-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WoLBAgZvlysgQQ5CzY8HDgOVxLqqMd9+vD5IGMcR9MTRZ7+Ei4UEvc17QE45N/Kv YXGu9Xi5uRf8x01ZqRvpwQ== 0000950135-96-002628.txt : 19960617 0000950135-96-002628.hdr.sgml : 19960617 ACCESSION NUMBER: 0000950135-96-002628 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19960614 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: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-05003 FILM NUMBER: 96580791 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE VISION INC CENTRAL INDEX KEY: 0000914410 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043033031 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-05003-01 FILM NUMBER: 96580792 BUSINESS ADDRESS: STREET 1: 15 DAN ROAD CITY: CANTON STATE: MA ZIP: 02021-9128 BUSINESS PHONE: 6178211000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILLS DEPARTMENT STORE CO CENTRAL INDEX KEY: 0001015692 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043201920 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-05003-02 FILM NUMBER: 96580793 BUSINESS ADDRESS: STREET 1: 15 DAN ROAD CITY: CANTON STATE: MA ZIP: 02021-9128 BUSINESS PHONE: 6178211000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANTON ADVERTISING INC CENTRAL INDEX KEY: 0001015693 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043201920 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-05003-03 FILM NUMBER: 96580794 BUSINESS ADDRESS: STREET 1: 15 DAN ROAD CITY: CANTON STATE: MA ZIP: 02021-9128 BUSINESS PHONE: 6178211000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: C R H INTERNATIONAL INC CENTRAL INDEX KEY: 0001015695 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043201920 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-05003-04 FILM NUMBER: 96580795 BUSINESS ADDRESS: STREET 1: 15 DAN ROAD CITY: CANTON STATE: MA ZIP: 02021-9128 BUSINESS PHONE: 6178211000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HDS TRANSPORT INC CENTRAL INDEX KEY: 0001015696 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043201920 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-05003-05 FILM NUMBER: 96580796 BUSINESS ADDRESS: STREET 1: 15 DAN ROAD CITY: CANTON STATE: MA ZIP: 02021-9128 BUSINESS PHONE: 6178211000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILLS DISTRIBUTING CO CENTRAL INDEX KEY: 0001015697 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043201920 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-05003-06 FILM NUMBER: 96580797 BUSINESS ADDRESS: STREET 1: 15 DAN ROAD CITY: CANTON STATE: MA ZIP: 02021-9128 BUSINESS PHONE: 6178211000 S-4/A 1 AMENDMENT NO. 1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 14, 1996 REGISTRATION NO. 333-05003 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- AMENDMENT NO. 1 TO 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) ----------------- 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)
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. VICE PRESIDENT-SECRETARY AND CORPORATE COUNSEL HILLS STORES COMPANY 15 DAN ROAD CANTON, MASSACHUSETTS 02021 (617) 821-1000 Name, Address, Including Zip Code, and Telephone (Number, Including Area Code, of Agent for Service) ----------------- COPY TO: BARRY B. WHITE, ESQ. FOLEY, HOAG & ELIOT LLP ONE POST OFFICE SQUARE BOSTON, MASSACHUSETTS 02109 (617) 832-1000 ----------------- 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/ 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. ================================================================================ 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
FORM S-4 ITEM NO. LOCATION IN PROSPECTUS - -------- ---------------------- 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
(i) 3
FORM S-4 ITEM NO. LOCATION IN PROSPECTUS - -------- ---------------------- 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
(ii) 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 JUNE 13, 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 wholly-owned subsidiaries Hills Department Store Company, Canton Advertising, Inc., Corporate Vision, Inc., C.R.H. International, Inc., HDS Transport, Inc., and Hills Distributing Company, "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 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 Current Report on Form 8-K dated April 5, 1996; (3) the Company's definitive Proxy Statement dated May 10, 1996; and (4) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May 4, 1996 (the "Form 10-Q"). 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. The financial statements contained in the foregoing reports and documents do not contain separate financial statements of the Guarantors because (1) the Guarantors constitute all of the Company's direct and indirect subsidiaries, (2) they have fully and unconditionally guaranteed the Series B Notes on a joint and several basis, (3) their aggregate assets, liabilities, earnings and equity are substantiontially equivalent to those of the Company on a consolidated basis, and (4) separate financial statements are not deemed to be material to investors. 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. ------------------- 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 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 7 THE EXCHANGE OFFER 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
4 8 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.
5 9 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.
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. 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 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) will be identical to 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." 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.
7 11 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."
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 Form 10-Q and the consolidated financial statements (including the notes thereto) included in the Form 10-K and the Form 10-Q.
Successor Company(1) -------------------------------------------------------------- Quarter Ended ------------------ Fifty-Three Fifty-Two Seventeen May 4, April 29, Weeks Ended Weeks Ended Weeks Ended 1996 1995 Feb. 3, 1996 Jan. 28, 1995 Jan. 29, 1994 ------ --------- ----------- ------------- ------------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales .............................. $370,248 $362,862 $1,900,104 $ 1,872,021 $ 772,685 | Cost of sales .......................... 270,985 261,552 1,384,421 1,340,221 549,651 | Operating earnings (loss)............... (16,674) 1,476 32,266 106,963 75,354 | Interest expense ....................... 13,665 10,971 49,497 38,712 13,141 | Net earnings (loss)(2) ................. (14,738) (4,337) (16,666) 40,431 36,235 | Ratio of earnings to fixed charges(3) .. -- -- -- 2.33x 4.16x | OPERATING AND OTHER FINANCIAL DATA: Gross margin ........................... 26.8 % 27.9 % 27.1 % 28.4% 28.9% | Comparable store sales growth(4) ....... (1.7)% (3.9)% (3.9)% 5.1% N/A | Number of stores open at end of period . 164 156 164 154 151 | Number of stores remodeled in period ... 4 10 33 38 -- | Capital expenditures(5) ................ 6,573 16,316 $ 56,714 $ 38,458 $ 3,070 | EBITDA(6) .............................. 5,385 10,662 119,344 138,133 86,682 | Pro forma cash interest expense(7) ..... 12,516 52,354 Pro forma ratio of EBITDA to cash interest expense(7) .......... .43x 2.28x Predecessor Company(1) - ------------------------------------------- Thirty-Five Fifty-Two Fifty-Two Weeks Ended Weeks Ended Weeks Ended Oct. 2, 1993 Jan. 30, 1993 Feb. 1, 1992 ------------ ------------- ------------ $ 992,848 $ 1,750,266 $ 1,679,866 710,299 1,249,812 1,214,090 14,805 78,549 53,192 13,648 22,016 25,551 250,154 49,696 22,512 -- 2.17x 1.46x 28.5% 28.6% 27.7 % N/A 4.2% (1.8)% 151 154 154 32 40 6 $ 27,162 $ 40,066 $ 11,487 42,803 117,578 89,485
At May 4, 1996 ----------------------------- Actual Pro Forma(8) -------- ------------ (IN THOUSANDS) BALANCE SHEET DATA: Working capital $ 174,421 $174,116 Total assets 1,079,808 919,573 Total debt, including current portion 540,774 386,049 Preferred stock 21,498 21,498 Total common shareholders' equity 243,172 241,174
(footnotes appear on following page) 8 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 $29.9 million for the quarter ended May 4, 1996, $8.0 million for the quarter ended April 29, 1995, $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 by $30.7 million for the quarter ended May 4, 1996 and $16.3 million for fiscal 1995. (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, impairment of long-lived assets, extraordinary gains, reorganization items and, with respect to fiscal 1994, certain other income items totalling $9.7 million ("EBITDA"). During the quarter ended May 4, 1996, the Company recorded a charge for the impairment of long-lived assets totalling $11.7 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 and the Form 10-Q. 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 $1.9 million and $6.0 million of non-cash deferred financing costs for the quarter ended May 4, 1996 and the fifty-three weeks ended February 3, 1996, respectively, 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 May 4, 1996. See "Capitalization" for long-term debt and common shareholders' equity pro forma adjustments. See also "Use of Proceeds." 9 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 May 4, 1996, on a pro forma basis after giving effect to the issuance of 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 $386.0 million, its preferred stock would have been $21.5 million and its total common shareholders' equity would have been $241.2 million, resulting in a total capitalization of $648.7 million and total debt as a percentage of total capitalization of 59.5%. 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 the quarter ended May 4, 1996 and fiscal 1995, respectively, on a pro forma basis after giving effect to the issuance of the Series A Notes and the application of the net proceeds thereof, would have exceeded its earnings in that quarter by $30.7 million and in that year by $16.3 million (including the $11.7 million impairment of long-lived assets charge in the quarter and the effect of $45.5 million of change in control costs for the year). 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 and the Form 10-Q. 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 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 B Guarantees, like the Series A Guarantees, will be contractually subordinated to the prior payment in full of the principal of and interest on indebtedness out- standing 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. 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 of fiscal 1995. 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 decreased by 1.7% for the quarter. The loss in the first quarter of fiscal 1996 included a pre-tax, non-cash charge of $11.7 million ($6.8 million after tax) for the impairment of long-lived assets. 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. 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 decreased to 48.6% in the first quarter of fiscal 1996 from 49.9% in the comparable period of fiscal 1995. Hills expects that this percentage may decline further in the last three quarters of 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 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 June 13, 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 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 the Series A Notes for which the Series B Notes have been exchanged), or any of the Guarantors, at the time it issues its Series B Guarantee (or its Series A 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, (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 or the Series A 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 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 (and the Series A Notes and the Series A Guarantees were) 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 after the issuance of the Series A Notes and the Series A Guarantees) will be (and were) solvent, will have (and had) sufficient capital for carrying on their respective businesses and will be (and were) 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 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. 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 on July 1, 1996 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 approximately 30 days after 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 15 19 bankruptcy. See "Prospectus Summary--The Company," "Capitalization" and "Description of Other Indebtedness--1993 Notes." The remaining net proceeds are available for working capital and other general corporate purposes. 16 20 CAPITALIZATION The following table sets forth as of May 4, 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 Form 10-Q and the consolidated financial statements (including the notes thereto) included in the Form 10-K and the Form 10-Q.
May 4, 1996 ---------------------- Actual As Adjusted ------ ----------- (DOLLARS IN THOUSANDS) Total debt, including current portion: Revolving Credit Facility(1) ............................................... $ 43,000 $ 43,000 12 1/2% Senior Notes due 2003 and 12 1/2% Senior Notes due 2003, Series B .. 195,000 195,000 10.25% Senior Notes due 2003 ............................................... 154,725 -- Obligations under capital leases ........................................... 122,880 122,880 Financing obligation - sale/leaseback ...................................... 25,169 25,169 -------- -------- Total debt .............................................................. 540,774 386,049 -------- -------- Series A convertible preferred stock, $0.10 par value; 15,000,000 shares authorized; 1,231,795 shares issued and outstanding ...................................................... 21,498 21,498 -------- -------- Common shareholders' equity(2) 243,172 241,174 -------- ------- Total capitalization .............................................. $805,444 $648,721 ======== ========
(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) Common shareholders' equity, 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 $2.5 million in principal amount of 1993 Notes remaining subject to issuance as of the date hereof. 17 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 statement of operations and balance sheet data for other periods, excluding the quarterly financial 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 statement of operations data for the quarters ended May 4, 1996 and April 29, 1995 and the balance sheet data as of May 4, 1996 and as of April 29, 1995 have been derived from the Company's unaudited consolidated financial statements, which have been prepared on a basis substantially consistent with the audited consolidated financial statements, and in the opinion of the Company's management reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations and financial position for these periods. The results for the quarter ended May 4, 1996 are not necessarily indicative of results for any future period. The following 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 and the Form 10-Q.
Successor Company(1) ------------------------------------------------------------------------- Quarter Ended Fifty-Three Fifty-Two Seventeen --------------------------- Weeks Ended Weeks Ended Weeks Ended May 4, 1996 April 29, 1995 Feb. 3, 1996 Jan. 28, 1995 Jan. 29, 1994 ------------ -------------- ------------ ------------- ------------- (DOLLARS IN THOUSANDS) | STATEMENT OF OPERATIONS DATA: | Net sales ................................ $ 370,248 $362,862 $1,900,104 $1,872,021 $ 772,685 | Cost of sales ............................ 270,985 261,552 1,384,421 1,340,221 549,651 | Selling and administrative expenses ...... 94,118 90,734 398,836 389,189 136,352 | Depreciation and amortization ............ 10,113 9,100 39,052 35,648 11,328 | Impairment of long-lived assets........... 11,706 -- -- -- -- | Operating earnings (loss) ................ (16,674) 1,476 32,266 106,963 75,354 | Interest expense ......................... 13,665 10,971 49,497 38,712 13,141 | Income tax provision (benefit)............ (15,202) (3,679) 3,187 35,853 26,609 | Earnings (loss) before extraordinary items (14,738) (4,337) (16,666) 40,431 36,235 | Net earnings (loss)(2) ................... (14,738) (4,337) (16,666) 40,431 36,235 | Ratio of earnings to fixed charges(3) .... -- -- -- 2.33x 4.16x | | OPERATING AND OTHER FINANCIAL DATA: | Gross margin ............................. 26.8% 27.9% 27.1 % 28.4% 28.9% | Comparable store sales growth(4) ......... (1.7)% (3.9)% (3.9)% 5.1% N/A | Number of stores open at end of period ... 164 156 164 154 151 | Number of stores remodeled in period ..... 4 10 33 38 -- | Capital expenditures(5) .................. 6,573 16,316 $ 56,714 $ 38,458 $ 3,070 | EBITDA(6) ................................ 5,385 10,662 119,344 138,133 86,682 | Pro forma cash interest expense(7) ....... 12,516 52,354 | Pro forma ratio of EBITDA | to cash interest expense(7) .......... .43x 2.28x | | BALANCE SHEET DATA (AT END OF PERIOD): | Working capital .......................... $ 174,421 $154,729 $ 147,090 $ 241,486 $ 171,440 | Total assets ............................. 1,079,808 916,591 858,723 992,378 907,621 | Total debt, including current portion(8) . 540,774 314,327 309,677 315,798 296,158 | Preferred stock .......................... 21,498 27,482 24,636 64,144 100,000 | Total common shareholders' | equity (deficiency) ................... 243,172 264,139 254,663 306,741 230,235 | Predecessor Company(1) ---------------------------------------------------------------- Thirty-Five Fifty-Two Fifty-Two Weeks Ended Weeks Ended Weeks Ended Oct. 2, 1993 Jan. 30, 1993 Feb. 1, 1992 ------------ ------------- ------------ (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales ................................ $ 992,848 $1,750,266 $1,679,866 Cost of sales ............................ 710,299 1,249,812 1,214,090 Selling and administrative expenses ...... 239,766 382,946 376,361 Depreciation and amortization ............ 27,978 38,959 36,223 Operating earnings (loss) ................ 14,805 78,549 53,192 Interest expense ......................... 13,648 22,016 25,551 Income tax provision ..................... -- 26,588 12,537 Earnings (loss) before extraordinary items (8,085) 26,817 10,032 Net earnings (loss)(2) ................... 250,154 49,696 22,512 Ratio of earnings to fixed charges(3) .... -- 2.17x 1.46x OPERATING AND OTHER FINANCIAL DATA: Gross margin ............................. 28.5% 28.6% 27.7 % Comparable store sales growth(4) ......... N/A 4.2% (1.8)% Number of stores open at end of period ... 151 154 154 Number of stores remodeled in period ..... 32 40 6 Capital expenditures(5) .................. $ 27,162 $ 40,066 $ 11,487 EBITDA(6) ................................ 42,803 117,578 89,485 Pro forma cash interest expense(7) ....... Pro forma ratio of EBITDA to cash interest expense(7) .......... BALANCE SHEET DATA (AT END OF PERIOD): Working capital .......................... $ 301,980 $ 299,927 $ 261,007 Total assets ............................. 972,838 922,745 846,906 Total debt, including current portion(8) . 127,590 138,686 142,504 Preferred stock .......................... 33,143 31,481 29,049 Total common shareholders' equity (deficiency) ................... (186,934) (183,172) (230,446)
- ------------- (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 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 $29.9 million for the quarter ended May 4, 1996, $8.0 million for the quarter ended April 29, 1995, $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 by $30.7 million for the quarter ended May 4, 1996 and $16.3 million for fiscal 1995. (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, impairment of long-lived assets, extraordinary gains, reorganization items and, with respect to fiscal 1994, certain other income items totalling $9.7 million. During the quarter ended May 4, 1996, the Company recorded a charge for the impairment of long-lived assets totalling $11.7 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 and the Form 10-Q. 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 $1.9 million and $6.0 million of non-cash deferred financing costs for the quarter ended May 4, 1996 and the fifty-three weeks ended February 3, 1996, respectively, 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 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 24 The terms of the Series B Notes will be identical to 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 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 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. 23 27 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 24 28 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 25 29 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. 26 30 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. 27 31 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); 28 32 (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. 29 33 (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 30 34 redemption approximately 30 days after 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. 31 35 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 32 36 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 33 37 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 34 38 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 35 39 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 36 40 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. 37 41 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; 38 42 (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 39 43 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 40 44 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 41 45 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. 42 46 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 43 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. 44 48 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 45 49 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) 46 50 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. 47 51 "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 48 52 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 49 53 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 50 54 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. 51 55 "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 LLP, 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 an "exchange" for federal income tax purposes, such transaction should constitute a recapitalization for federal income tax purposes and holders should not recognize any gain or loss upon such transaction. 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 SUCH HOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH HOLDER'S SERIES A NOTES FOR SERIES B NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. 52 56 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. 53 57 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 LLP, 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. ("Coopers & Lybrand"), 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 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 the 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 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 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 ================================================================================ 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 Amended and Restated Certificate of Incorporation of Hills Stores Company (the "Company") 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 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(3) 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(3) 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(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 LLP. 8.1 Opinion of Foley, Hoag & Eliot LLP as to certain tax matters. 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 LLP (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 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. 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. 