORGANIZATION: The Committee shall enact such rules and regulations consistent with the Plan as it may consider desirable for the conduct of its business and for the administration of the Plan. Its members shall elect a chairman, who shall be a member of the Committee, and a secretary who may, but need not, be a member of the Committee. 7.3 COMMITTEE ACTION: A majority of the members of the Committee shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Committee at any meeting shall be by vote of the majority of the Committee members present at such meeting. Resolutions may be adopted or other action taken without a meeting upon written consent signed by all of the members of the Committee. No member of the Committee shall act on any matter which involves his personal interest or benefit under the Plan as distinguished from the general interest of all Participants. The Committee shall maintain full and complete records of its deliberations and decisions, and the minutes of its proceedings shall be conclusive proof of the facts stated therein. 7.4 CLAIMS PROCEDURE: (a) FILING CLAIM FOR BENEFITS: An individual (hereinafter referred to as the "Applicant," which reference shall include the legal representative, if any, of the individual) who believes himself entitled to benefits hereunder, and who has not begun to receive these benefits, may make a claim for those benefits in the manner hereinafter provided. - 14 - All claims for benefits under the Plan shall be made in writing and shall be signed by the Applicant. Claims shall be submitted to a representative designated by the Committee and hereinafter referred to as the "Claims Coordinator." The Claims Coordinator may, but need not, be a member of the Committee. If the Applicant does not furnish sufficient information with the claim for the Claims Coordinator to determine the validity of the claim, the Claims Coordinator shall furnish the Applicant with forms prescribed by the Committee within twenty-one days of receipt of the initial claim, indicating any additional information which is necessary for the Claims Coordinator to determine the validity of the claim. Each claim hereunder shall be acted on and approved or disapproved by the Claims Coordinator within 60 days following the receipt by the Claims Coordinator of the information necessary to process the claim. In the event the Claims Coordinator denies a claim for benefits, in whole or in part, the Claims Coordinator shall notify the Applicant in writing of the denial of the claim and notify such Applicant of his right to a review of the Claims Coordinator's decision by the Committee. Such notice by the Claims Coordinator shall also set forth, in a manner calculated to be understood by the Applicant, the specific reason for such denial, the specific Plan provisions on which the denial is based, a description of any additional material or information necessary to perfect the claim, with an explanation of why such material or information is necessary, and an explanation of the Plan's claim review procedure as set forth in this Section 7.4. If no action is taken by the Claims Coordinator on an Applicant's claim within 60 days after receipt by the Claims Coordinator, such application shall be deemed to be denied for purposes of the following appeals procedure. (b) APPEALS PROCEDURE: Any Applicant whose claim for benefits is denied in whole or in part (such Applicant being hereinafter referred to as the "Claimant") may appeal from such denial to the Committee for a review of the decision by the entire Committee. Such appeal must be made within six months after the Claimant has received written notice of the denial as provided above. An appeal must be submitted in writing within such period and must: (1) Request a review by the entire Committee of the claim for benefits under the Plan; (2) Set forth all of the grounds upon which the Claimant's request for review is based and any facts in support thereof; and - 15 - (3) Set forth any issues or comments which the Claimant deems pertinent to the appeal. The Committee shall regularly review appeals by Claimants. The Committee shall act upon each appeal within 60 days after receipt thereof unless special circumstances require an extension of the time for processing the Claimant's request for review. If such an extension of time for processing is required, written notice of the extension shall be forwarded to the Claimant prior to the commencement of the extension. In no event shall such extension exceed a period of 120 days after the request for review is received by the Committee. The Committee shall make a full and fair review of each appeal and any written materials submitted by the Claimant or a Participating Company in connection therewith. The Committee may require the Claimant or a Participating Company to submit such additional facts, documents, or other evidence as the Committee in its discretion deems necessary or advisable in making its review. The Claimant shall be given the opportunity to review pertinent documents or materials