99.5 Form of Letter of Transmittal. - --------- * Filed previously. (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 Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended May 4, 1996. (4) Incorporated by reference from the Registration Statement on 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 fiscal 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. All required financial statement schedules are 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 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 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 June 13, 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 date indicated. SIGNATURE TITLE DATE --------- ----- ---- CHAIM Y. EDELSTEIN* _________________________________ Chairman of the Board June 13, 1996 CHAIM Y. EDELSTEIN GREGORY K. RAVEN _________________________________ Director, President and Chief June 13, 1996 GREGORY K. RAVEN Executive Officer (Principal Executive Officer) C. SCOTT LITTEN* _________________________________ Chief Financial Officer June 13, 1996 C. SCOTT LITTEN (Principal Financial Officer) KIM D. AHLHOLM* _________________________________ Vice President-Controller June 13, 1996 KIM D. AHLHOLM (Principal Accounting Officer) MARK B. DICKSTEIN* _________________________________ Director June 13, 1996 MARK B. DICKSTEIN STANTON J. BLUESTONE* _________________________________ Director June 13, 1996 STANTON J. BLUESTONE II-5 64 SAMUEL L. KATZ* _________________________________ Director June 13, 1996 SAMUEL L. KATZ JOHN W. BURDEN III* _________________________________ Director June 13, 1996 JOHN W. BURDEN III ALAN S. COOPER* _________________________________ Director June 13, 1996 ALAN S. COOPER *By: GREGORY K. RAVEN ---------------------------- ATTORNEY-IN-FACT II-6 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 June 13, 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 date indicated. SIGNATURE TITLE DATE --------- ----- ---- CHAIM Y. EDELSTEIN* _________________________________ Chairman of the Board June 13, 1996 CHAIM Y. EDELSTEIN GREGORY K. RAVEN _________________________________ Director, President and Chief June 13, 1996 GREGORY K. RAVEN Executive Officer (Principal Executive Officer) C. SCOTT LITTEN* _________________________________ Chief Financial Officer June 13, 1996 C. SCOTT LITTEN (Principal Financial Officer) KIM D. AHLHOLM* _________________________________ Vice President-Controller June 13, 1996 KIM D. AHLHOLM (Principal Accounting Officer) MARK B. DICKSTEIN* _________________________________ Director June 13, 1996 MARK B. DICKSTEIN II-7 66 STANTON J. BLUESTONE* _________________________________ Director June 13, 1996 STANTON J. BLUESTONE SAMUEL L. KATZ* _________________________________ Director June 13, 1996 SAMUEL L. KATZ JOHN W. BURDEN III* _________________________________ Director June 13, 1996 JOHN W. BURDEN III ALAN S. COOPER* _________________________________ Director June 13, 1996 ALAN S. COOPER * By GREGORY K. RAVEN ____________________________ Attorney-in-fact II-8 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 June 13, 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 date indicated. SIGNATURE TITLE DATE --------- ----- ---- GREGORY K. RAVEN ______________________________ Director and President June 13, 1996 GREGORY K. RAVEN (Principal Executive Officer and Principal Financial Officer) WILLIAM K. FRIEND ______________________________ Director and June 13, 1996 WILLIAM K. FRIEND Vice President-Secretary/Clerk KIM D. AHLHOLM* ______________________________ Vice President-Controller June 13, 1996 KIM D. AHLHOLM (Principal Accounting Officer) * By GREGORY K. RAVEN ____________________________ Attorney-in-fact II-9 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 June 13, 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/ GREGORY L. RAVEN Director and President June 13, 1996 ______________________________ (Principal Executive Officer and GREGORY K. RAVEN Principal Financial Officer) /s/ WILLIAM K. FRIEND Director and June 13, 1996 ______________________________ Vice President-Secretary/Clerk WILLIAM K. FRIEND /s/ KIM D. AHLHOLM* Vice President-Controller June 13, 1996 ______________________________ (Principal Accounting Officer) KIM D. AHLHOLM * By GREGORY K. RAVEN ____________________________ Attorney-in-fact II-10 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 June 13, 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 date indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Gregory K. Raven ______________________________ Director and President June 13, 1996 GREGORY K. RAVEN (Principal Executive Officer and Principal Financial Officer) /s/ William K. Friend ______________________________ Director and June 13, 1996 WILLIAM K. FRIEND Vice President-Secretary/Clerk /s/ Kim D. Ahlholm* ______________________________ Vice President-Controller June 13, 1996 KIM D. AHLHOLM (Principal Accounting Officer) * By GREGORY K. RAVEN ____________________________ Attorney-in-fact II-11 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 June 13, 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 date indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Gregory K. Raven ______________________________ Director and President June 13, 1996 GREGORY K. RAVEN (Principal Executive Officer and Principal Financial Officer) /s/ William K. Friend ______________________________ Director and June 13, 1996 WILLIAM K. FRIEND Vice President-Secretary/Clerk /s/ Kim D. Ahlholm* ______________________________ Vice President-Controller June 13, 1996 KIM D. AHLHOLM (Principal Accounting Officer) * By GREGORY K. RAVEN ____________________________ Attorney-in-fact II-12 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 June 13, 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 June 13, 1996 - --------------------------- (Principal Executive Officer and GREGORY K. RAVEN Principal Financial Officer) /s/ WILLIAM K. FRIEND Director and June 13, 1996 - --------------------------- Vice President-Secretary/Clerk WILLIAM K. FRIEND /s/ KIM D. AHLHOLM* Vice President-Controller June 13, 1996 - --------------------------- (Principal Accounting Officer) KIM D. AHLHOLM * By GREGORY K. RAVEN ____________________________ Attorney-in-fact
II-13 72 EXHIBIT INDEX 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. 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(3) 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(3) 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(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 LLP. 8.1 Opinion of Foley, Hoag & Eliot LLP as to certain tax matters. 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 LLP (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). 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. 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. 99.5 Form of Transmittal Letter. - --------- * Filed previously. (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 Quarterly Report on Form 10-Q of th> Company for the fiscal quarter ended May 4, 1996. (4) Incorporated by reference from the Registration Statement on 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 fiscal quarter ended July 29, 1995. (6) Incorporated by reference from the Current Report on Form 8-K of the Company January 15, 1996 EX-1.3 2 CERTIFICATE OF INCORPORATION OF COMPANY 1 EXHIBIT 1.3 CERTIFICATE OF INCORPORATION OF HILLS DEPARTMENT STORE COMPANY FIRST: The name of the corporation (the "Corporation") is: Hills Department Store Company SECOND: The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware, County of New Castle, and the name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of capital stock that the Corporation shall have the authority to issue is 1,000 shares of common stock having a par value of $.01 per share. FIFTH: In furtherance of and not in limitation of powers conferred by statute, it is further provided that: (a) Subject to the limitations and exceptions, if any, contained in the by-laws of the Corporation, the by-laws may be adopted, amended or repealed by the Board of Directors of the Corporation; and (b) Elections of directors need not be by written ballot unless, and only to the extent, otherwise provided in the by-laws. SIXTH: The Corporation shall indemnify each person who, at any time, is, or shall have been, a director or officer of the Corporation 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. The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to 2 which any such director or officer may be entitled, under any by-law, agreement, vote of directors or stockholders or otherwise. No amendment to or repeal of the provisions of this Article SIXTH shall deprive a director or officer of the benefit hereof with respect to any act or failure to act occurring prior to such amendment or repeal. SEVENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. EIGHTH: No director of the Corporation shall be personally liable to the Corporation or to any of its stockholders for monetary damages arising out of such director's breach of fiduciary duty as a director of the Corporation, 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. No amendment to or repeal of the provisions of this Article EIGHTH shall deprive any director of the Corporation of the benefit hereof with respect to any act or failure to act of such director occurring prior to such amendment or repeal. NINTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. TENTH: The name and the mailing address of the sole incorporator of the Corporation is: NAME MAILING ADDRESS William K. Friend c/o Hills Stores Company 15 Dan Road Canton, Massachusetts 02021 3 IN WITNESS WHEREOF, I have hereunto set my hand this 12th day of August, 1993. /s/ William K. Friend ------------------------- William K. Friend Sole Incorporator EX-1.4 3 BY-LAWS OF HILLS DEPT STORE 1 EXHIBIT 1.4 HILLS DEPARTMENT STORE COMPANY BY-LAWS ARTICLE I - OFFICES SECTION 1. REGISTERED OFFICE. The registered office shall be at Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the Corporation may require. ARTICLE II - MEETINGS OF STOCKHOLDERS SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place on such date and at such time as the board of directors shall each year fix, which date shall be within thirteen months subsequent to the later of the date of incorporation or the last annual meeting of stockholders. SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called by the board of directors, the chairman of the board or the president and shall be held at such place, date and time as the board of directors, the chairman of the board or the president shall fix. SECTION 3. NOTICE OF MEETINGS. Written notice of stockholder meetings stating the place, date and time of the meeting, and, in the case of special meetings, the general nature of the business to be considered, shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. SECTION 4. VOTING. Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder on the record date for the meeting, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period. All elections for directors shall be decided by a plurality of the votes cast. All other questions shall be decided by 1 2 majority vote except as otherwise provided by the certificate of incorporation or by statute. SECTION 5. STOCKHOLDER LIST. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produce and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. SECTION 6. QUORUM. At any meeting of the stockholder, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by statute or the certificate of incorporation. In case a quorum shall not be present or represented at any meeting, a majority in interest of the stockholders entitled to vote thereat, present in person or by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At any such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. SECTION 7. BUSINESS TRANSACTED. No business other than that stated in the notice shall be transacted at any meeting without consent of the holders of 66-2/3% of the outstanding shares of the corporation's common stock. SECTION 8. ACTION BY WRITTEN CONSENT. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon 2 3 were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III - DIRECTORS SECTION 1. NUMBER AND TERM. Except as otherwise provided in the certificate of incorporation, the number of directors which shall constitute the whole board shall be no less than three, the exact number to be determined by the board of directors. Election of directors shall be by written ballot. The directors shall be elected at the annual meeting of the stockholders (or at the time of the taking of action by written consent in lieu thereof) and each director elected shall hold office for a term of one year or until such director's successor is elected and qualified, except as otherwise provided herein or in the certificate of incorporation or as required by law. SECTION 2. VACANCIES. Any vacancies on the board of directors resulting from death, resignation, removal or other cause shall only be filled by the board of directors by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors, or by a sole remaining director, and newly created directorships resulting from an increase in the number of directors shall be filled by the board of directors, or if not so filled, by the stockholders at the next annual meeting thereof or at a special meeting called for that purpose in accordance with Section 2 of Article II of these by-laws or by action taken by written consent in lieu thereof). Any director elected in accordance with the preceding sentence of this Section 2 shall hold office until the next annual election (or action taken by written consent in lieu thereof) and until such director's successor shall have been elected and qualified. SECTION 3. POWERS. The business of the corporation shall be managed by or under the direction of the board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. SECTION 4. REGULAR MEETINGS. Regular meetings of the board of directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the board of directors and publicized among all directors. A notice of each regular meeting shall not be required. SECTION 5. SPECIAL MEETINGS. Special meetings of the board of directors may be called by one-third of the directors then in office or by the chairman of the board and shall be held at such place, on such date, and at such time as such directors or the chairman of the board shall fix. Notice of the place, date, and 3 4 time of each such special meeting shall be sent by overnight delivery service, mail, telegraph, facsimile transmission, telex or similar means, or be personally delivered, to each director not later than 48 hours prior to the time at which the meeting is to be held, but notice need not be given to any director who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of such notice to such director. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. SECTION 7. QUORUM AND ACTION. At any meeting of the board of directors, one-third of the total number of the whole board, but not less than two, shall constitute a quorum for all purposes. The vote of a majority of those directors present at any meeting at which a quorum is present shall be necessary for the passage of any resolution or act of the board of directors, unless as otherwise required by law, the certificate of incorporation or these by-laws. In the absence of a quorum for any such meeting, a majority of the directors present thereat may adjourn such meeting from time to time, without notice other than announcement at such meeting, until a quorum shall be present. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally noticed. SECTION 8. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors may be taken without a meeting, if all members of the board consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board of directors. SECTION 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the board of directors may participate in a meeting of such board by means of conference telephone or similar communications equipment that enables all persons participating in the meeting to hear each other. Such participation shall constitute presence in person at such meeting. SECTION 10. CONDUCT OF BUSINESS. At any meeting of the board of directors, business shall be transacted in such order and manner as the board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. SECTION 11. REMOVAL OF DIRECTORS. Any director or the entire board of directors may be removed, either for or without 4 5 cause, at any time by the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote in the election of directors at a special meeting of the stockholders called for the purposes (or by action taken by written consent in lieu thereof), and the vacancy or vacancies thus created may be filled, at the meeting held for the purpose of removal, by the affirmative vote of a majority of the shares so entitled to vote. SECTION 12. COMPENSATION. The board of directors shall have the authority to fix the compensation, if any, of the directors. SECTION 13. CHAIRMAN OF THE BOARD. The chairman of the board of directors, if one is elected, shall, if present, preside at meetings of the board of directors and, if present, preside at meetings of the stockholders. The chairman of the board shall, when requested, counsel with and advise the officers of the corporation and shall perform such other duties as may from time to time be determined by the board of directors. ARTICLE IV - COMMITTEES OF THE BOARD OF DIRECTORS SECTION 1. ESTABLISHMENT OF COMMITTEES OF THE BOARD OF DIRECTORS. The board of directors may, in accordance with and subject to the General Corporation Law of the State of Delaware, from time to time establish committees of the board of directors to exercise such powers and authorities of the board of directors and to perform such other functions, as the board of directors may from time to time determine. SECTION 2. PROCEDURE; MEETINGS; QUORUM. Regular meetings of committees of the board of directors, of which no notice shall be necessary, may be held at such times and places as shall be fixed by resolution adopted by a majority of the members of such committee. Special meetings of any committee of the board of directors shall be called at the request of any member of such committee. Notice of each special meeting of any committee of the board of directors shall be sent by overnight delivery service, mail, telegraph, facsimile transmission, telex or telephone, or be delivered personally, to each member thereof not later than 48 hours prior to the time at which the meeting is to be held, but notice need not be given to any member who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of such notice to such member. Any special meeting of any committee of the board of directors shall be a legal meeting without any notice thereof having been given, if all the members thereof shall be present thereat. Notice of any adjourned meeting of any committee of the board of directors need not be given. Any committee of the board of directors may adopt such rules and regulations not 5 6 inconsistent with the provisions of law, the certificate of incorporation, these by-laws or the resolutions of the board of directors establishing such committee for the conduct of its meetings as such committee of the board of directors may deem proper. A majority of the members of any committee of the board of directors shall constitute a quorum for the transaction of business at any meeting, and the vote of a majority of the members thereof present at any meeting at which a quorum is present shall be the act of such committee. Each committee of the board of directors shall keep written minutes of its proceedings and shall report on such proceedings to the board of directors. ARTICLE V - OFFICERS SECTION 1. OFFICERS. The officers of the corporation shall consist of a president, one or more vice presidents (any of whom may be designated as an executive vice president, senior vice president or assistant vice president and any of whom may be designated as a vice president with particular functions or responsibilities), a treasurer, a secretary and such other officers as may from time to time be elected or appointed by the board of directors or pursuant to its delegated power. Officers shall hold office until their successors are elected and qualified or until their earlier resignation or removal. None of the officers of the corporation need be directors. The officers shall be elected at the first meeting of the board of directors after each annual meeting. Any number of offices may be held by the same person. The salaries of all officers of the corporation shall be fixed by the board of directors. SECTION 2. OTHER OFFICERS AND AGENTS. The board of directors may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such power and perform such duties as shall be determined from time to time by the board of directors. SECTION 3. DELEGATED POWERS. The board of directors may delegate to the president the power to grant titles of office in the corporation to employees holding responsible positions in the corporation. SECTION 4. PRESIDENT. The president shall have the general powers and duties of supervision and management usually vested in the office of president of a corporation. The president shall, if present and in the absence of the chairman of the board, preside at all meetings of the stockholders and, if a director and present, and in the absence of the chairman of the board, preside at meetings of the board of directors. The president shall have general supervision, direction and control of all of the other officers and agents of the corporation and of the business of the corporation. The president shall have the power 6 7 to sign and execute in the name of the corporation deeds, mortgages, bonds, stock certificates, contracts and other instruments of the corporation as authorized by the board of directors. SECTION 5. VICE-PRESIDENT. Each vice-president shall have such powers and shall perform such duties as shall be assigned to him by the board of directors. SECTION 6. TREASURER. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the corporation. The treasurer shall deposit all moneys and other valuables in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. The treasurer shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements. The treasurer shall render to the president and board of directors at the regular meetings of the board of directors, or whenever they may request it, an account of all his transactions as treasurer and of the financial condition of the corporation. If required by the board of directors, the treasurer shall give the corporation a bond for the faithful discharge of his duties in such amount and with such surety as the board of directors shall prescribe. SECTION 7. SECRETARY. The secretary shall issue all authorized notices for, and shall attend and keep minutes of, all meetings of the stockholders and of the board of directors. The secretary shall have charge of the corporate books and shall have custody of the corporate seal. SECTION 8. ASSISTANT TREASURERS & ASSISTANT SECRETARIES. Assistant treasurers and assistant secretaries, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the board of directors. ARTICLE VI - STOCK SECTION 1. CERTIFICATES OF STOCK. The shares of the corporate shall be represented by a certificate or shall be uncertificated. Certificates shall be signed by, or in the name of the corporation by, the chairman of the board of directors, or the president or any vice-president of the corporation, and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation. Any of or all the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who 7 8 has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if the signatory were such officer, transfer agent or registrar at the date of issue. SECTION 2. TRANSFER OF STOCK. Transfers of stock shall be made only upon the transfer books of the corporation kept at an office of the corporation or by transfer agents designated to transfer shares of the stock of the corporation. Except where a certificate is issued in accordance with Section 4 of Article VI of these by-laws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. SECTION 3. RECORD DATE. The board of directors may fix a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for any other action hereinafter described, as of which there shall be determined the stockholders who are entitled: to notice of or to vote at any meeting of stockholders or any adjournment thereof; to express consent to corporate action in writing without a meeting; to receive payment of any dividend or other distribution or allotment of any rights; or to exercise any rights with respect to any change, conversion or exchange of stock or with respect to any other lawful action. SECTION 4. LOST CERTIFICATES. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the board of directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. SECTION 5. REGULATIONS. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the board of directors may establish. SECTION 6. DIVIDENDS. Subject to the provisions of the certificate of incorporation, the board of directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. Dividends may be paid in cash, in property, or in shares of capital stock. ARTICLE VII - GENERAL PROVISIONS SECTION 1. SEAL. The board of directors may provide a suitable seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its creation and the words "CORPORATE SEAL DELAWARE". Said seal may be used by 8 9 causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. SECTION 2. FISCAL YEAR. The fiscal year of the corporation shall be determined by resolution of the board of directors. SECTION 3. CHECKS. All checks, drafts, or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officers or such other person or person and in such manner as shall be determined from time to time by resolution of the board of directors. SECTION 4. NOTICE AND WAIVER OF NOTICE. Whenever notice is required to be given to any stockholder, director, officer or agent, such requirement shall not be construed to mean personal notice. Any notice so required may in every instance be effectively given by depositing the same in the United States mail, postage prepaid, or by sending the same by overnight delivery service, telegraph, facsimile transmission, telex or personal delivery, addressed to the person entitled there to at his address as it appears on the records of the corporation, and such notice shall be deemed to have been given on the day of such mailing, delivery or transmission. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by statute. Whenever any notice is required to be given under the provisions of any law, or under the provisions of the certificate of incorporation of the corporation or these by-laws, a written waiver thereof signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed proper notice. Neither the business nor the purpose of any meeting need be specified in such a waiver. SECTION 5. INDEMNIFICATION. (a) The corporation shall indemnify any person who 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 (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent 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 actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding,had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or 9 10 proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent 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) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (a) and (b) of this Section 5, or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, he shall, without limiting the provisions of paragraph (a) above, be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under paragraphs (a) and (b) of this Section 5 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (a) and (b) of this Section 5. Such determination shall be made (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceedings or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so 10 11 directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. (e) Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation pursuant to this Section 5 or as otherwise authorized by law. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. (f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 5 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. (g) The corporation, at its expense, may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent 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 any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Section 5 or under the provisions of the General Corporation Law of the State of Delaware. (h) The indemnification and advancement of expenses provided by, or granted pursuant to,this Section 5 shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. (i) All rights to indemnification and advancement of expenses under this Section 5 shall be deemed to be provided by contract between the corporation and the director, officer, employee or agent who serves in such capacity at any time while these by-laws and other relevant provisions of the General Corporation Law of the State of Delaware and other applicable law, if any, are in effect. (j) Any repeal or modification of the foregoing 11 12 paragraphs by the stockholders of the corporation shall not adversely affect any right or protection of a director, officer, employee or agent of the corporation existing at the time of such repeal or modification. (k) If the General Corporation Law of the State of Delaware is amended to authorize corporate action further eliminating or limiting the personal liability of directors, officers, employees or agents, then such person, in addition to the circumstances in which he is not now personally liable, shall be free of liability to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. (l) For purposes of this Section 5, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if is separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section 5 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (m) For purposes of this Section 5, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent by the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation", as referred to in this Section 5. (n) If this Section 5 or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each person as provided above as to expenses (including attorneys' fees), judgments,fines and amounts paid in settlement with respect to any action, suit or proceedings, whether civil, criminal, administrative or investigative, including a grand jury proceeding and an action by the corporation, to the full extent 12 13 permitted by any applicable portion of this Section 5 that shall not have been invalidated or by any other applicable law. ARTICLE VIII - AMENDMENTS These by-laws may be amended or repealed by the board of directors at any meeting or by the stockholders at any meeting. 13 EX-1.5 4 ARTICLES OF ORGANIZATION OF CANTON ADV. 1 EXHIBIT 1.5 DO NOT USE PHOTOCOPIES - ONLY ORIGINALS WILL BE ACCEPTED FOR FILING NOTE: ONCE DOCUMENT IS ACCEPTED AND FILED, CHANGES MUST BE BY AMENDMENT OR CERTIFICATE OF CHANGE ONLY! THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL JOSEPH CONNOLLY, SECRETARY - ---------- ONE ASHBURTON PLACE, BOSTON, MASS. 02108 Examiner ARTICLES OF ORGANIZATION (Under G.L. Ch. 156B) Incorporators NAME POST OFFICE ADDRESS Include given name in full in case of natural persons; in case of corporation, give state of incorporation. CHR International, Inc. 33 North High Street Columbus, Ohio 43215 State of incorporation - Ohio The above-named incorporator(s) do hereby associate (themselves) with the intention of forming a corporation under the provisions of General Laws, Chapter 156B and hereby state(s): - ------------ 1. The name by which the corporation shall be known is: Name Approved Canton Advertising, Inc. 2. The purpose for which the corporation is formed is as follows: a. To establish, maintain, conduct and carry on an advertising business and to engage in any other business permitted by law. b. To do all acts requisite or proper under the laws of domicile to qualify the Corporation in and to do business in, any other state, territory, the District of Columbia or dependency. c. In general to have and exercise any lawful act or activity and/or any rights, powers or privileges which are now or may hereafter be conferred upon corporations under the laws of the Commonwealth of Massachusetts. C / / P / / M / / RA / / Note: If the space provided under any article or item of this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin at least 1 inch for binding. Additions to more than one article may be continued on a single sheet so long as each article concerning each such addition is clearly indicated. - ------------- PC 2 3. The total number of shares and part value, if any, of each class of stock within the corporation is authorized as follows:
------------------------------------------------------------------------------------------------------------------ CLASS OF STOCK WITHOUT PAR VALUE WITH PAR VALUE ------------------------------------------------------------------------------------------- NUMBER OF SHARES NUMBER OF SHARES PAR AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------ Preferred $ Common 1,000 ------------------------------------------------------------------------------------------------------------------
4. If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established. NONE 5. The restriction, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are as follows: NONE 6. Other lawful provisions, if any, for the conduct and regulation of business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or its directors or stockholders, or of any class of stockholders. NONE 3 7. By laws of the corporation have been duly adopted and the initial directors, president, treasurer and clerk, whose names are set out below have been duly elected. 8. The effective date of organization of the corporation shall be the date of filing with the Secretary of the Commonwealth or if later date is desired, specify date (not more than 30 days after the date of the filing). The desired effective date of organization is the date of filing hereof with the Secretary of the Commonwealth. 9. The following information shall not for any purpose be treated as a permanent part of the Articles of Organization of the corporation: a. The post office address of the initial principal office of the corporation in Massachusetts is: 15 Dan Road Canton, Massachusetts 02021 b. The name, residence, and post office address of each of the initial directors and following officers of the corporation are as follows:
NAME RESIDENCE POST OFFICE ADDRESS President: Wes McDonough 15 Dan Road, Canton, MA 02021 Treasurer: David R. May 33 North High Street, Columbus, Ohio 43215 Clerk: William K. Friend 33 North High Street, Columbus, Ohio 43215 Directors: Herbert H. Schiff 33 North High Street, Columbus, Ohio 43215 George R. Friese 33 North High Street, Columbus, Ohio 43215 Stephen A. Goldberger 33 North High Street, Columbus, Ohio 43215 Larry Voelker 33 North High Street, Columbus, Ohio 43215
c. The date initially adopted on which the corporation's fiscal year ends is: The last Saturday in January of each year. d. The date initially fixed in the by-laws for the annual meeting of stockholders of the corporation is: The first Friday in May of each year. e. The name and business address of the resident agent, if any, of the corporation is: Wes McDonough 15 Dan Road, Canton, MA 02021 IN WITNESS WHEREOF and under the penalties of perjury the INCORPORATOR(S) sign(s) these Articles of Organization this day of 19 CRH INTERNATIONAL, INC. ---------------------------------------------- BY: /s/ William K. Friend, Secretary ---------------------------------------------- ---------------------------------------------- The signature of each incorporator which is not a natural person must be an individual who shall show the capacity in which he acts and by signing shall represent under the penalties of perjury that he is duly authorized on its behalf to sign these Articles of Organization. 4 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF ORGANIZATION GENERAL LAWS, CHAPTER 156B, SECTION 12 ----------------------------------------------------------------- I hereby certify that, upon an examination of the within written articles of organization, duly submitted to me, it appears that the provisions of the General Laws relative to the organization of corporations have been complied with, and I hereby approve said articles; and the filing fee in the amount of $150.00 having been paid, said articles are deemed to have been filed with me this 27th day of July 1984. Effective date MICHAEL JOSEPH CONNOLLY Secretary of State PHOTO COPY OF ARTICLES OF ORGANIZATION TO BE SENT TO BE FILLED IN BY CORPORATION TO: Richard C. Doran Assistant Corporate Counsel SCOA Industries, Inc. 33 North High Street Columbus, Ohio 43215 Telephone: (614) 221-7261 FILING FEE: 1/20 of 1% of the total amount of the authorized capital stock with par value, and one cent a share for all authorized shares without par value, but not less than $150. General Laws, Chapter 156B. Shares of stock with a par value of less than one dollar shall be deemed to have par value of one dollar per share. EX-1.6 5 BY-LAWS OF CANTON ADV., 1 EXHIBIT 1.6 CANTON ADVERTISING, INC. ****************************** BY LAWS ARTICLE I OFFICES Section 1. The registered office shall be located in Canton, Massachusetts. Section 2. The corporation may also have offices at such other places both within and without the Commonwealth of Massachusetts as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II ANNUAL MEETINGS OF STOCKHOLDERS Section 1. All meetings of stockholders for the election of directors shall be held at 33 North High Street, Columbus, State of Ohio. The time and place for the election of directors shall not be changed within sixty days next preceding the date on which such elections are to be held. If such change is made, a notice of the change must be given to stockholders at least twenty days before the election of directors. Section 2. Annual meetings of stockholders, commencing with the year 1985, shall be held on the first Friday in May, if not a legal holiday, and if a legal holiday, then on the secular day following, at 10:00 AM, at which they shall elect by a plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. The election of directors need not be by ballot. Section 3. Written or printed notice of the annual meeting stating the place, day and hour of the meeting shall be given to each stockholder entitled to vote thereat not less than seven days before the date of the meeting. ARTICLE III SPECIAL MEETINGS OF STOCKHOLDERS Section 1. Special meetings of stockholders for any purpose other than the election of directors may be held at such time and 2 place within or without the Commonwealth of Massachusetts as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the articles of incorporation, may be called by the President, the Board of Directors, or the holders of not less than one-tenth of all the shares of stock entitled to vote at the meeting. Section 3. Written or printed notice of a special meeting of stockholders, stating the time, place and purpose or purposes thereof, shall be given to each stockholder entitled to vote thereat, at least seven days before the date fixed for the meeting. ARTICLE IV QUORUM AND VOTING OF STOCK Section 1. The holders of a majority of the shares of stock issued and outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the articles of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders present or represented by proxy shall have the power to adjourn the meeting from time to time, without notice, other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 2. If a quorum is present, the affirmative vote of a majority of the shares of stock represented at the meeting shall be the act of the stockholders unless the vote of a greater number of shares of stock is required by law or the articles of incorporation. Section 3. Each outstanding share of stock, having voting power, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. A stockholder may vote either in person or by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact. In all elections for directors, every stockholder entitled to vote shall have the right to vote, in person or by proxy, the number of shares of stock owned by him, for as many persons as there are directors to be elected, or to cumulate the vote of said shares, and give one candidate as many votes as the number of directors multiplied by the number of his shares of stock 2 3 shall equal, or to distribute the votes on the same principle among as many candidates as he may see fit. ARTICLE V DIRECTORS Section 1. Directors need not be residents of the Commonwealth of Massachusetts nor stockholders of the corporation. The directors, other than the first Board of Directors, shall be elected at the annual meeting of the stockholders and each director elected shall serve until the next succeeding annual meeting of stockholders. The number of directors shall be not less than three nor more than twelve and shall be fixed or changed by resolution adopted by the holders of a majority of the shares present in person or by proxy at the Annual Meeting or any meeting called for the purpose of electing directors. The President of the Corporation need not be a Director. Section 2. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired portion of the term of his predecessor in office. Section 3. The business affairs of the corporation shall be managed by its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the articles of incorporation or by these by laws directed or required to be exercised or done by the stockholders. Section 4. The directors may keep the books of the corporation, except such as are required by law to be kept within the state, outside of the Commonwealth of Massachusetts, at such place or places as they may from time to time determine. Section 5. The Board of Directors, by the affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers, or otherwise. ARTICLE VI MEETINGS OF THE BOARD OF DIRECTORS Section 1. Meetings of the Board of Directors, regular or special, may be held either within or without the Commonwealth of Massachusetts. 3 4 Section 2. The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, or it may convene at such place and time as shall be fixed by the consent in writing of all the directors. Section 3. Regular meetings of the Board of Directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the Board. Section 4. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Vice Chairman of the Board, the President or any Vice President on three (3) days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the President or the Secretary in like manner and on like notice on the written request of two directors. Section 5. Attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 6. A majority of the directors shall constitute a quorum for the transaction of business unless a greater number is required by law or by the articles of incorporation. The act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by statute or by the articles of incorporation. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. ARTICLE VII EXECUTIVE COMMITTEE Section 1. The Board of Directors, by resolution adopted by a majority of the number of directors fixed by the by laws or otherwise, may designate two or more directors to constitute an executive committee, which committee, to the extent provided in such resolution, shall have and exercise all of the authority of the Board of Directors in the management of the corporation, except as otherwise required by law. Vacancies in the membership of the committee shall be filled by the Board of Directors at a regular or special meeting of the Board of Directors. The 4 5 executive committee shall keep regular minutes of its proceedings and report the same to the Board when required. ARTICLE VIII NOTICES Section 1. Whenever, under the provisions of the statutes or of the articles of incorporation or of these by laws, notice is required to be given to any director of stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice whatsoever is required to be given under the provisions of the statutes or under the provisions of the articles of incorporation or these by laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE IX OFFICERS Section 1. The general officers of the corporation shall consist of a Chairman of the Board, a Vice Chairman of the Board, a President, an Executive Vice President, one or more other Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, and such other officers as may from time to time be determined by the Board of Directors, all of whom shall have such duties and authority as may be prescribed by the by laws and such, not inconsistent with the by laws, as may be prescribed by the Board of Directors. The Board of Directors need not fill the offices of Chairman of the Board, Vice Chairman of the Board, and Executive Vice President. Any two or more of such offices, other than those of Secretary and Assistant Secretary or Treasurer and Assistant Treasurer, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument on behalf of the Corporation in more than one capacity. The officers of the Corporation shall hold office for one year and until their successors are chosen and shall qualify. Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a president, who need not be director, and shall choose one or more vice-presidents, a secretary and a treasurer, none of whom need be a member of the Board. 5 6 Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. Section 6. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors, is authorized to execute and deliver on behalf of the corporation contracts, leases and other agreements and certificates for shares, and shall have such other powers and duties as may be prescribed by the Board of Directors. Section 7. Vice Chairman of the Board. The Vice Chairman of the Board, in the absence of the Chairman of the Board, or in the event that office is vacant, shall preside at meetings of the stockholders and of the Board of Directors. He is authorized to execute and deliver on behalf of this corporation contracts, leases and other agreements and certificates for shares, and shall have such other powers and duties as may be prescribed by the Board of Directors. Section 8. The President. The President, in the absence of the Chairman of the Board and Vice Chairman of the Board, or in the event those offices are vacant, shall preside at meetings of the stockholders and of the Board of Directors. However, the President need not be a Director. He shall have general supervisory control over the affairs of the corporation, subject, however, to the direction of the Chairman of the Board and the Vice Chairman of the Board, when those offices are not vacant, and to the control of the Board of Directors. If the office of Executive Vice President is vacant, the President shall also perform the duties and be vested with the authority of that office. The President is authorized to execute and deliver on behalf of the corporation contracts, leases and other agreements, and certificates for shares. Section 9. The Executive Vice President. The Executive Vice President, if one be elected by the Board of Directors, shall be the acting operating executive officer of the corporation. He shall have general supervision, direction and active management of the business of the corporation, subject, however, to the supervision of the President and the control of the Board of Directors. He shall see that all orders and resolutions of the Board of Directors are carried into effect. He is authorized 6 7 to execute and deliver on behalf of the corporation contracts, leases and other agreements and certificates of shares. He shall submit a complete and detailed report of the operations of the corporation for the fiscal year and of its financial condition to the Board of Directors at its first regular meeting held after such report becomes available and to the stockholders at their annual meetings, and shall, from time to time, report to the Board of Directors all matters within his knowledge which the interests of the corporation may require to be brought to its notice. Section 10. The Vice President. The Vice President shall perform such duties, not inconsistent with these by laws as may be conferred upon them by these by laws or as may, from time to time, be assigned to them by the Board of Directors or the President. Each vice president is authorized to execute and deliver on behalf of the corporation all contracts, leases, extensions of leases and other agreements and certificates and certificates for shares. In the absence of the President or Executive Vice President, the Vice President designated by the President or Executive Vice President, as the case may be (or in the absence of such designation, the Vice President designated by the Board of Directors), shall perform the duties of the President or the Executive Vice President, and when so acting, shall have in addition to the powers herein specifically conferred, all the powers of the President or the Executive Vice President, for whom he is acting. The authority of Vice Presidents to sign in the name of the corporation all contracts, leases, extension of leases, and other agreements and certificates for shares shall be coordinate with like authority of the President and Executive Vice President. Section 11. The Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors and of the stockholders, in books provided by the corporation for such purpose. He shall give notice of meetings of the Board of Directors and stockholders. He shall prepare all lists of stockholders and their addresses required to be prepared by the provisions of any present or future status of the Commonwealth of Massachusetts. He is authorized to execute and deliver on behalf of the corporation, all contracts, leases, certificates for shares and other instruments, and may affix thereto the seal of the corporation. He shall have charge of such books and papers as the Board of Directors may direct. He shall file all reports to states and to the Federal Government, and in general, perform all the duties which are incident to the office of Secretary of the corporation, subject at all times to the direction and control of the Board of Directors or the President or Executive Vice President. Section 12. The Treasurer. The Treasurer shall receive and have the custody of all the funds and securities of the corporation. When necessary and proper, he shall endorse on behalf of this corporation all checks, notes or other obligations and evidences of the payment of money payable to the corporation 7 8 or coming into his possession, and shall deposit the funds arising therefrom, together with all other funds of the corporation or coming into his possession, in such banks as may be selected as depositories of the corporation or properly care for them in such other manner as the Board of Directors may direct. He shall be authorized to execute and deliver for and on behalf of the corporation all bills, notes and other evidences of indebtedness of the corporation and contracts, leases and agreements. Whenever required by the Board of Directors to do so, he shall exhibit a complete and true statement of his cash account, and of the securities and other property in his possession, custody or control. He shall cause to be entered regularly in books belonging to the corporation and to be kept for such purpose, a full and accurate account of all money received and paid by him on account of the corporation, together with all other business transactions. He shall at all reasonable times, within the hours of business, exhibit the books and accounts to any director. He is authorized to sign with other officers certificates for shares of said corporation and may affix thereto the seal of the corporation. He shall perform all duties which are incident to the office of Treasurer of a corporation subject, however, at all times to the direction and control of the Board of Directors. If the Board of Directors shall so require, he shall give bond, in such sum and with such sureties as the Board of Directors may direct for the faithful performance of his duties and for the safe custody of the funds and property of the corporation coming into his possession. Section 13. Assistant Treasurers and Assistant Secretary. The Assistant Treasurers and Assistant Secretaries shall perform such duties as may be prescribed hereunder or by the Board of Directors or by the President or Executive Vice President. In the absence or disability of the Treasurer, his duties may be performed by an Assistant Treasurer. In the absence or disability of the Secretary, his duties may be performed by an Assistant Secretary. Section 14. Statutory Duties. Each respective officer shall discharge any and every duty appertaining to his respective office, which is imposed on such officer by the provisions of any present of future statute of the Commonwealth of Massachusetts. ARTICLE X CERTIFICATES FOR SHARES Section 1. The shares of the corporation shall be represented by certificates signed by the President or a Vice President and the Treasurer or an Assistant Treasurer of the corporation, and may be sealed with the seal of the corporation or a facsimile thereof. 