upon submission of a written request to the Committee, provided the Committee finds the requested documents or materials are pertinent to the appeal. On the basis of its review, the Committee shall make an independent determination of the Claimant's eligibility for benefits under the Plan. The decision of the Committee on any claim for benefits shall be final and conclusive upon all parties thereto. In the event the Committee denies an appeal, in whole or in part, the Committee shall give written notice of the decision to the Claimant, which notice shall set forth in a manner calculated to be understood by the Claimant the specific reasons for such denial and which shall make specific reference to the pertinent Plan provisions on which the Committee decision was based. It is intended that the claims procedure of this Plan be administered in accordance with the claims procedure regulations of the Department of Labor set forth in 29 CFR Section 2560.503-1. 7.5 COMMITTEE POWERS AND RESPONSIBILITIES: Except as otherwise provided in the Plan, the Committee shall have full power and authority to construe, interpret and administer this Plan and may, to the extent permitted by law, make factual determinations, correct defects, supply omissions and reconcile inconsistencies to the extent necessary to effectuate the Plan and subject to Section 7.4, the Committee's actions in doing so shall be final and binding on all persons interested in the Plan. The - 16 - Committee may from time to time adopt rules and regulations governing the operation of this Plan and may employ and rely on such legal counsel, such actuaries, such accountants and such agents as it may deem advisable to assist in the administration of the Plan. 7.6 INFORMATION FROM PARTICIPATING COMPANIES TO COMMITTEE: To enable the Committee to perform its functions, the Participating Companies shall supply full and timely information to the Committee on all matters relating to the pay and service of Participants, their retirement, Disability, death, or other cause for separation from service, and such other pertinent facts as the Committee may require. 7.7 RECORDS: The Committee shall maintain records containing all relevant data pertaining to Participants and Beneficiaries and their rights under the Plan. Records pertaining solely to a particular Participant or Beneficiary shall be made available to him for examination during business hours. 7.8 DETERMINATION OF RIGHT TO BENEFITS: Except as otherwise provided in the Plan, the Committee shall make all determinations as to the right of any person to a benefit under the Plan. The procedures relating to the submission of claims for benefits, their review, and the appeal of denied claims are set forth in Section 7.4. 7.9 INDEMNIFICATION OF THE COMMITTEE: Each member of the Committee shall be indemnified by the Participating Company against costs, expenses and liabilities (other than amounts paid in settlement to which the Participating Company did not consent) reasonably incurred by him in connection with any action to which he may be a party by reason of his service on the Committee except in relation to matters as to which he shall be adjudged in such action to be personally guilty of negligence or willful misconduct in the performance of his duties. The foregoing right to indemnification shall be in addition to such other rights as the Committee member may enjoy as a matter of law or by reason of insurance coverage of any kind, but shall not extend to costs, expenses and/or liabilities otherwise covered by insurance or that would be so covered by any insurance then in force if such insurance contained a waiver of subrogation. Rights granted hereunder shall be in addition to and not in lieu of any rights to indemnification to which the Committee member may be entitled pursuant to the bylaws of the Participating Company, Service on the Committee shall be deemed in partial fulfillment of the Committee member's function as an employee, officer and/or director of the Participating Company, if he serves in that capacity as well as in the role of Committee member. - 17 - ARTICLE VIII AMENDMENT AND TERMINATION OF PLAN; SUCCESSOR EMPLOYER 8.1 RIGHT OF COMPANY TO AMEND PLAN: (a) GENERAL: Subject to the limitations set forth in this Section 8.1, the Board may amend the Plan with respect to all Participating Companies at any time and from time to time, to the extent it may deem advisable or appropriate. (b) LIMITATIONS: No amendment shall cause or permit the duties or liabilities of the Committee to be increased without the written consent of the party affected. In addition, no amendment to the Plan (including a change in the actuarial basis for determining optional or early retirement benefits) shall be effective to the extent that it has the effect of decreasing a Participant's Benefit under Article III (determined as of the date on which the amendment becomes effective). No amendment shall be permitted on or after the day preceding the date of a Change in Control without the consent of at least 51% of the Participants participating in the Plan on the day before the date of such Change in Control. 8.2 AMENDMENT PROCEDURE: Any amendment shall be made only pursuant to action of the Board. A certified copy of the resolutions adopting any amendment and a copy of the adopted amendment as executed by the Company shall be delivered to the Committee and communicated to the Participants. Upon the taking of such action by the Board, the Plan shall be deemed amended as of the date specified as the effective date by such Board action or in the instrument of amendment. The effective date of any amendment may be before, on, or after the date of such Board action. 8.3 TERMINATION OF PLAN: The Company reserves, with respect to all Participating Companies, the right to terminate the Plan at any time. Moreover, each other Participating Company reserves the right to terminate the Plan as to such Participating Company as provided herein. Upon termination of the Plan, each Participant shall become vested in his Benefit and shall continue to have the right to receive his vested Benefit under Article III (determined as of the date on which the Plan is terminated) in accordance with the terms of the Plan as in effect immediately prior to its termination. - 18 - 8.4 SUCCESSOR EMPLOYER: In the event of the dissolution, merger, consolidation, or reorganization of a Participating Company, other than a Change in Control, provision may be made by which the Plan will be continued by the successor to such Participating Company; and, in that event, such successor shall be substituted for the Participating Company under the Plan. The substitution of the successor shall constitute an assumption of Plan liabilities by the successor and the successor shall have all of the powers, duties, and responsibilities of the Participating Company under the Plan. Neither the Company nor any Participating Company nor Affiliate shall have any further liability with respect to the making of contributions on behalf of the employees of any such Participating Company which continues the Plan for its employees. Notwithstanding the above, if the Participant does not consent to the assumption of Plan liabilities by a successor to the Participating Company with respect to his Benefit accrued under the Plan as of the effective date of the dissolution, merger, consolidation or reorganization, the liabilities relating to such Participant's Benefit shall remain with the Participating Company. ARTICLE IX MISCELLANEOUS 9.1 NO RIGHT TO EMPLOYMENT: Participation in the Plan shall not be deemed to be consideration for, an inducement to, or a condition of the employment of any employee. The establishment of the Plan shall not confer upon any employee or Participant the right to be continued in the employ of a Participating Company, and the Participating Company expressly reserves the right to terminate the employment of any employee, whether or not a Participant, whenever the interest of the Participating Company, in its sole judgment, may so require. 9.2 RIGHT TO WITHHOLD: The Company shall have the right to withhold from all distributions from the Plan any Federal, state, or local taxes required by law to be withheld with respect to such distributions. 9.3 NONALIENATION OF BENEFITS: Except as otherwise required by applicable law, the right of any Participant or Beneficiary to any Benefit or interest under any of the provisions of this Plan shall not be subject to attachment, execution, garnishment, assignment, alienation, transfer, or anticipation, either by the voluntary or involuntary act of any Participant or his Beneficiary or by operation of law, nor shall such payment, right, or interest be subject to any other legal or equitable process. In cases involving a dispute relating to provision of child support, alimony payments or marital property rights to a spouse, former spouse or other dependent of the Participant, - 19 - the Participating Employers will observe the terms of the Plan unless and until ordered to do otherwise by a state or Federal court. 9.4 EXPENSES OF PLAN: All expenses of the Plan shall be paid by the Participating Companies. 9.5 INCAPACITATED BENEFICIARIES: If any Participant or Beneficiary entitled to receive a Benefit hereunder shall at any time be mentally or physically incapacitated, or for any other reason shall be incapable of properly or legally receipting for, receiving, and dispensing the Benefit to which he is entitled hereunder, the Benefit shall be paid to a duly appointed and acting conservator or guardian, or other legal representative of such Participant or Beneficiary, if any, and if no such legal representative is appointed and acting, to such person or persons as the Committee may designate. Such payments shall, to the extent made, be deemed a complete discharge for such payments under the Plan. 9.6 GENDER AND NUMBER: Whenever any words are used herein in any specific gender, they shall be construed as though they were also used in any other applicable gender. The singular form, whenever used herein, shall mean or include the plural form, and VICE VERSA, as the context may require. 