8 9 When the corporation is authorized to issue shares of more than one class, every certificate shall set forth upon the face or back of such certificate a statement of the designations, preferences, limitations and relative rights of the shares of each class authorized to be issued, as required by the laws of the Commonwealth of Massachusetts. Section 2. The signatures of the officers upon a certificate may be facsimile if the certificate is counter-signed by a transfer agent, or registered by a registrar, other than the corporation itself or an employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be an officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue. LOST CERTIFICATES Section 3. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such indemnities as it deems adequate, to protect the corporation from any claim that maybe made against it with respect to any such certificate alleged to have been lost or destroyed. TRANSFER OF SHARES Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto, and the old certificate cancelled and the transaction recorded upon the books of the corporation. CLOSING OF TRANSFER BOOKS Section 5. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof or entitled to receive payment of a dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors may provide that the stock transfer books shall be closed for a stated period, but not to exceed, in any case, sixty days. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date 9 10 in any case to be not more than sixty days and, in case of a meeting of stockholders, not less than seven days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this Section, such determination shall apply to any adjournment thereof. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the Commonwealth of Massachusetts. LIST OF STOCKHOLDERS Section 7. The officer or agent having charge of the transfer books for shares shall make, at least seven days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, with the address of each and the number of shares held by each, which list, for a period of seven days prior to such meeting, shall be kept open at the place where said election is to be held and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock ledger or transfer books, or a duplicate thereof, shall be prima facie evidence as to who are the stockholders entitled to examine such list or stock ledger or transfer book or to vote at any meeting of the stockholders. ARTICLE XI GENERAL PROVISIONS Section 1. Subject to the provisions of the articles of organization relating thereto, if any, dividends may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or 10 11 in shares of the capital stock, subject to any provisions of the articles of organization. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. CHECKS Section 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. FISCAL YEAR Section 4. The fiscal year of the corporation shall begin on the day following the last Saturday in January of each year and end on the last Saturday in January in the following year. ARTICLE XlI AMENDMENTS Section 1. These by laws may be altered, amended or repealed, or new by laws may be adopted at any regular or special meeting of stockholders at which a quorum is present or represented, by the affirmative vote of a majority of the stock entitled to vote, provided notice of the proposed alteration, amendment or repeal be contained in the notice of such meeting. 11 EX-1.7 6 ARTICLES OF ORGANIZATION OF CORPORATE VISION 1 EXHIBIT 1.7 DO NOT USE PHOTOCOPIES - ONLY ORIGINALS WILL BE ACCEPTED FOR FILING NOTE: ONCE DOCUMENT IS ACCEPTED AND FILED, CHANGES MUST BE BY AMENDMENT OR CERTIFICATE OF CHANGE ONLY! THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL JOSEPH CONNOLLY, SECRETARY - ----------- ONE ASHBURTON PLACE, BOSTON, MASS. 02108 Examiner ARTICLES OF ORGANIZATION (Under G.L. Ch. 156B) Incorporators NAME POST OFFICE ADDRESS Include given name in full in case of natural persons; in case of corporation, give state of incorporation. Hills Stores Company 15 Dan Road Canton, Massachusetts 02021-9128 State of incorporation: Delaware The above-named incorporator(s) do hereby associate (themselves) with the intention of forming a corporation under the provisions of General Laws, Chapter 156B and hereby state(s): - ----------- 1. The name by which the corporation shall be known is: Name Approved Corporate Vision, Inc. 2. The purpose for which the corporation is formed is as follows: See Continuation Sheet 2A C / / P / / M / / RA / / Note: If the space provided under any article or item of this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin at least 1 inch for binding. Additions to more than one article may be continued on a single sheet so long as each article concerning each such addition is clearly indicated. - ----------- PC 2 3. The total number of shares and par value, if any, of each class of stock within the corporation is authorized as follows:
------------------------------------------------------------------------------------------------------------------ CLASS OF STOCK WITHOUT PAR VALUE WITH PAR VALUE ------------------------------------------------------------------------------------------- NUMBER OF SHARES NUMBER OF SHARES PAR AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------ Preferred $ Common 15,000 ------------------------------------------------------------------------------------------------------------------
4. If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established. NONE 5. The restriction, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are as follows: NONE 6. Other lawful provisions, if any, for the conduct and regulation of business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or its directors or stockholders, or of any class of stockholders. See Continuation Sheet 6A. 3 7. By laws of the corporation have been duly adopted and the initial directors, president, treasurer and clerk, whose names are set out below have been duly elected. 8. The effective date of organization of the corporation shall be the date of filing with the Secretary of the Commonwealth or if later date is desired, specify date (not more than 30 days after the date of the filing). 9. The following information shall not for any purpose be treated as a permanent part of the Articles of Organization of the corporation: a. The post office address of the initial principal office of the corporation of Massachusetts is: 15 Dan Road, Canton, Massachusetts 02021-9128 b. The name, residence, and post office address of each of the initial directors and following officers of the corporation are as follows:
NAME RESIDENCE POST OFFICE ADDRESS President: Lawrence H. Miller 15 Dan Road, Canton, MA 02021-9128 Treasurer: Stephen A. Feldman 15 Dan Road, Canton, MA 02021-9128 Clerk: William K. Friend 15 Dan Road, Canton, MA 02021-9128 Directors: Stephen A. Goldberger 15 Dan Road, Canton, MA 02021-9128 William K. Friend 15 Dan Road, Canton, MA 02021-9128 George R. Friese 15 Dan Road, Canton, MA 02021-9128
c. The date initially adopted on which the corporation's fiscal year ends is: The last Saturday in January of each year. d. The date initially fixed in the by-laws for the annual meeting of stockholders of the corporation is: The first Friday in May of each year. e. The name and business address of the resident agent, if any, of the corporation is: William K. Friend 15 Dan Road, Canton, MA 02021-9128 IN WITNESS WHEREOF and under the penalties of perjury the INCORPORATOR(S) sign(s) these Articles of Organization this 31 day of October 1988 Hills Stores Company ----------------------------------------------- BY: /s/ William K. Friend ----------------------------------------------- William K. Friend Vice President-Secretary ----------------------------------------------- The signature of each incorporator which is not a natural person must be an individual who shall show the capacity in which he acts and by signing shall represent under the penalties of perjury that he is duly authorized on its behalf to sign these Articles of Organization. 4 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF ORGANIZATION GENERAL LAWS, CHAPTER 156B, SECTION 12 ----------------------------------------------------------------- I hereby certify that, upon an examination of the within written articles of organization, duly submitted to me, it appears that the provisions of the General Laws relative to the organization of corporations have been complied with, and I hereby approve said articles; and the filing fee in the amount of $150.00 having been paid, said articles are deemed to have been filed with me this 1st day of November 1988. Effective date MICHAEL JOSEPH CONNOLLY Secretary of State PHOTO COPY OF ARTICLES OF ORGANIZATION TO BE SENT TO BE FILLED IN BY CORPORATION TO: Stewart M. Hirsch, Esquire Hills Stores Company (Legal Department) 15 Dan Road Canton, MA 02021-9128 Telephone: (617) 821-1000 Ext. 1934 FILING FEE: 1/20 of 1% of the total amount of the authorized capital stock with par value, and one cent a share for all authorized shares without par value, but not less than $150. General Laws, Chapter 156B. Shares of stock with a par value of less than one dollar shall be deemed to have par value of one dollar per share. 5 CONTINUATION SHEET 2A To make and produce and edit all types of films, video and electronic motion pictures, commercials and films. To make and perform contracts of every kind and description without limit as to amount, with any person, firm, association, private or public foundation or corporation, and with any municipality, town, city, county, state, territory, government or any subdivsion thereof. To draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, debentures or other negotiable or transferable instruments. To hire, lease, purchase, buy or otherwise acquire, to hold, own, insure, mortgage, convey, deed, sell, encumber, exchange, transfer, or otherwise deal in real or personal property or any right or interest therein wheresoever situated as may be consistent with the purposes of this corporation. To acquire all or any part of the good will rights, property, and assets of, and to assume all or any part of the business liabilities and commitments of any person, firm, association or corporation. To have, hold, acquire, purchase, sell, lease, all rights or leaseholds and leases. To do all acts requisite or proper to qualify under the laws of domicile the corporation in, and to do business in any other state, territory, District of Columbia or dependency. To do every act and thing necessary or appropriate for the accomplishment of the purpose or for the carrying on of the business or the corporation, and to exercise all the powers conferred by the laws of the Commonwealth of Massachusetts upon business corporations. 6 CONTINUATION SHEET 6A The corporation may enter into contracts or transact business with one or more of its Directors, officers or stockholders, or with any corporation, association, trust, organization or other concern in which any one or more of the Directors, officers or stockholders are Directors, officers, stockholders, shareholders or beneficiaries or otherwise interested, and in the absence of fraud no such contract or transaction shall be invalidated or in any way affected by the fact that such Directors, officers or stockholders of the Corporation have or may have interests of the Corporation even though the vote or action of the Directors, officers or stockholders having such adverse interest may have been necessary to obligate the Corporation upon such contracts or transactions. At any meeting of the Board of Directors of the Corporation or any duly authorized committee thereof which shall authorize or ratify any such contracts or transactions, any such Director may vote or act thereat with like force and effect as if he had no such interest, provided in such case the nature of such interest shall be disclosed or shall have been known to the Directors. Any person serving as a director of the corporation shall be immune from personal liability to the corporation or its shareholders for monetary damages resulting from the director's breach of his fiduciary duty in carrying out his responsibility to the corporation. Notwithstanding anything in this provision to the contrary, no director shall be immune from liability arising from (i) any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or knowing violation of the law, (iii) distributions to stockholders leaving or rendering the corporation insolvent, or (iv) any transaction from which the director derived an improper personal benefit. EX-1.8 7 BY-LAWS OF CORPORATE VISION 1 EXHIBIT 1.8 CORPORATE VISION, INC. * * * * * * * * * * * * BY LAWS ARTICLE I OFFICES Section 1. The registered office shall be located in Canton, Massachusetts. Section 2. The corporation may also have offices at such other places both within and without the Commonwealth of Massachusetts as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II ANNUAL MEETING OF STOCKHOLDERS Section 1. All meetings of stockholders for the election of directors shall be held at 15 Dan Road, Canton, Commonwealth of Massachusetts. The time and place for the election of directors shall not be changed within sixty days next preceding the date on which such elections are to be held. If such change is made, a notice of the change must be given to stockholders at least twenty days before the election of directors. Section 2. Annual meetings of stockholders, commencing with the year 1989, shall be held on the first Friday in May, if not a legal holiday, and if a legal holiday, then on the secular day following, at 10:00 AM, at which they shall elect by a plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. The election of directors need not be by ballot. Section 3. Written or printed notice of the annual meeting stating the place, day and hour of the meeting shall be given to each stockholder entitled to vote thereat not less than seven days before the date of the meeting. ARTICLE III SPECIAL MEETING OF THE STOCKHOLDERS Section 1. Special meetings of stockholders for any purpose other than the election of directors may be held at such time and place within or without the Commonwealth of Massachusetts as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. 2 Section 2. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the articles of incorporation, may be called by the President, the Board of Directors, or the holders of not less than one-tenth of all the shares of stock entitled to vote at the meeting. Section 3. Written or printed notice of a special meeting of stockholders, stating the time, place and purpose or purposes thereof, shall be given to each stockholder entitled to vote thereat, at least seven days before the date fixed for the meeting. ARTICLE IV QUORUM AND VOTING OF STOCK Section 1. The holders of a majority of the shares of stock issued and outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the articles of incorporation. If, however, such quorum shall not be present or represented by proxy shall have the power to adjourn the meeting from time to time, without notice, other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 2. If a quorum is present, the affirmative vote of a majority of the shares of stock represented at the meeting shall be the act of the stockholders unless the vote of a greater number of shares of stock is required by law or the articles to incorporation. Section 3. Each outstanding share of stock, having voting power, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. A stockholder may vote either in person or by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact. In all elections for directors, every stockholder entitled to vote shall have the right to vote, in person or by proxy, the number of shares of stock owned by him, for as many persons as there are directors to be elected, or to cumulate the vote of said shares, and give one candidate as many votes as the number of directors multiplied by the number of his shares of stock- shall equal, or to distribute the votes on the same principle among as many candidates as he may see fit. 2 3 ARTICLE V DIRECTORS Section 1. Directors need not be residents of the Commonwealth of Massachusetts nor stockholders of the. corporation. The directors, other than the first Board of Directors, shall be elected at the annual meeting of the stockholders and each director elected shall serve until the next succeeding annual meeting of stockholders. The number of directors shall be not less than three nor more than twelve and shall be fixed or changed by resolution adopted by the holders of a majority of the shares present in person or by proxy at the Annual Meeting or at any meeting called for the purpose of electing directors. Section 2. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired portion of the term of his predecessor in office. Section 3. The business affairs of the corporation shall be managed by its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the articles of incorporation of by these by laws directed or required to be exercised or done by the stockholders. Section 4. The directors may keep the books of the corporation, except such as are required by law to be kept within the state, outside of the Commonwealth of Massachusetts, at such place or places as they may from time to time determine. Section 5. The Board of Directors, by the affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers, or otherwise. ARTICLE VI MEETINGS OF THE BOARD OF DIRECTORS Section 1. Meetings of the Board of Directors, regular or special, may be held either within or without the Commonwealth of Massachusetts. Section 2. The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed 3 4 by the vote of the stockholders at the annual meeting and not notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, or it may convene at such place and time as shall be fixed by the consent in writing to all the directors. Section 3. Regular meetings of the Board of Directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the Board. Section 4. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Vice Chairman of the Board, the President or any Vice President on three (3) days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the President or the Clerk in like manner and on like notice on the written request of two directors. Section 5. Attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of waiver of notice of such meeting. Section 6. A majority of the directors shall constitute a quorum for the transaction of business unless a greater number is required by law or by the articles of incorporation. The act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by statute or by the articles of incorporation. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. ARTICLE VII EXECUTIVE COMMITTEE Section 1. The Board of Directors, by resolution adopted by a majority of the number of directors fixed by the by laws or otherwise, may designate two or more directors to constitute an executive committee, which committee, to the extent provided in such resolution, shall have and exercise all of the authority of the Board of Directors in the management of the corporation, except as otherwise required by law. Vacancies in the membership of the committee shall be filled by the Board of Directors at a regular or special meeting of the Board of Directors. The 4 5 executive committee shall keep regular minutes of its proceedings and report the same to the Board when required. ARTICLE VIII NOTICES Section 1. Whenever, under the provisions of the statutes or of the articles of incorporation or of these by laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice whatsoever is required to be given under the provisions of the statutes or under the provisions of the articles of incorporation or these by laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE IX OFFICERS Section 1. The general officers of the corporation shall consist of a Chairman of the Board, a Vice Chairman of the Board, a President, an Executive Vice President, one or more other Vice Presidents, a Clerk, one or more Assistant Clerks, a Treasurer, one or more Assistant Treasurers, and such other officers as may from time to time be determined by the Board of Directors, all of whom shall have such duties and authority as may be prescribed by the Board of Directors. The Board of Directors need not fill the offices of Chairman of the Board, Vice Chairman of the Board, and Executive Vice President. Any two or more of such offices, other than those of clerk and Assistant Clerk or Treasurer and Assistant Treasurer, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument on behalf of the Corporation in more than one capacity. The officers shall hold office for one year and until their successors are chosen and shall qualify. Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a president, who need not be director, and shall choose one or more vice-presidents, a secretary and a treasurer, none of whom need be a member of the Board. 5 6 Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors. Section 5. The Officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. Section 6. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors, is authorized to execute and deliver on behalf of the corporation contracts, leases and other agreements, and shall have such other powers and duties as may be prescribed by the Board of Directors. Section 7. Vice Chairman of the Board. The Vice Chairman of the Board in the absence of the Chairman of the Board, or in the event that office is vacant, shall preside at meetings of the stockholders and of the Board of Directors. He is authorized to execute and deliver on behalf of this corporation contracts, leases and other agreements, and shall have such other powers and duties as may be prescribed by the Board of Directors. Section 8. The President. The President, in the absence of the Chairman of the Board and Vice Chairman of the Board, or in the event those offices are vacant, shall preside at meetings of the stockholders and of the Board of Directors. He shall have general supervisory control over the affairs of the corporation, subject, however, to the direction of the Chairman of the Board and the Vice Chairman of the Board, when those offices are not vacant, and to the control of the Board of Directors. If the office of Executive Vice President is vacant, the President shall also perform the duties and be vested with the authority of that office. The President is authorized to execute and deliver on behalf of the corporation contracts, leases and other agreements, and certificates for shares. Section 9. The Executive vice President. The Executive Vice President, if one be elected by the Board of Directors, shall be the active operating executive officer of the corporation. He shall have general supervision, direction and active management of the business of the corporation, subject, however, to the supervision of the President and the control of the Board of Directors. He shall see that all orders and resolutions of the 6 7 Board of Directors are carried into effect. He is authorized to execute and deliver on behalf of the corporation contracts, leases and other agreements and certificates for shares. He shall submit a complete and detailed report of the operations of the corporation for the fiscal year and of its financial condition to the Board of Directors at its first regular meeting held after such report becomes available and to the stockholders at their annual meetings, and shall from time to time, report to the Board of Directors all matters within his knowledge which the interests of the corporation may require to be brought to its notice. Section 10. The Vice President. These Vice Presidents shall perform such duties, not inconsistent with these by laws as may be conferred upon them by these by laws or as may, from time to time, be assigned to them by the Board of Directors or the President. Each vice president is authorized to execute and deliver on behalf of the corporation all contracts, leases, extensions of leases and other agreements and certificates and certificates for shares. In the absence of the President or Executive Vice President, the Vice President designated by the President or Executive Vice President, as the case may be (or in the absence of such designation, the Vice President designated by the Board of Directors), shall perform the duties of the President or the Executive Vice President, and when so acting, shall have in addition to the powers herein specifically conferred, all the powers of the President or the Executive Vice President, for whom he is acting. The authority of Vice Presidents to sign in the name of the corporation all contracts, leases, extension of lease, and other agreements and certificates for shares shall be coordinate with like authority of the President and Executive Vice President. Section 11. The Clerk. The Clerk shall keep the minutes of all meetings of the Board of Directors and of the stockholders, in books provided by the corporation for such purpose. He shall give notice of meetings of the Board of Directors and stockholders. He shall prepare all lists of stockholders and their addresses required to be prepared by the provisions of any present or future status of the Commonwealth of Massachusetts. He is authorized to execute and deliver on behalf of the corporation, all contracts, leases, certificates for shares and other instruments, and may affix thereto the seal of the corporation. He shall have charges of such books and papers as the Board of Directors may direct. He shall file all reports to states and to the Federal Government, and in general, perform all duties which are incident to the office of Clerk of the corporation, subject at all times to the direction and control of the Board of Directors of the President or Executive Vice President. 