9.7 LAW GOVERNING CONSTRUCTION: The construction and administration of the Plan, and all questions pertaining thereto, shall be governed by ERISA and other applicable Federal law and, to the extent not governed by Federal law, by Massachusetts law. 9.8 LOST PAYEES: Any Benefit payable under the Plan shall be deemed forfeited if the Committee is unable to locate the Participant or Beneficiary to whom payment is due; provided, however, that such Benefit shall be reinstated if a claim is made by the Participant or Beneficiary for the forfeited Benefit. 9.9 HEADINGS NOT A PART HEREOF: Any headings preceding the text of the several Articles, Sections, subsections, or paragraphs hereof are inserted solely for convenience of reference and shall not constitute a part of the Plan, nor shall they affect its meaning, Construction, or effect. 9.10 SEVERABILITY OF PROVISIONS: If any provision of this Plan is determined to be void by any court of competent jurisdiction, the Plan shall continue to operate and, for the purposes of the jurisdiction of that court only, shall be deemed not to include the provision determined to be void. - 20 - 9.11 REPORTING AND DISCLOSURE REQUIREMENTS: In order to comply with the requirements of Title I of ERISA, the Committee shall: (a) File a statement with the Secretary of Labor that includes the name and address of the employer, the employer identification number assigned by the Internal Revenue Service, a declaration that the employer maintains the Plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and a statement of the number of such plans and the number of employees in each; and (b) Provide plan documents, if any, to the Secretary of Labor upon request as required by section 104(a)(1) of ERISA. It is intended that this provision comply with the requirements of DOL Reg. 2530.104-23. This method of compliance is available to the Plan only so long as the Plan is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and for which benefits are paid as needed solely from the general assets of the employer or are provided exclusively through insurance contracts or policies, the premiums for which are paid directly by the employer from its general assets, issued by an insurance company or similar organization which is qualified to do business in any State, or both. ARTICLE X ADOPTION OF PLAN BY AFFILIATES 10.1 ADOPTION OF PLAN: The Plan may be adopted by any Affiliate provided: (a) The Company consents to such adoption; (b) The Board of Directors or other governing entity of the Affiliate adopts the Plan by appropriate action; and (c) The adopting Affiliate executes such documents as may be required to make such Affiliate a party to the Plan as a Participating Company. An Affiliate which adopts the Plan shall thereafter be a Participating Company with respect to its Employees for purposes of the Plan. - 21 - 10.2 COMPANY APPOINTED AGENT OF PARTICIPATING COMPANY: Each Participating Company appoints the Company as its agent to exercise on its behalf all of the powers and authority conferred upon the Company by this Plan, including, without limitation, the power to amend the Plan or to terminate the Plan. 10.3 WITHDRAWAL FROM PLAN: Any Participating.Company may, at any time, withdraw from the Plan upon giving the Company and the Committee at least 30 days' notice in writing of its intention to withdraw. IN WITNESS WHEREOF, Hills Department Store Company has caused these presents to be duly executed, under seal this 19th day of May, 1995. HILLS DEPARTMENT STORE COMPANY (Corporate Seal) Attest: /s/ William K. Friend By: /s/ Michael Bozic -------------------------- ----------------------------- Secretary Chief Executive Officer - 22 - APPENDIX A ACTUARIAL SCHEDULE Interest: 7.5% per annum for all Actuarial Equivalent benefits other than lump sums. Mortality Table: The UP-1984 Table. Deviations: For purposes of determining Actuarial Equivalent benefits under the lump sum option, the interest rate used shall be the average annual rate on 30-year Treasury securities for the month immediately preceding the month before the date of distribution. - 23 - APPENDIX B ELIGIBLE EXECUTIVES
YEARS OF SERVICE NAME TITLE AS OF FEBRUARY 1, 1995 - ---- ----- ---------------------- Kim Ahlholm Vice President 2 Frederick L. Angst Vice President 2 Michael Bozic President & Chief 5 Executive Officer Don Brown Vice President 3 Bruce Caldwell Vice President 2 Gentry Crosby Vice President 4 James Feldt Vice President 6 James Fitzpatrick Vice President 5 David Fletcher Vice President 2 William Friend Vice President 17 Michael Heffner Vice President 6 Elizabeth Jo Lepley Vice President 2 Gary MacRae Vice President 6 Lawrence Miller Vice President 16 Alex Nemeth Vice President 7 John Reen Executive Vice President 17 Andrew Samuto Executive Vice President 24 Jackson Smailes Executive Vice President 4 Susan Sprunk Vice President 3 Robert Stevenish Executive Vice President 4
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