7 8 Section 12. The Treasurer. The Treasurer shall receive and have the custody of all the funds and securities of the corporation. When necessary and proper, he shall endorse on behalf of this corporation all checks, notes or other obligations and evidences of the payment of money payable to the corporation or coming into this possession, and shall deposit the funds arising therefrom, together with all other funds of the corporation coming into his possession, in such banks as may be selected as deposing into his possession, in such banks as may be selected as depositories of the corporation or properly care for them in such other manner as the Board of Directors may direct. He shall be authorized to execute and deliver for and on behalf of the corporation all bills, notes and other evidences of indebtedness of the corporation and contracts, leases and agreements. Whenever required by the Board of Directors to do so, he shall exhibit a complete and true statement of his cash account, and of the securities and other property in his possession, custody or control. He shall cause to be entered regularly in books belonging to the corporation and to be kept for such purpose, a full and accurate amount of all money received and paid by him on account of the corporation, together with all other business transactions. He shall at all reasonable times, within the hours of business, exhibit the books and accounts to any director. He is authorized to sign with other officers certificates for shares of said corporation any may affix thereto the seal of the corporation. He shall perform all duties which are incident to the office of Treasurer of a corporation subject, however, at all times to the direction and control of the Board of Directors. If the Board of Directors shall so require, he shall give bond, in such sum and with such sureties as the Board of Directors may direct for the faithful performance of his duties and for the safe custody of the funds and property of the corporation coming into his possession. Section 13. Assistant Treasurers and Assistant Clerks. The Assistant Treasurers and Assistant Clerks shall perform such duties as may be prescribed hereunder or by the Board of Directors or by the President or Executive Vice President. In the absence or disability of the Treasurer, his duties may be performed by an Assistant Treasurer. In the absence or disability of the Clerk, his duties may be performed by an Assistant Clerk. Section 14. Statutory Duties. Each respective officer shall discharge any and every duty appertaining to his respective office, which is imposed on such officer by the provisions of any present or future statute of the Commonwealth of Massachusetts. 8 9 ARTICLE X CERTIFICATES FOR SHARES Section 1. The shares of the corporation shall be represented by certificates signed by the President or a Vice President and the Treasurer or an Assistant Treasurer of the corporation, and may be sealed with the seal of the corporation or a facsimile thereof. When the corporation is authorized to issue shares of more than one class, every certificate shall set forth upon the face or back of such certificate a statement of the designations, preferences, limitations and relative rights of the shares of each class authorized to be issued, as required by the laws of the Commonwealth of Massachusetts. Section 2. The signatures of the officers upon a certificate may be facsimile if the certificate is counter-signed by a transfer agent, or registered by a registrar, other than the corporation itself or an employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue. LOST CERTIFICATES Section 3. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such indemnities as it deems adequate, to protect the corporation from any claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed. TRANSFER OF SHARES Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto, and the old certificate cancelled and the transaction recorded upon the books of the corporation. 9 10 CLOSING OF TRANSFER BOOKS Section 5. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof or entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors may provide that the stock transfer books shall be closed for a stated period, but not to exceed, in any case, sixty days. If the stock transfer books shall be closed for a stated period, but not to exceed, in any case, sixty days. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than sixty days and, in case of a meeting of stockholders, not less than seven days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this Section, such determination shall apply to any adjournment thereof. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the Commonwealth of Massachusetts. LIST OF STOCKHOLDERS Section 7. The officer or agent having charge of the transfer books for shares shall make, at least seven days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, with the address of each and the number of shares held by each, which list, for a period of seven days prior to such meeting, 10 11 shall be kept open at the place where said election is to be held and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock ledger or transfer books, or a duplicate thereof, shall be prima facie evidence as to who are the stockholders entitled to examine such list or stock ledger or transfer book or to vote at any meeting of the stockholders. ARTICLE XI GENERAL PROVISIONS Section 1. Subject to the provisions of the articles of organization relating thereto, if any, dividends may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to any provisions of the articles of organization. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. CHECKS Section 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers of such other person or persons as the Board of Directors may from time to time designate. FISCAL YEAR Section 4. The fiscal year of the corporation shall begin on the day following the last Saturday in January of each year and end on the last Saturday in January in the following year. ARTICLE XII AMENDMENTS Section 1. These by laws may be altered, amended or repealed, or new by laws may be adopted at any regular or special meeting of stockholders at which a quorum is present or 11 12 represented, by the affirmative vote of a majority of the stock entitled to vote, provided notice of the proposed alteration, amendment or repeal be contained in the notice of such meeting. 12 EX-1.9 8 ARTICLES OF INCORP-OF CRH INT'L, INC. 1 EXHIBIT 1.9 ARTICLES OF INCORPORATION OF C. R. H. INTERNATIONAL, INC. The undersigned, a citizen, of the United States of America, desiring to form a corporation for profit under the General Corporation Law of Ohio does hereby certify: FIRST: The name of the said corporation shall be C.R.H. INTERNATIONAL, INC. SECOND: The place in Ohio where its principal office is to be located is Columbus, in Franklin County. THIRD: The purpose or purposes for which it is formed are: 1. To establish, maintain, conduct and carry on a general merchandising business; and in conjunction therewith to manufacture, produce, buy, import and otherwise acquire, own, store, hold, use, sell, export, distribute, lease and otherwise dispose of and generally deal in and with, at wholesale or retail, as principal and/or agent for others, upon commission, consignment or otherwise, goods, wares, commodities, merchandise and personal property of every class, name, nature, and description. 2. To do all acts requisite or proper to qualify under the laws of, domicile the Corporation in, and to do business in any other state, territory, District of Columbia, or dependency. 3. In general to have and exercise any lawful act or activity or any rights, powers and privileges which are now or may hereafter be conferred upon corporations by the State of Ohio under Section 1701.01 to 1701.98, inclusive of the Revised Code. 2 FOURTH: The authorized number of shares of the Corporation is Five Hundred (500) ------------------------------------------------------ all of which shall be common shares without par value. FIFTH: The amount of capital with which the Corporation will begin business is Five Hundred and no/100 Dollars ($500.00). SIXTH: In addition to any rights conferred upon it by statute, the Corporation shall have the right to amend these Articles so as to change the purpose or purposes for which it is formed and/or to add thereto. IN WITNESS WHEREOF, I have hereunto subscribed my name, this 27th day of March, 1974. /s/ MARTIN N. GOLDSMITH -------------------------------------- Martin N. Goldsmith 3 ORIGINAL APPOINTMENT OF AGENT KNOW ALL MEN BY THESE PRESENTS, That Joseph E. Andres of 35 North Fourth Street, in Columbus, Franklin County, Ohio 43215, a natural person and resident of said county, being the county in which the principal office of C. R. H. INTERNATIONAL, INC. is located, is hereby appointed as the person on whom process, tax notices and demands against said C. R. H. INTERNATIONAL, INC., may be served. C. R. H. INTERNATIONAL, INC. /s/ Martin N. Goldsmith ---------------------------------- Martin N. Goldsmith Columbus, Ohio 43215 March 27, 1974 C. R. H. INTERNATIONAL, INC. Columbus, Ohio 43215 Gentlemen: I hereby accept the appointment as representative of your Company upon whom process, tax notices, or demands may be served. /s/ Joseph E. Andres ---------------------------------- Joseph E. Andres EX-1.10 9 BY-LAWS OF CRH INT'L, INC. 1 EXHIBIT 1.10 C.R.H INTERNATIONAL, INC. ********************* BY-LAWS ARTICLE I OFFICES Section 1. The registered office shall be located in Columbus, Ohio. Section 2. The corporation may also have offices at such other places both within and without the State of Ohio as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II ANNUAL MEETINGS OF STOCKHOLDERS Section 1. All meetings of stockholders for the election of directors shall be held at 35 North Fourth Street, Columbus, State of Ohio. The time and place for the election of directors shall not be changed within sixty days next preceding the date on which such elections are to be held. If such change is made, a notice of the change must be given to stockholders at least twenty days before the election of directors. Section 2. Annual meetings of stockholders, commencing with the year 1974, shall be held on the first Friday in May, if not a legal holiday, and if a legal holiday, then on the secular day following at 10:00 A.M., at which they shall elect by a plurality vote a board of directors, and transact such other 2 business as may properly be brought before the meeting. The election of directors need not be by ballot. Section 3. Written or printed notice of the annual meeting stating the place, day and hour of the meeting shall be given to each stockholder entitled to vote thereat not less than seven days before the date of the meeting. ARTICLE III SPECIAL MEETINGS OF STOCKHOLDERS Section 1. Special meetings of stockholders for any purpose other than the election of directors may be held at such time and place within or without the State of Ohio as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the articles of incorporation, may be called by the president, the board of directors, or the holders of not less than one-tenth of all the shares of stock entitled to vote at the meeting. Section 3. Written or printed notice of a special meeting of stockholders, stating the time, place and purpose or purposes thereof, shall be given to each stockholder entitled to vote thereat, at least seven days before the dated fixed for the meeting. -2- 3 ARTICLE IV QUORUM AND VOTING OF STOCK Section 1. The holders of a majority of the shares of stock issued and outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the articles of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders present or represented by proxy shall have the power to adjourn the meeting from time to time, without notice, other than the announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 2. If a quorum is present, the affirmative vote of a majority of the shares of stock represented at the meeting shall be the act of the stockholders unless the vote of a greater number of shares of stock is required by law or the articles of incorporation. Section 3. Each outstanding share of stock, having voting power, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. A stockholder may vote either in person or by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact. -3- 4 In all elections for directors, every stockholder entitled to vote shall have the right to vote, in person or by proxy, the number of shares of stock owned by him, for as many persons as there are directors to be elected, or to cumulate the vote of said shares, and give one candidate as many votes as the number of directors multiplied by the number of his shares of stock shall equal, or to distribute the votes on the same principle among as many candidates as he may see fit. ARTICLE V DIRECTORS Section 1. Directors need not be residents of the State of Ohio nor stockholders of the corporation. The directors, other than the first board of directors, shall be elected at the annual meeting of the stockholders and each director elected shall serve until the next succeeding annual meeting of stockholders. The number of directors shall be not less than three nor more than twelve and shall be fixed or changed by resolution adopted by the holders of a majority of the shares present in person or by proxy at the Annual Meeting or at any meeting called for the purpose of electing directors. Section 2. Any vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected for the unexpired portion of the term of his predecessor in office. -4- 5 Section 3. The business affairs of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the articles of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. Section 4. The directors may keep the books of the corporation, except such as are required by law to be kept within the state, outside of the State of Ohio, at such place or places as they may from time to time determine. Section 5. The board of directors, by the affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise. ARTICLE VI MEETINGS OF THE BOARD OF DIRECTORS Section 1. Meetings of the board of directors, regular or special, may be held either within or without the State of Ohio. Section 2. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a -5- 6 quorum shall be present, or it may convene at such place and time as shall be fixed by the consent in writing to all the directors. Section 3. Regular meetings of the board of directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the board. Section 4. Special meetings of the board of directors may be called by the chairman of the board, the vice chairman of the board, the president or any vice president on three (3) days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the president or the secretary in like manner and on like notice on the written request of two directors. Section 5. Attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends for the express purpose of objecting to the transaction of any business because the meeting is now lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice of a waiver of notice of such meeting. Section 6. A majority of the directors shall constitute a quorum for the transaction of business unless a greater number is required by law or by the articles of incorporation. The act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by the statute or -6- 7 by the articles of incorporation. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. ARTICLE VII EXECUTIVE COMMITTEE Section 1. The board of directors, by resolution adopted by a majority of the number of directors fixed by the by-laws or otherwise, may designate two or more directors to constitute an executive committee, which committee, to the extent provided in such resolution, shall have and exercise all of the authority of the board of directors in the management of the corporation, except as otherwise required by law. Vacancies in the membership of the committee shall be filled by the board of directors at a regular or special meeting of the board of directors. The executive committee shall keep regular minutes of its proceedings and report the same to the board when required. ARTICLE VIII NOTICES Section 1. Whenever, under the provisions of the statutes or of the articles of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or -7- 8 stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice whatsoever is required to be given under the provisions of the statutes or under the provisions of the articles of incorporation or these by-laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE IX OFFICERS Section 1. The general officers of the Corporation shall consist of a Chairman of the Board, a Vice Chairman of the Board, a President, an Executive Vice President, one or more other Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, and such other officers as may from time to time be determined by the Board of Directors, all of whom shall have such duties and authority as may be prescribed by the by-laws and such, not inconsistent with the by-laws, as may be prescribed by the Board of Directors. The Board of Directors need not fill the offices of Chairman of the Board, Vice Chairman of the Board, and Executive Vice President. Any two or more of such offices, other than those of Secretary and Assistant Secretary or Treasurer and Assistant Treasurer, may -8- 9 be held by the same person, but no officer shall execute, acknowledge or verify any instrument on behalf of the Corporation in more than one capacity. The officers of the Corporation shall hold office for one year and until their successors are chosen and shall qualify. Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a president, who need not be director, and shall choose one or more vice-presidents, a Secretary and a treasurer, none of whom need be a member of the Board. Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. Section 6. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors, is authorized to execute and deliver on behalf of the Corporation contracts, leases and other agreements, -9- 10 and shall have such other powers and duties as may be prescribed by the Board of Directors. Section 7. Vice Chairman of the Board. The Vice Chairman of the Board in the absence of the Chairman of the Board, or in the event that office is vacant, shall preside at meetings of the stockholders and of the Board of Directors. He is authorized to execute and deliver on behalf of this Corporation contracts, leases and other agreements, and shall have such other powers and duties as may be prescribed by the Board of Directors. Section 8. The President. The President, in the absence of the Chairman of the Board and Vice Chairman of the Board, or in the event those offices are vacant, shall preside at meetings of the stockholders and of the Board of Directors. He shall have general supervisory control over the affairs of the Corporation, subject, however, to the direction of the Chairman of the Board and the Vice Chairman of the Board, when those offices are not vacant, and to the control of the Board of Directors. If the office of Executive Vice President is vacant, the President shall also perform the duties and be vested with the authority of that office. The President is authorized to execute and deliver on behalf of the Corporation contracts, leases and other agreements, and certificates for shares. Section 9. The Executive Vice President. The Executive Vice President, if one be elected by the Board of Directors, shall be the active operating executive officer of the corporation. He shall have general supervision, direction and active management of the business of the corporation, subject, -10- 11 however, to the supervision of the President and the control of the Board of Directors. He shall see that all orders and resolutions of the Board of Directors are carried into effect. He is authorized to execute and deliver on behalf of the corporation contracts, leases and other agreements and certificates for shares. He shall submit a complete and detailed report of the operations of the corporation for the fiscal year and of its financial condition to the Board of Directors at its first regular meeting held after such report becomes available and to the stockholders at their annual meetings, and shall, from time to time, report to the Board of Directors all matters within his knowledge which the interests of the corporation may require to be brought to its notice. Section 10. The Vice President. The Vice Presidents shall perform such duties, not inconsistent with these by-laws as may be conferred upon them by these by-laws or as may, from time to time, be assigned to them by the Board of Directors or the President. Each vice president is authorized to execute and deliver on behalf of the corporation all contracts, leases, extensions of leases and other agreements and certificates and certificates for shares. In the absence of the President or Executive Vice President, the Vice President designated by the President or Executive Vice President, as the case may be (or in the absence of such designation, the Vice President designated by the Board of Directors), shall perform the duties of the President or the Executive Vice President, and when so acting, shall have in addition to the powers herein specifically -11- 12 conferred, all the powers of the President or the Executive Vice President, for whom he is acting. The authority of Vice Presidents to sign in the name of the corporation all contracts, leases, extension of lease and other agreements and certificates for shares shall be coordinate with like authority of the President and Executive Vice President. Section 11. The Secretary. The Secretary shall keep the minutes of all meetings of the board of directors and of the stockholders, in books provided by the corporation for such purpose. He shall give notice of meetings of the board of directors and stockholders. He shall prepare all lists of stockholders and their addresses required to be prepared by the provisions of any present or future status of the State of Ohio. He is authorized to execute and deliver on behalf of the corporation, all contracts, leases, certificates for shares and other instruments, and may affix thereto the seal of the corporation. He shall have charge of such books and papers as the board of directors may direct. He shall file all reports to states and to the Federal Government, and in general perform all the duties which are incident to the office of Secretary of the corporation, subject at all times to the direction and control of the board of directors or the President or Executive Vice President. Section 12. The Treasurer. The Treasurer shall receive and have the custody of all the funds and securities of the corporation. When necessary and proper, he shall endorse on behalf of this corporation all checks, notes or other obligations -12- 13 and evidences of the payment of money payable to the corporation or coming into his possession, and shall deposit the funds arising therefrom, together with all other funds of the corporation coming into his possession, in such banks as may be selected as depositories of the corporation or properly care for them in such other manner as the board of directors may direct. He shall be authorized to execute and deliver for and on behalf of the corporation all bills, notes and other evidences of indebtedness of the corporation and contracts, leases and agreements. Whenever required by the board of directors to do so, he shall exhibit a complete and true statement of his cash account, and of the securities and other property in his possession, custody or control. He shall cause to be entered regularly in books belonging to the corporation and to be kept for such purpose, a full and accurate account of all money received and paid by him on account of the corporation, together with all other business transactions. He shall at all reasonable times, within the hours of business, exhibit his books and accounts to any director. He is authorized to sign with other officers certificates for shares of said corporation and may affix thereto the seal of the corporation. He shall perform all duties which are incident to the office of treasurer of a corporation subject, however, at all times to the direction and control of the board of directors. If the board of directors shall so require, he shall give bond, in such sum and with such sureties as the board of directors may direct for the faithful performance of his duties and for the -13- 14 safe custody of the funds and property of the corporation coming into his possession. Section 13. Assistant Treasurers and Assistant Secretary. The Assistant Treasurers and Assistant Secretaries shall perform such duties as may be prescribed hereunder or by the board of directors or by the President or Executive Vice President. In the absence or disability of the Treasurer, his duties may be performed by an Assistant Treasurer. In the absence or disability of the Secretary, his duties may be performed by an Assistant Secretary. Section 14. Statutory Duties. Each respective officer shall discharge any and every duty appertaining to his respective office, which is imposed on such officer by the provisions of any present or future statute of the State of Ohio. ARTICLE X CERTIFICATES FOR SHARES Section 1. The shares of the corporation shall be represented by certificates signed by the president or a vice president and the treasurer or an assistant treasurer of the corporation, and may be sealed with the seal of the corporation or a facsimile thereof. When the corporation is authorized to issue shares of more than one class, every certificate shall set forth upon the face or back of such certificate a statement of the designations, preferences, limitations and relative rights of the shares of each class authorized to be issued, as required by the laws of the State of Ohio. -14- 15 Section 2. The signatures of the officers upon a certificate may be facsimile if the certificate is counter-signed by a transfer agent, or registered by a registrar, other than the corporation itself or an employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be an officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue. LOST CERTIFICATES Section 3. The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost or destroyed. When authorizing such issue of a new certificate, the board of directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such indemnities as it deems adequate, to protect the corporation from any claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed. TRANSFER OF SHARES Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto, -15- 16 and the old certificate cancelled and the transaction recorded upon the books of the corporation. CLOSING OF TRANSFER BOOKS Section 5. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof or entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the board of directors may provide that the stock transfer books shall be closed for a stated period, but not to exceed, in any case, sixty days. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the board of directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than sixty days and, in case of a meeting of stockholders, not less than seven days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of -16- 17 stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Ohio. LIST OF STOCKHOLDERS Section 7. The officer or agent having charge of the transfer books for shares shall make, at least seven days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, with the address of each and the number of shares held by each, which list, for a period of seven days prior to such meeting, shall be kept open at the place where said election is to be held and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock ledger or transfer books, or a duplicate thereof, shall be prima facie evidence as to who are the stockholders entitled to examine such list or -17- 18 stock ledger or transfer book or to vote at any meeting of the stockholders. ARTICLE XI GENERAL PROVISIONS Section 1. Subject to the provisions of the articles of organization relating thereto, if any, dividends may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to any provisions of the articles of organization. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. CHECKS Section 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. -18- 19 FISCAL YEAR Section 4. The fiscal year of the corporation shall begin on the day following the last Saturday in January of each year and end on the last Saturday in January in the following year. ARTICLE XII AMENDMENTS Section 1. These by-laws may be altered, amended or repealed, or new by-laws may be adopted at any regular or special meeting of stockholders at which a quorum is present or represented, by the affirmative vote of a majority of the stock entitled to vote, provided a notice of the proposed alteration, amendment or repeal be contained in the notice of such meeting. -19- EX-1.11 10 ARTICLES OF INCORP. OF HDS TRANSPORT 1 EXHIBIT 1.11 ARTICLES OF INCORPORATION of SHOE CORPORATION OF AMERICA The undersigned, a majority of whom are citizens of the United States of America, desiring to form a corporation for profit under the General Corporation Law of Ohio do hereby certify: FIRST: The name of said corporation shall be SHOE CORPORATION OF AMERICA SECOND: The place in Ohio where its principal office is to be located is Columbus, in Franklin County, 43215. THIRD: The purpose or purposes for which it is formed are: 1. To buy, sell and otherwise deal in all kinds of footwear, hosiery, gloves, handbags, leather and rubber goods and related articles and accessories and like products of every kind and description. 2. To do all acts requisite or proper to qualify under the laws of, domicile the Corporation in, and to do business in any other state, territory, District of Columbia, or dependency. 3. In general to have and exercise all rights, powers and privileges which are now or may hereafter be conferred upon corporations by the State of Ohio. It is the intention that the purposes specified in the foregoing clauses shall be, and shall be construed as, powers as well as purposes. FOURTH: The authorized number of shares of the Corporation is One Hundred (100) all of which shall be common shares without par value. 2 FIFTH: The amount of capital with which the Corporation will begin business is Five Hundred and no/100 Dollars ($500.00). SIXTH: In addition to any rights conferred upon it by statute, the Corporation shall have the right to amend these Articles to the extent permitted by law. IN WITNESS WHEREOF, we have hereunto subscribed our names, this 26th day of May, 1969. /s/ Cletus J. Corbett ----------------------------------- Cletus J. Corbett /s/ Stephen J. Jelin ----------------------------------- Stephen J. Jelin /s/ Joseph E. Andres ----------------------------------- Joseph E. Andres 3 ORIGINAL APPOINTMENT OF AGENT KNOW ALL MAN BY THESE PRESENTS, That Joseph E. Andres of 35 North Fourth Street, in Columbus, Franklin County, Ohio 43215, a natural person and resident of said county, being the county in which the principal office of SHOE CORPORATION OF AMERICA is located, is hereby appointed as the person on whom process, tax notices and demands against said SHOE CORPORATION OF AMERICA may be served. SHOE CORPORATION OF AMERICA /s/ Cletus J. Corbett -------------------------------------- Cletus J. Corbett /s/ Stephen J. Jelin -------------------------------------- Stephen J. Jelin /s/ Joseph E. Andres -------------------------------------- Joseph E. Andres Columbus, Ohio 43215 May 26, 1969 SHOE CORPORATION OF AMERICA Columbus, Ohio 43215 Gentlemen: I hereby accept the appointment as the representative of your Company upon whom process, tax notices, or demands may be served. /s/ Joseph E. Andres ----------------------------------- Joseph E. Andres 4 Charter # 384575 --------- Approved by AT --------- Date 5-3-86 --------- Fee $ 35 --------- CERTIFICATE OF AMENDMENT (BY SHAREHOLDERS) TO THE ARTICLES OF INCORPORATION OF Shoe Corporation of America - -------------------------------------------------------------------------------- (Name of Corporation) () Chairman of the Board Stephen A. Feldman , who is () President (check one), - ---------------------------- (x) Vice President and William K. Friend , who is (x) Secretary (check one) ------------------------ () Assistant Secretary of the above named Ohio corporation for profit with its principal location at Columbus, Ohio do hereby certify that: (check the appropriate box and complete the appropriate statements) a meeting of the shareholders was duly called and held on , --- 19 , at which meeting a quorum of the shareholders was present in person or by proxy, and by the affirmative vote of the holders of shares entitling them to exercise % of the voting power of the corporation, x in a writing signed by all of the shareholders who would be --- entitled to a notice of a meeting held for that purpose, --- the following resolution was adopted to amend the articles: "RESOLVED that Article First of the Articles of Incorporation be amended to read: "FIRST: The name of said corporation shall be FRANDO CORP." IN WITNESS WHEREOF, the above named officers, acting for and on behalf of the corporation, have subscribed their names this 29th day of April 1986. x /s/ Stephen A. Feldman ------------------------------------------------------- (Vice President) x /s/ William K. Friend ------------------------------------------------------- (Secretary) NOTE: Ohio law does not permit one officer to sign in two capacities. Two separate signatures are required, even if this necessitates the election of a second officer before the filing can be made. 5 CERTIFICATE OF AMENDMENT BY SHAREHOLDERS TO THE ARTICLES OF INCORPORATION OF FRANDO CORP. - -------------------------------------------------------------------------------- Name of Corporation William K. Friend - -------------------------------------------------------------------------------- / / Chairman of the Board / / President /X/ Vice President and Joseph E. Andres ---------------------------------------------------------------------------- / / Secretary /X/ Assistant Secretary (Please check one) of the above named Ohio corporation organized for profit does hereby certify that: Please check the appropriate box and complete the appropriate statements. / / a meeting of the shareholders was duly called for the purpose of accepting this amendment and held on , 19 at which meeting a quorum of the shareholders was present in person or by proxy, and by the affirmative vote of the holders of shares entitling them to exercise % of the voting power of the corporation. /X/ in a writing signed by all of the shareholders who would be entitled to notice of a meeting held for that purpose, the following resolution to amend the articles was adopted: RESOLVED that Article First of the Articles of Incorporation be amended to read: "FIRST: The name of said corporation shall be HDS TRANSPORT, INC." IN WITNESS WHEREOF, the above named officers, acting for and on the behalf of the corporation, have hereto subscribed their names this 30th day of March, 1994. 6 By /s/ William K. Friend By /s/ Joseph E. Andres ----------------------------------- ------------------------------- Chairman, President, Vice President Secretary, Assistant Secretary NOTE: OHIO LAW DOES NOT PERMIT ONE OFFICER TO SIGN IN TWO CAPACITIES, TWO SEPARATE SIGNATURES ARE REQUIRED, EVEN IF THIS NECESSITATES THE ELECTION OF A SECOND OFFICER BEFORE THE FILING CAN BE MADE EX-1.12 11 CODE OF REGS OF HDS TRANSPORT, INC. 1 EXHIBIT 1.12 HDS TRANSPORT, INC. CODE OF REGULATIONS ARTICLE I MEETING SHAREHOLDERS Section A. Annual Meetings. The annual meeting of the shareholders of this Corporation for the purpose of electing directors and transacting such other business as may come before the meeting shall be held at 9:00 o'clock. A.M. on the first Friday in May of each year if not a legal holiday, but if a legal holiday, then on the next business day following. The shareholders present at such annual meeting or a special meeting called for the purpose and entitled to vote shall elect the directors. Section B. Special Meetings. Special meetings of shareholders may be called by the President or a Vice President or by a majority of the members of the Board of Directors acting with or without a meeting, or by the holders of twenty-five per cent of all the shares outstanding and entitled to vote thereat. Upon the request in writing delivered to the President or Secretary by any person entitled to call a meeting of shareholders, it shall be the duty of the President or Secretary to give notice to shareholders and if such request refused, then the persons making such request may call a meeting by giving notice in the manner provided by law or by the Regulations. Section C. Place of Meeting. Annual and special meetings of shareholders shall be held at the office of the Corporation in the City of Columbus, Ohio, or at such other place or places as the Board of Directors may from time to time designate, or as may be specified in the call and notice of the meeting or otherwise. Section D. Notices of Meetings. Unless waived, a written, printed or typewritten notice of each annual or special meeting of the shareholders starting the day, hour and place and the purpose or purposes thereof, shall be served upon or mailed to each shareholder of record entitled to vote or to notice not more than sixty (60) days nor less than seven (7) days before such meeting. Such notice shall be given by the Secretary or an Assistant Secretary, or in case of his refusal by the shareholders, person or persons entitled to call such meeting. If mailed, the postage shall be prepaid and it shall be directed to a shareholder at his address as it appears upon the records of the Corporation. Every person who by operation of law, transfer, or otherwise shall become entitled to any share or right or interest therein, shall be bound by every notice in respect of such share, which prior to his name and address being entered upon the books of the 2 Corporation as registered holder of such share, shall be given to the person in whose name such share appeared of record. Section E. Waiver of Notice. Any shareholder, either before or after any meeting, may waive any notice required to be given by law or under the Regulations. Section F. Voting Quorum. Shareholders present in person or by proxy at any meeting for the determination of the number of directors and for the election of directors to be elected by them or for consideration and action upon reports required to be laid before such meeting shall constitute a quorum. At any meeting called for any other purpose the holders of record of shares present in person or represented by proxy entitling them to exercise a majority of the voting power of the Corporation shall constitute a quorum. Every shareholder of record entitled to vote at any meeting shall be entitled at such meeting of shareholders, to one vote for each share outstanding in his name on the books of the Corporation. At all elections of directors, a plurality of the votes cast for the directors to be elected shall be necessary for a choice. If notice in writing shall be given by any shareholder to the President or a Vice President of the Corporation not less than twenty-four hours before the time fixed for holding a meeting for the election of directors that he intends to cumulate his votes at such election, and if an announcement of the giving of such notice is made upon the convening of the meeting, each shareholder shall have the right to cumulate his shares and to give one candidate as many votes as the number of directors to be elected multiplied by the number of his votes equals, or to distribute his votes on the same principle among two or more candidates as he sees fit. Section G. List of Shareholders. The Secretary shall, at least seven (7) days before any election, prepare a complete alphabetical list of the shareholders entitled to vote, showing the number of shares held by each on the date fixed for closing the books against transfers or the record date fixed as herein after provided and the address of each respective shareholder as shown by the books of the Corporation. Such list of shareholders shall be on file at the principal office and open to inspection thereat. 2 3 ARTICLE II BOARD OF DIRECTORS Section A. Number, Term of Office and Vacancies. All the capacity of the Corporation shall be vested in and all its authority, except as otherwise provided by statue or in the Articles in regard to action required to be taken, authorized or approved by shareholders, shall be exercised by a Board of Directors. The number of directors shall be not less than three nor more than twelve and shall be fixed or changed by resolution adopted by the holders of a majority of the shares present in person or by proxy at the Annual Meeting or at any meeting called for the purpose of electing directors. Each director of each Board of Directors shall hold office for one year and/or until his successor shall have qualified. If the office of any director elected by the holders of the shares becomes vacant by reason of death, resignation, failure to qualify, removal, disqualification or inability to act, the remaining directors of those elected by the holders of the shares may by a majority vote of the remaining directors elect a successor who shall hold office for the unexpired term and/or until his successors shall have been elected and shall have qualified. Section B. Meeting of Directors. 1. First and Annual Meeting. A meeting of the newly elected Board of Directors shall be held immediately following the adjournment of each shareholders' meeting, at which directors are elected, at the office of the Corporation or at such other place or places as the Board of Directors may from time to time designate and notice of such meeting need not be given. 2. Regular Meetings. Regular meetings of the Board of Directors shall be held from time to time as the Board of Directors may by resolution determine. 3. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, if any, the President, a Vice President or by a majority of the Board on not less than three (3) days, notice to each director either personally, by mail or by telegraph. 4. Place of Meetings. All meetings of the Board of Directors shall be held at the office of the Corporation in the City of Columbus, Ohio, or at such other place within or without the State of Ohio, as the Board may determine from time to time or as may be specified in the call and notice thereof. 3 4 5. Notice of Meetings. Notice of regular meetings shall be mailed to each director at his last known post office address by the Secretary not less than five (5) days prior to the date of said meeting. Notice of special meetings shall be given to each director personally, by mail or telegraph, not less than three (3) days prior to the date of such meeting. But any meeting of the Board of Directors at which all of the directors shall be present or shall have waived notice of the time and place of such meeting in writing, shall be as valid as if called pursuant to proper notice. 6. Quorum. A majority of the duly elected and qualified members of the Board of Directors shall constitute a quorum for the transaction of business. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section C. Statutory Duties. The Board of Directors shall discharge or cause to be discharged, each and every duty imposed on the Board of Directors by any present or future statute of the State of Ohio. Section D. Compensation. The directors of the Corporation with the exception of those who are officers or employees of the Corporation, may each receive and be paid for their attendance at meetings of the directors, such reasonable sum as may be fixed by the Board of Directors from time to time and their necessary traveling expense in attending said meeting. ARTICLE III COMMITTEES Section A. The Board of Directors may by resolution provide for such standing committees or special committees to consist of not less than three (3) directors as it deems desirable, and discontinue the same at pleasure. Each such committee shall have such powers and perform such duties, not inconsistent with law, as may be delegated to it by the Board of Directors. Vacancies in such committees shall be filled by the Board of Directors or as it may provide. ARTICLE IV OFFICERS AND DEFINITIONS OF DUTIES Section A. Officers. The general officers of the Corporation shall consist of a Chairman of the Board, a Vice Chairman of the Board, a President, an Executive Vice President, one or more other Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, and such other officers as may from time to time be 4 5 determined by the Board of Directors, all of whom shall be chosen by the Board of Directors, and who shall respectively have such duties and authority as may be prescribed by the Regulations and such, not inconsistent with the Regulations, as may be prescribed by the Board of Directors. The Board of Directors need not fill the offices of Chairman of the Board, Vice Chairman of the Board, and Executive Vice President, and if it does not, the President shall perform the duties and be vested with the authority of the Executive Vice President. Any two or more of such offices other than those of Secretary and Assistant Secretary or Treasurer and Assistant Treasurer, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument on behalf of the Corporation in more than one capacity. The officers of the Corporation shall hold office for one year and until their successors are chosen and shall qualify. Section B. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors, is authorized to execute and deliver on behalf of the Corporation contracts, leases and other agreements, and shall have such other powers and duties as may be prescribed by the Board of Directors. Section C. Vice Chairman of the Board. The Vice Chairman of the Board, in the absence of the Chairman of the Board, or in the event that office is vacant, shall preside at meetings of the shareholders and of the Board of Directors. He is authorized to execute and deliver on behalf of the Corporation contracts, leases and other agreements, and shall have such other powers and duties as may be prescribed by the Board of Directors. Section D. The President. The President, in the absence of the Chairman of the Board and the Vice Chairman of the Board, or in the event those offices are vacant, shall preside at meetings of the shareholders and of the Board of Directors. He shall have general supervisory control over the affairs of the Corporation, subject, however, to the direction of the Chairman of the Board and the Vice Chairman of the Board, when those offices are not vacant, and to the control of the Board of Directors. If the office of Executive Vice President is vacant, the President shall also perform the duties and be vested with the authority of that office. The President is authorized to execute and deliver on behalf of the Corporation contracts, leases and other agreements and certificates for shares. Section E. The Executive Vice President. The Executive Vice President shall be the active operating executive officer of the Corporation. He shall have general supervision, direction and active management of the business of the Corporation subject, however, to the supervision of the President and the control of the Board of Directors. He shall see that all orders and resolutions of the Board of Directors are carried into effect. 5 6 He is authorized to execute and deliver on behalf of the Corporate contracts, leases and other agreements and certificates for shares. He shall submit a complete and detailed report of the operations of the Corporation for the fiscal year and of its financial condition to the Board of Directors at its first regular meeting held after such report becomes available and to the shareholders at their annual meetings, and shall from time to time, report to the Board of Directors all matters within his knowledge which the interests of the Corporation may require to be brought to its notice. Section F. The Vice Presidents. The Vice Presidents shall perform such duties, not inconsistent with these Regulations, as may be conferred upon them by these Regulations or as may, from time to time, be assigned to them by the Board of Directors or the President. Each Vice President is authorized to execute and deliver on behalf of the Corporation all contracts, leases, extensions of leases and other agreements and certificates for shares. In the absence of the President or Executive Vice President, the Vice President designated by the President or Executive Vice President, as the case may be, (or in the absence of such designation, the Vice President designated by the Board) shall perform the duties of the President or the Executive Vice President, and when so acting, shall have in addition to the powers herein specifically conferred, all the powers of the President or Executive Vice President for whom he is acting. The authority of Vice Presidents to sign in the name of the Corporation all contracts, leases, extensions of lease and other agreements and certificates for shares shall be coordinate with like authority of the President and Executive Vice President. Section G. The Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors and of the shareholders, in books provided by the Corporation for such purpose. He shall give notice of meetings of the Board of Directors and shareholders. He shall prepare all lists of shareholders and their addresses required to be prepared by the provisions of any present or future statute of the State of Ohio. He is authorized to execute and deliver on behalf of the Corporation, all contracts, leases, certificates for shares and other instruments, and may affix thereto the seal of the Corporation, if any such seal shall have been adopted by the Board of Directors. He shall have charge of such books and papers as the Board of Directors may direct. He shall file all reports to states and to the Federal Government, and in general perform all the duties which are incident to the office of secretary of the corporation, subject at all times to the direction and control of the Board of Directors or the President or Executive Vice President. 6 7 Section H. The Treasurer. The Treasurer shall receive and have the custody of all the funds and securities of the Corporation. When necessary and proper, he shall endorse on behalf of the Corporation all checks, notes or other obligations and evidences of the payment of money payable to the Corporation or coming into his possession, and shall deposit the funds arising therefrom together with all other funds of the Corporation coming into his possession in such banks as may be selected as depositories of the Corporation, or properly care for them in such other manner as the Board of Directors may direct. He shall be authorized to execute and deliver for and on behalf of the Corporation all bills, notes and other evidences of indebtedness of the Corporation and contracts, leases and agreements. Whenever required by the Board of Directors so to do, he shall exhibit a complete and true statement of his cash account, and of the securities and other property in his possession, custody or control. He shall cause to be entered regularly in books belonging to the Corporation and to be kept for such purpose, a full and accurate account of all money received and paid by him on account of the Corporation, together with all other business transactions. He shall at all reasonable times, within the hours of business, exhibit his books and accounts to any director. He is authorized to sign with other officers certificates for shares of said Corporation and may affix thereto the seal of the Corporation, if any such seal shall have been adopted by the Board of Directors. He shall perform all duties which are incident to the office of treasurer of a corporation subject, however, at all times to the direction and control of the Board of Directors. If the Board of Directors shall so require, he shall give bond, in such sum and with such sureties as the Board of Directors may direct for the faithful performance of his duties and for the safe custody of the funds and property of the Corporation coming into his possession. Section I. Assistant Treasurers and Assistant Secretaries. The Assistant Treasurers and Assistant Secretaries shall perform such duties as may be prescribed hereunder or by the Board of Directors or by the President or Executive Vice President. In the absence or disability of the Treasurer, his duties may be performed by an Assistant Treasurer. In the absence or disability of the Secretary, his duties may be performed by an Assistant Secretary. Section J. Statutory Duties. Each respective officer shall discharge any and every duty appertaining to his respective office, which is imposed on such officer by the provisions of any present or future statute of the State of Ohio. 7 8 Section K. Salaries. The officers of the Corporation shall receive and be paid for the services that they each may render as such officers, for and in behalf of the Corporation, such salary as the Board of Directors may by resolution determine. ARTICLE V CERTIFICATES FOR SHARES AND THEIR TRANSFER Section A. Form of Certificates. The Corporation shall cause to be issued to each shareholder a certificate or certificates representing the number of shares owned in the Corporation. The certificates shall be in such form, not inconsistent with the laws of the State of Ohio, as may be adopted by the Board of Directors. The certificates shall be signed by the President or a Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation. No certificate for a share will be delivered until it is fully paid. Every certificate for shares of the Corporation shall state that the Corporation is organized under the laws of the State of Ohio, the name of the person to whom issued; the number and the par value of each share represented thereby or a statement that the shares are without par value. Section B. Transfer of Certificates. The shares of the Corporation shall be transferable only on the books of the Corporation by the owner in person or by the legal representative of such person, and, upon such transfer being made, the old certificate shall be surrendered to the person in charge of the share and transfer books and ledgers or such other person as the Board of Directors may designate, who shall cancel the same, thereupon issuing a new certificate or certificates therefor. Section C. Transfer Books. Shares shall be transferable at the principal office of the Corporation in Columbus, Ohio and the record of the names and addresses of all shareholders and all transfers of shares kept thereat. Section D. Record Date. The day, fifteen (15) days preceding the date of any meeting of shareholders, annual or special, or any dividend payment date, or any date for the allotment of rights, shall constitute and be the record date for the determination of the shareholders entitled to notice of such meeting or to vote thereat or to receive such dividends or rights. Only such shareholders of record of such date shall be entitled to notice of such meeting or to vote thereat or to receive such dividends or rights as the case may be. Section E. Rules of Transfer. The Board of Directors shall have the power and authority to make all such rules and regulations as it may deem expedient concerning the issue, 8 9 transfer and registration of the certificates for the shares of the Corporation. Section F. Lost Certificates. Any person claiming a certificate for shares of this Corporation to be lost, stolen or destroyed shall make affidavit of the fact and lodge the same with the Secretary of the Corporation accompanied by a signed application for a new certificate. Such person shall also advertise such lost or destroyed certificate in such manner as the Board of Directors may direct, and shall give the Corporation a bond of indemnity with a surety company satisfactory to the Board of Directors and in an amount which, in its judgment shall be sufficient to save the Corporation from loss and in any event, at the option of the Board of Directors, at least twice the market or par value of the shares represented by such lost, stolen or destroyed certificate, and thereupon the proper officers may cause to be issued a new certificate of like tenor with the one alleged to be lost or destroyed. But the Board of Directors may refuse the issuance of such new certificate, unless otherwise provided by law. ARTICLE VI PROXIES Any shareholder of record who shall be entitled to attend a shareholders' meeting or to vote thereat or to assent or give consents in writing shall be entitled to be represented at such meeting or to vote thereat or to assent or give consents in writing, as the case may be, or to exercise any other of his rights, by proxy or proxies appointed by a writing signed by such shareholder(s). A telegram, cablegram, wireless message, or photogram appearing to have been transmitted by a shareholder or a photograph, photostatic or equivalent reproduction of a writing appointing a proxy or proxies shall be a sufficient writing. No appointment of a proxy hereafter made shall be valid after the expiration of eleven months after it is made, unless the writing specifies the date on which it is to expire or the length of time it is to continue in force. ARTICLE VII AMENDMENTS The Code of Regulations may be amended at any meeting of the shareholders by the affirmative vote of the holders of record of shares entitling them to exercise a majority of the voting power on such proposal, or without a meeting, by the written consent of the holder of record of all shares outstanding. 9 10 ARTICLE VIII SEAL The Corporation shall have no seal unless the Board of Directors shall determine that a seal is required to comply with the laws of any state, territory, Districts of Columbia or dependency, or is otherwise desirable, in which event the Board of Directors may adopt a seal. ARTICLE IX FISCAL YEAR The fiscal year shall begin on the day following the last Saturday in January of each year and end on the last Saturday in January in each of the next succeeding years. ARTICLE X DIVIDENDS (a) The Board of Directors may declare and, upon such declaration the Corporation may pay dividends in accordance with the provisions of the Articles and the General Corporation Law of the State of Ohio now in effect or hereafter enacted. (b) Before the dedication of any assets to the payments of dividends, there may be set apart out of the excess of assets available for dividends; such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves for any proper purpose, or said Board of Directors may in its absolute discretion abolish any such reserve. And the Board of Directors may increase, diminish or vary said dividends, provided, however, that nothing herein contained shall be construed to compel the declaration as dividends of any excess of assets over and above the amount so reserved and which may, at any time remain undedicated to any express purpose or purposes. ARTICLE XI CHECKS, DRAFTS, ETC. Section A. Authority and Form of Signature. All checks, drafts or orders for the payment of money shall be signed by the President, the Treasurer or Assistant Treasurer or Secretary or by such other officer or employee as the Board of Directors may designate. No checks, drafts or orders for payment of money shall be executed in blank. 10 11 ARTICLE XII BOOKS AND RECORDS Section A. Location. The stock transfer books shall be kept at the principal office of the Corporation, and books of account and the records of the Corporation shall be kept at the principal office of the Corporation in the City of Columbus, Ohio. Section B. Inspection. The books of account, list of shareholders and their addressees records of the issuance and transfer of shares, voting trust agreements, if any are filed, and the minutes of meetings of the Corporation shall be open to the inspection of every shareholder at all reasonable times, save and except for unreasonable and improper purposes. ARTICLE XIII ORDER OF BUSINESS At the shareholders' meetings the order of business shall be as follows: 1. Call to order. 2. Determination of a quorum. 3. Organization of the meeting. 4. Proof of notice of meeting. 5. Reading minutes of previous meeting and acting thereon. 6. Financial report or statement. 7. Reports of President or other officers. 8. Report of directors and committees. 9. Unfinished business. 10. Election of Directors. 11. New or miscellaneous business. 12. Adjournment. This order may be changed by affirmative vote of a majority in interest of the shareholders present at any meeting. The matter of the approval of an Employees, Retirement Plan for the eligible employees of the Corporation was discussed and a 11 12 copy of the SCA Employees' Retirement Plan, together with all amendments thereto, and the "Amended Trust" entered into with The Bank of New York, New York City, pursuant to the provisions of said Plan were submitted to the meeting. Thereupon on motion duly made, seconded and unanimously carried, the following resolution was adopted: RESOLVED, THAT WHEREAS, SCOA Industries Inc. (hereafter called "SCOA") has an Employees' Retirement Plan known as SCA Employees' Retirement Plan heretofore approved by the shareholders of Shoe Corporation of America and adopted by its Board of Directors, (Shoe Corporation of America being a premerger predecessor of "SCOA") and WHEREAS, the said Plan had been amended from time to time by the Board of Directors of Shoe Corporation of America, herein referred to as the "Amended Plan", and WHEREAS, Shoe Corporation of America, by action of its Board of Directors, provided that any company which then was or thereafter became a direct or indirect subsidiary or affiliate of said Shoe Corporation of America might upon appropriate action by the Board of Directors of such affiliate or subsidiary include the employees of such subsidiary or affiliate as participants in the Plan and that as a condition precedent to becoming a Participating Subsidiary or Affiliate such subsidiary or affiliate should become a party to the Amended SCA Employees' Retirement Trust adopting the provisions of the Plan and assuming and agreeing to pay its equitable share of the operating costs of and contributing to the Trust Fund, and WHEREAS, Shoe Corporation of America has agreed that its act in executing said Amended Trust Agreement shall be deemed to be also the act of any and all of its wholly-owned retail subsidiaries which adopt such execution as its or their own act, and WHEREAS, by Agreement of Merger between Shoe Corporation of America and SCOA Industries Inc., effective as of the close of business on May 23, 1969, all corporate acts, plans, policies, agreements, arrangements, approvals and authorizations of Shoe Corporation of America which were valid and effective immediately prior to the effective date of the merger are taken for all purposes as the acts, plans, policies, agreements, arrangements, approvals and authorizations of "SCOA" and are as effective and binding thereon as the same were with respect to Shoe Corporation of America, and 12 13 WHEREAS, this Corporation is a wholly-owned retail subsidiary of "SCOA," NOW, THEREFORE, BE IT RESOLVED, that the "Amended Plan" be and the same hereby is approved as the Employees' Retirement Plan of this Corporation. RESOLVED FURTHER, that this Corporation shall forthwith become a party to said "Amended Plan" and assume and agree to pay its equitable share of the costs of operation of the "Amended Plan" and make the necessary contributions to the Trust Fund established and existing under the "Amended Plan", RESOLVED FURTHER, that the Board of Directors of this Corporation be and it hereby is authorized for and on behalf of this Corporation, to adopt, as the Employees' Retirement Plan of this Corporation, said "Amended Plan" and to adopt the action of Shoe Corporation of America in executing the Amended Trust Agreement as the act of this Corporation in the execution of said Amended Trust Agreement, and to authorize and instruct the President or Vice President of this Corporation to execute any and all other agreements and documents and to make such other arrangements as or which may be necessary, proper or convenient to effectuate the provisions of this Resolution and said Plan, and to authorize and instruct the Secretary or the Assistant Secretary of this Corporation to attest each and all of such other aforesaid documents, and RESOLVED FURTHER, that the Board of Directors be and it hereby is authorized to empower the Treasurer or Assistant Treasurer of this Corporation to make, from time to time, the payments and disbursements required by the "Amended Plan" and the "Amended Trust" established pursuant thereto to be made, out of the funds of this Corporation, and BE IT FURTHER RESOLVED, that the Board of Directors take all appropriate steps to qualify the said "Amended Plan" as and for the Plan of this Corporation under the Internal Revenue Code. The Chairman announced that the matter of fixing the number of directors to be elected at the meeting was next in order. Upon motion duly made, seconded and unanimously carried, it was RESOLVED, that the Board of Directors, for the ensuing year, consist of four (4) members. The Chairman declared the election of directors next in order. The names of Herbert H. Schiff, S. Joseph Blatt, Cletus 13 14 J. Corbett and Edmund Klein were placed in nomination as candidates for the office of director. No other names being proposed, upon motion duly made, seconded and unanimously carried, they were duly elected and declared by the Chairman to be duly elected to serve until the next annual meeting of the shareholders and until their successors shall be elected and shall qualify. There was no further business, and, upon motion duly made, seconded and unanimously carried, the meeting adjourned. /s/ Cletus J. Corbett ---------------------------------------- Secretary of the Meeting 14 EX-1.13 12 CERT OF INCORP OF HILLS DISTRIB. CO. 1 EXHIBIT 1.13 CERTIFICATE OF INCORPORATION OF HILLS DISTRIBUTING COMPANY FIRST: The name of the corporation is Hills Distributing Company. SECOND: The address of the corporation's registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The name of the corporation's registered agent at such address is The Corporation Trust Company. THIRD: The nature of the business or purposes of the corporation is to engage in any lawful acts or activities for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of all classes of stock which the corporation shall have authority to issue is 1,000 shares, consisting of 1,000 shares of Common Stock of the par value of $1 per share. FIFTH: The Board of Directors shall have the power, without the assent or vote of the stockholders, to make, amend, change or repeal the By-laws of the Corporation. 2 SIXTH: The name and mailing address of the incorporator is as follows: Joseph E. Andres, Esq. 15 Dan Road Canton, MA 02021 SEVENTH: The Corporation is to have perpetual existence. EIGHTH: The Corporation reserves at any time and from time to time to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of Delaware at the time in force may be added or inserted, in the manner now or hereinafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whosoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article. IN WITNESS WHEREOF, I, the undersigned, being the Incorporator hereinabove named, have executed this Certificate of Incorporation this 10th day of October, 1989. /s/ Joseph E. Andres ---------------------------------------- 3 COMMONWEALTH OF MASSACHUSETTS : : SS. COUNTY OF NORFOLK : BE IT REMEMBERED that on this 10th day of October, 1989, personally came before me, the subscriber, a Notary Public for the Commonwealth and County aforesaid, JOSEPH E. ANDRES, known to me personally to be such, and acknowledged the said Certificate of Incorporation to be his act and deed and that the facts therein stated are truly set forth. GIVEN under my hand and seal of office the day and year aforesaid. /s/ Kelly D. McCarthy ----------------------------------- Notary Public 4 CERTIFICATE FOR RENEWAL AND REVIVAL OF CHARTER Hills Distributing Company, a corporation organized under the laws of Delaware, the charter of which was voided for non-payment of taxes, now desires to procure a corporation, renewal and revival of this charter, and hereby certifies as follows. 1. The name of this corporation is Hills Distributing Company. 2. Its registered office in the State of Delaware is located at 1209 Orange Street, City of Wilmington Zip Code 19801 County of New Castle the name and address of its registered agent is The Corporation Trust Company. 3. The date of filing of the original Certificate of Incorporation in Delaware was 10/12/1989. 4. The date when restoration, renewal, and revival of the charter of this company is to commence is the 29th day of February 1992, same being prior to the date of the expiration of the charter. This renewal and revival of the charter of this corporation is to be perpetual. 5. This corporation was duly organized and carried on the business authorized by its charter until the 1st day of March A.D. 1992 at which time its charter became inoperative and void for non-payment of taxes and this certificate for renewal and revival is filed by authority of the duly elected directors of the corporation in accordance with the laws of the State of Delaware. IN TESTIMONY WHEREOF, and in compliance with the provisions of Section 312 of the General Corporation Law of the State of Delaware, as amended, providing for the renewal, extension and restoration of charters Michael Bozic the last and acting President and William K. Friend, the last and acting Secretary of Hills Distributing Company, have hereunto set their hands to this certificate this 27th day of January, 1993. /s/ Michael Bozic ----------------------------------- Michael Bozic ATTEST: /s/ William K. Friend ----------------------------------- William K. Friend EX-1.14 13 BY-LAWS OF HILLS DISTRIB. CO. 1 EXHIBIT 1.14 BY-LAWS OF HILLS DISTRIBUTING COMPANY ARTICLE I --OFFICES Section A. Registered Office. The registered office shall be 1209 Orange Street in the City of Wilmington, County of New Castle, State of Delaware. Section B. Other Offices. The Corporation may also have offices, including its principal office, at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II -- MEETING OF STOCKHOLDERS Section A. Annual Meetings. The annual meeting of the stockholders of this Corporation for the purpose of electing directors and transacting such other business as may come before the meeting shall be held on the first Tuesday in June of each year, or at such other time as the Board of Directors may from time to time designate. Section B. Special Meetings. Special meetings of stockholders may be called by the President. Section C. Place of Meeting. All annual and special meetings of the stockholders may be held at the principal office of the Corporation or at such other place either within or without the State of Delaware as the Board of Directors may from time to time designate and state in the notice of the meeting. Section D. Notice of Meeting. Unless waived, a written, printed or typewritten notice of each annual or special meeting of the stockholders stating the day, hour and place and the purpose or purposes thereof, shall be served upon or mailed to each stockholder or record entitled to notice not more than sixty (60) days nor less than ten (10) days before the date of the meeting. If mailed, the postage shall be prepaid and it shall be directed to a stockholder at his address as it appears upon the records of the Corporation. Notice of adjournment need not be given if the same time and place to which it is adjourned are fixed and announced at such meeting, except that, if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2 Every person who by operation of law, transfer, or otherwise shall become entitled to any share or right or interest therein shall be bound by every notice in respect of such share, which, prior to his name and address being entered upon the books of the Corporation as the registered holder of such share, shall be given to the person in whose name such share appeared of record. Section E. Waiver of Notice. Any stockholder, either before or after any meeting, may waive any notice required to be given by law or under these By-Laws. The attendance of any stockholder at any meeting, either in person or by proxy, without protesting, prior to or at the commencement of the meeting, the lack of proper notice, shall be deemed to be a waiver by him of notice of such meeting. Section F. Voting Quorum. Such holders of Common Stock as shall be present in person or by proxy and entitled to vote at any meeting held for the purpose of electing directors, for consideration and action upon reports required to be laid before such meeting, or for any other purpose whatsoever shall constitute a quorum for such purposes. The vote of the holders of the majority of the stock having power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the statutes or the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. The holders of record of a majority of shares present in person or by proxy at any meeting, may adjourn such meeting from time to time. Except to the extent that the voting rights of the shares are increased, limited or denied by the express terms of such shares, each outstanding share shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders for their vote, consent, waiver, release or other action. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the 2 3 notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section G. Record of Stockholders. 1. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. 2. The directors may close the share transfer books against transfers of shares during the whole or in any part of the period provided for in subsection 1 above, including the date of the meeting of the stockholders and the period ending date, if any to which adjourned. ARTICLE III -- DIRECTORS Section A. Election of Directors. 1. At any meeting of stockholders at which directors are to be elected, only persons nominated as candidates shall be eligible for election as directors. 2. At all elections of directors, the candidates receiving the greatest number of votes cast for directors shall be elected. Section B. Capacity, Number, Term of Office and Vacancies. 1. All of the capacity of the Corporation shall be vested in and all its authority, except as otherwise provided by statute or in the Certificate of Incorporation in regard to action required to be taken, authorized or approved by stockholders, shall be exercised by a Board of Directors. 2. The Board of Directors shall consist of three (3) members. The number of directors shall be determined from time to time by resolution of the Board of Directors. The directors shall be elected at the annual meeting of the shareholders, except as provided in Section (3) of this Article, and each 3 4 director elected shall hold office until his successor is elected and qualified. 3. Vacancies and newly created directorships from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director; and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. 4. The offices of a director becomes vacant if he dies or resigns, which resignation shall take effect immediately, or at any time as the director may specify therein. The directors may remove any director and thereby create a vacancy on the Board: (a) If by order of a court he has been found to be of unsound mind, or has requested the appointment of a guardian to manage his affairs, or if he is adjudicated a bankrupt; or if he has been convicted of a felony; or if he fails to disclose to the Board of Directors an interest improperly adverse to that of the Corporation in any transaction in which the Corporation is involved. (b) If within sixty (60) days from the date of his election he does not qualify by accepting in writing his election to such office or by acting at a meeting of the directors. (c) If he fails to attend three consecutive meetings of the Board of Directors without good cause, the determination of which shall be made by the directors. (d) If, in the judgment of the Board, continuing physical incompetency prevents his serving as a Board member. Section C. Meeting of Directors. 1. Annual Meeting. The annual meeting of the Board of Directors shall be held upon the day of their election, or as soon thereafter as convenient, and prior notice thereof need not be given, provided a quorum shall be present. 2. Regular Meetings. Regular meetings of the Board of Directors shall be held from time to time as the Board of Directors may by resolution determine. 4 5 3. Special Meetings. Special Meetings of the Board of Directors may be called by the President, or if there is no President, by not less than 50% of the members of the Board. 4. Place of Meetings. All meetings of the Board of Directors shall be held at the principal office of the Corporation or at such other place as the President may determine from time to time. 5. Notice of Meetings. Written notice of regular meetings shall be mailed to each director at his last known post office address by the Secretary not less than five (5) days prior to the date of said meeting. Written notice of special meetings shall be given to each director personally, by mail or telegraph, not less than two (2) days prior to the date of such meeting. Notice of special meetings may also be given by telephone not less than two (2) days prior to the date of the meeting. An affidavit of the President or the Secretary that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. Such written or telephone notice need not specify the purpose of the meeting. But any meeting of the Board of Directors at which all of the directors shall be present or shall have waived notice of the time and place of such meeting, in writing, shall be as valid as if called pursuant to proper notice. 6. Quorum. One half of the directors in office, unless the total number of directors in office is not divisible by two, in which case the number shall be the next highest whole number, shall be necessary and sufficient to constitute a quorum for the transaction of business including the filling of a vacancy or vacancies on the Board of Directors. The act of a majority of the directors present at a meeting at which quorum is present shall be the act of the Board of Directors. Section D. Compensation. The directors of the Corporation, with the exception of those who are also officers or employees of the Corporation, shall each receive and be paid for their attendance at meetings of the directors and for such other services as they may render to the Corporation, such reasonable sum as may be fixed by the Board of Directors from time to time and their necessary traveling expenses. ARTICLE IV -- BOARD COMMITTEES Section A. Executive Committee. The Board of Directors shall, by resolution or resolutions passed by a majority of the Board, designate three or more of their number, which shall include the President, to constitute an Executive Committee to serve during the pleasure of the Board of Directors. The 5 6 President shall be the Chairman of the Executive Committee. The Board of Directors is authorized to remove at any time, without notice, any member of the Executive Committee, except the President, and elect another member in his place and stead. The Board of Directors may appoint one or more directors as alternate members of the Executive Committee who may take the place of any absent member or members at any meeting of the Executive Committee. Except as otherwise provided herein and in the Certificate of Incorporation and in the resolution creating an Executive Committee, such committee shall during an interval between meetings of the Board of Directors, possess and may exercise all of the power of the Board of Directors in the management of the business and affairs of the Corporation. The Executive Committee shall keep full and fair records and account of its proceedings and transactions. All action by Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action and shall be subject to control, revision and alteration by the Board of Directors; provided that no rights of third person shall be prejudicially affected thereby. Vacancies on the Executive Committee shall be filled by the Board of Directors. Section B. Meeting of the Executive Committee. Subject to the provisions of these By-Laws, the Executive committee shall fix its own rules of procedure and shall meet as provided by such rules or by resolutions of the Board of Directors, and it shall also meet at the call of the President of the Corporation, or if there is no President, of any two members of the Committee. A majority of the Executive Committee shall be necessary to constitute a quorum. The Executive Committee may act in writing, or by cable or telegraph or by telephone with written confirmation, without a meeting; but no action of the Executive Committee shall be effective unless concurred in by a majority of the members of the Committee. Section C. Other Committees. The Board of Directors may by resolution provide for such other standing committees or special committees as it deems desirable, and discontinue the same at pleasure. Each such committee shall have such powers and perform such duties, not inconsistent with law, as may be delegated to it by the Board of Directors. The President shall appoint the members of any and all such committees and shall designate the Chairman of each such committee, unless otherwise provided by the Board. 6 7 ARTICLE V -- OFFICERS Section A. Officers. The general officers of the Corporation shall consist of a President, a Secretary and a Treasurer, and such other officers including but not limited to, one or more Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers, as may, from time to time, be determined by the Board of Directors, all of whom shall be elected by the Board of Directors and who shall respectively have such duties and authority as may be prescribed by the By-Laws and such, not inconsistent with the By-Laws, as may be prescribed by the Board of Directors. Any two or more of such officers other than those of President and Vice President, or Secretary and Assistant Secretary, or Treasurer and Assistant Treasurer, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. The officers of the Corporation shall hold office for one year and until their successors are chosen. Section B. The President. The President shall be the Chief Executive and the Chief Operating Officer of the Corporation. He shall preside at all meetings of the Board of Directors and of the Executive Committee. He shall have general supervision, direction and active management of the business of the Corporation subject, however, to the control of the Board,of Directors. On behalf of the Corporation, he may execute long and short term notes, bonds, mortgages, other financial instruments, all contracts and agreements and sign all certificates for shares. He shall submit a complete and detailed report of the operation of the Corporation for the fiscal year of its financial condition to the Board at its first regular meeting held after such reports become available and to the stockholders at their Annual Meeting, and shall from time to time report to the Board of Directors all matters within his knowledge which the interest of the Corporation may require to be brought to its notice. He shall have the general power and duties of supervision and management usually vested in the office of the President of a corporation. He shall be a member of the Executive Committee and of the Board of Directors. Section C. Vice President. The Board of Directors, in its discretion, shall have the right to name such Vice Presidents as it shall deem necessary and shall prescribed the duties of such Vice Presidents in accordance with its designation. Section D. The Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors and of the stockholders, in books provided by the Corporation for such purpose. He shall give notice of meetings of the Board of Directors and stockholders. He shall prepare or cause to be prepared all lists of stockholders and their addresses required to be prepared by the provisions of any present or future statute 7 8 of the State of Delaware. He may sign in the name of the Corporation all contracts and agreements and certificates for shares and may affix the seal to such documents requiring the seal. He shall have charge of such books and papers as the Board of Directors may direct. He shall in general perform all duties which are incident to the office of secretary of a corporation, subject at all times to the direction and control of the Board of Directors or the President. Section E. The Treasurer. The Treasurer is responsible for the development, interpretation, coordination and administration of the Corporation's policies and practices relating to banking, cash flow, and relations with banking institutions. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts in book belonging to the Corporation and shall deposit moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the board of Directors or pursuant to its authorization. He shall, when required, render an account of all his transactions as Treasurer. If required by the Board of Directors, he shall give the Corporation a bond in such sum and with such sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. He shall generally perform all the duties which are incident to the office of the Treasurer of a company, subject at all times to the direction and control of the Board of Directors or the President. Section F. Assistant Treasurer and Assistant Secretaries. The Assistant Treasurers and Assistant Secretaries shall perform such duties as may be prescribed hereunder or by the Board of Directors or by the President. In the absence or disability of the Treasurer, his duties may be performed by an Assistant Treasurer. In absence or disability of the Secretary, his duties may be performed by an Assistant Secretary. Section G. Removal. Any officer may be removed, with or without cause, by the directors without prejudice to the contract rights of such officer. The election or appointment of an officer for a given term, or a general provision in the Certificate of Incorporation or these By-Laws, with respect to term to office, shall be deemed to create contractual rights. 8 9 Section H. Salaries. The officers of the Corporation shall receive and be paid for the service that they may render as such officers, for and in behalf of the Corporation, such salary as the Board of Directors may by resolution determine. ARTICLE --- CERTIFICATE FOR SHARES AND THEIR TRANSFER Section A. Form of Certificates. The Corporation shall cause to be issued to each stockholder a certificate representing the number of shares owned in the Corporation. The certificates shall be in such form, not inconsistent with the laws of the State of Delaware, as may be adopted by the Board of Directors. The certificates shall be signed by the President and the Secretary or the Treasurer or by such other officers of the Corporation as the Board of Directors may designate in accordance with the laws of the State of Delaware, which signatures may be facsimiles to the extent and under the circumstances permitted by law, but no certificate for shares shall be executed or delivered until such shares are fully paid. Every new certificate for the shares of the Corporation shall state that the Corporation is organized under the laws of the State of Delaware; the name of the person to whom issued; the number and the par value of each share represented thereby or a statement that the shares are without par value; shall have on the face or back thereof a statement of the express terms, if any, of the shares represented thereby or a summary thereof or a reference thereto. Section B. Transfer of Certificates. The shares of the Corporation shall be transferable only on the books of the Corporation by the owner in person or by the legal representative of such person, and, upon such transfer being made, the old certificate shall be surrendered to the person in charge of the share and transfer books and ledgers or such other person as the Board of Directors may designate, who shall cancel the same, thereupon issuing a new certificate or certificate therefor. Section C. Transfer Agent. The Board of Directors may appoint transfer agents and registrars of transfers and thereafter may require all share certificates to bear the signature of such transfer agents and such registrars of transfers. Section D. Rules of Transfer. The Board of Directors also shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of the certificates for the shares of the Corporation. 9 10 Section E. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation or its transfer agent with respect to the certificate alleged to have been lost, stolen or destroyed. ARTICLE VII -- PROXIES Any stockholder of record who shall be entitled to attend a stockholders' meeting or to vote thereat or to execute consents, waivers or releases, shall be entitled to be represented at such meeting, or to vote thereat, or to execute consents, waivers and releases, as the case may be, or to exercise any other of his rights, by proxy or proxies appointed by a writing signed by such stockholder. A telegram, cablegram, wireless message, or photogram appearing to the inspectors of election to have been transmitted by a stockholder, or a photograph, photostatic ,or equivalent reproduction of a writing appointing a proxy or proxies may be treated by the Corporation as a sufficient writing. Unless the writing appointing a proxy otherwise provides: 1. Each proxy has the power of substituting and, when three or more proxies are appointed, a majority of them, or of their substitutes, may appoint one or more substitutes to act for all; 2. If more than one proxy is appointed, then (a) with respect to voting or executing consents, waivers or releases or objections to consents at a stockholders' meeting, a majority of such proxies as attend the meeting or if only one attends than that one, may exercise all the voting and consenting authority thereat; and, if one or more attend and a majority does not agree on any particular issue, each proxy so attending shall be entitled to exercise such authority with respect to an equal number of shares; (b) with respect to exercising any other authority, a majority may act for all; 10 11 3. The presence at a meeting of the person appointing a proxy does not revoke the appointment. Without affecting any vote previously taken, the person appointing a proxy may revoke the appointment not otherwise revoked by giving notice to the Corporation in writing or in open meeting. ARTICLE VIII -- AMENDMENTS The By-Laws may be amended at any meeting of the directors by the affirmative vote of a majority of the Board of Directors. ARTICLE IX -- SEAL The Board of Directors may provide a suitable seal. The seal of the Corporation shall be circular, one and one-half inches in diameter, with the name of the Corporation engraved around the margin and the word "Seal" engraved across the center. ARTICLE X -- FISCAL YEAR The fiscal year shall begin on the day following the last Saturday in January of each year and end on the last Saturday in January in each of the next succeeding years. The fiscal year may be changed from time to time by resolution of the Board of Directors. ARTICLE XI -- ORDER OF BUSINESS At the stockholders' meetings the order of business shall be as follows: 1. Call to order. 2. Determination of a quorum. 3. Organization of the meeting. 4. Proof of giving notice of meeting. 5. Reading of minutes of previous meeting and acting thereon. 6. Presentation of financial report or statement. 7. Reports of President or other officers. 8. Report of directors and committees. 11 12 9. Unfinished business 10. Election of Directors. 11. New or miscellaneous business. 12. Adjournment. This order may be changed by the Chairman of the meeting. ARTICLE XII -- DIRECTORS EMERITUS The Board of Directors may, from time to time, designate a retired member of the Board of Directors as a Director Emeritus, which status shall entitle the holder for the duration of his tenure, to attend meetings of the Board of Directors but not vote. ARTICLE XIII -- MANDATORY RETIREMENT For all officers who are also directors of the Corporation, retirement from both his officership(s) and from the Board of Directors shall be mandatory on such person's sixty-fifth birthday. For all directors who are not also officers of the Corporation, retirement from the Board shall be mandatory on such person's seventy-second birthday. These mandatory retirement provisions may be waived, as to any particular individual, by resolution of the Board. ARTICLE XIV -- OFFICER AND DIRECTOR INDEMNIFICATION Each person who is or was a director or officer of the Corporation (including the heirs, executors, administrators or estate of such person) shall be indemnified by the Corporation as of right to the full extent permitted or authorized by the General Corporation Law of Delaware against any liability, cost or expense asserted against him and incurred by him and incurred by him in his capacity as a director or officer, or arising out of his status as a director or officer. The Corporation may, but shall not be obligated to, maintain, insurance, at its expense, to protect itself and any such person against any such liability, cost or expense, to the fullest extent available and permissible. 12 EX-5.1 14 OPINION OF FOLEY HOAG 1 EXHIBIT 5.1 [LETTERHEAD OF FOLEY, HOAG & ELIOT LLP] June 13, 1996 HILLS STORES COMPANY 15 Dan Road Canton, Massachusetts 02021 Gentlemen: We have acted as special counsel to Hills Stores Company, a Delaware corporation (the "Company"), and its subsidiaries, Hills Department Store Company, a Delaware corporation, Canton Advertising, Inc., a Massachusetts corporation, Corporate Vision, Inc., a Massachusetts corporation, C.R.H. International, Inc., an Ohio corporation, HDS Transport, Inc., an Ohio corporation, and Hills Distributing Company, a Delaware corporation (collectively, the "Guarantors"), in connection with the preparation and filing of their Registration Statement on Form S-4 (File No. 333-05003), as amended by Amendment No. 1 thereto (the "Registration Statement"), under the Securities Act of 1933, as amended (the "Act"), with respect to the offering by the Company of up to $195,000,000 aggregate principal amount of its 12 1/2% Senior Notes due 2003, Series B (the "Series B Notes") and the related guarantees of the Notes by the Guarantors (the "Subsidiary Guarantees"). The Series B Notes and the Subsidiary Guarantees will be issued under an Indenture dated as of April 19, 1996 (the "Indenture") among the Company, as issuer, and Hills Department Store Company, Canton Advertising, Inc., Corporate Vision, Inc., C.R.H. International, Inc., HDS Transport, Inc., and Hills Distributing Company, as guarantors, and Fleet National Bank, as trustee, which has been filed as an exhibit to the Registration Statement. For purposes of this opinion we have reviewed the charters and by-laws of the Company and the Guarantors, each as amended to date. We have also examined records of corporate proceedings of the Company and the Guarantors, certificates of public officials and such other documents as we have deemed necessary to enable us to render this opinion. In such examination, we have assumed that the signatures of persons signing documents are genuine and authorized (other than persons signing on behalf of the Company), the authenticity of all documents submitted to us as originals and the conformity to the originals of all documents submitted to us as certified or photostatic copies. 2 HILLS STORES COMPANY June 13, 1996 Page 2 To the extent that the obligations of the Company and the Guarantors under the Indenture may be dependent upon such matters, we assume for purposes of this opinion that Fleet National Bank, as trustee under the Indenture (the "Trustee"), is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; that the Trustee is duly qualified to engage in the activities contemplated by the Indenture; that the Indenture has been duly authorized, executed and delivered by the Trustee and constitutes the legally valid, binding and enforceable obligation of the Trustee enforceable against the Trustee in accordance with its terms; that the Trustee is in compliance, generally and with respect to acting as a trustee under the Indenture, with all applicable laws and regulations; and that the Trustee has the requisite organizational and legal power and authority to perform its obligations under the Indenture. The opinions expressed below are qualified to the extent that (A) the legality, validity or enforceability of any provisions of any of the Series B Notes or the Subsidiary Guarantees or of any agreement or instrument or of any right granted thereunder may be subject to or affected by any bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or similar law of general application from time to time in effect and relating to or affecting the rights or remedies of creditors generally, (B) the remedy of specific performance or any other equitable remedy may be unavailable in any jurisdiction or may be withheld as a matter of judicial discretion, and (C) equitable principles may be applied in construing or enforcing the provisions of the Series B Notes or the Subsidiary Guarantees or of any other instrument or document (regardless of whether enforcement is sought in a proceeding in equity or at law). The opinions hereinafter expressed in paragraph 2 are further qualified in that we express no opinion as to the enforceability of the Subsidiary Guarantees to the extent that (A) any Guarantor has not itself received value as a result of entering into its Subsidiary Guarantee or (B) any Subsidiary Guarantee or payment by a Guarantor pursuant thereto may be considered a distribution under Massachusetts General Laws, c. 156B, Section 45, a dividend or distribution under Ohio General Corporation Law Section 1701.33, or a dividend or other distribution under Delaware common law. We have assumed that each of the Company and the Guarantors (A) is not, and following completion of the transactions contemplated by the Registration Statement will not be, "insolvent" as such term is defined in Section 101 of the Bankruptcy Code of 1978, as amended (the "Bankruptcy Code"), and in Section 2 of the Uniform Fraudulent Conveyances Act of Massachusetts (Massachusetts General Laws, c. 109A) (the "Fraudulent Conveyances Act"), (B) is not, and following completion of the transactions contemplated by the Registration Statement will not be, left with unreasonably small capital within the meaning of Section 548 of the Bankruptcy Code and in Section 5 of the Fraudulent Conveyances Act, and (C) in entering into and carrying out its obligations under the Indenture and all other documents relating to its or their indebtedness, does not intend to incur, and does not believe that it will incur, debts beyond its ability to pay such debts as they mature within the meaning of Section 548 of the Bankruptcy Code and Section 6 of the Fraudulent Conveyance Act. 3 HILLS STORES COMPANY June 13, 1996 Page 3 Our opinion regarding the corporate power or authority or due authorization of HDS Transport, Inc. or C.R.H. International, Inc. to execute, deliver or carry out the terms of any of the Subsidiary Guarantees is based on our review of a compilation prepared by Prentice Hall Legal & Financial Services of the corporate law of Ohio and not upon any special expertise in the laws of such jurisdiction. We express no opinion other than as to the federal laws of the United States of America, the laws of the Commonwealth of Massachusetts and the General Corporation Law of the State of Delaware. To the extent that the opinions expressed below may require application of any other laws of any other state, we have assumed that the applicable laws of such state are the same as the laws of the Commonwealth of Massachusetts. Based upon and subject to the foregoing, it is our opinion that: 1. The Series B Notes have been duly authorized for issuance by all necessary corporate action on the part of the Company and, (i) when the Registration Statement has become effective under the Act, and (ii) when duly executed and authenticated as provided in the Indenture and upon delivery in exchange for currently outstanding securities of the Company as contemplated by the Registration Statement, will constitute the legal, valid and binding obligations of the Company, entitled to the benefits of the Indenture. 2. The Subsidiary Guarantees to be endorsed on the Series B Notes have been duly authorized for issuance by all necessary corporate action on the part of the Guarantor party thereto and, (i) when the Registration Statement has become effective under the Act, and (ii) when duly executed and authenticated as provided in the Indenture and upon delivery in exchange for currently outstanding securities of each of the Guarantors as contemplated by the Registration Statement, will constitute the legal, valid and binding obligations of each of the Guarantors, entitled to the benefits of the Indenture, and enforceable against the Guarantors in accordance with their terms. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our name under the caption "Legal Matters" in the prospectus contained in such Registration Statement. This opinion may not be relied upon by, or furnished to, any other person, firm or corporation. Very truly yours, FOLEY, HOAG & ELIOT LLP By: /s/ Mark L. Johnson --------------------- A Partner EX-8.1 15 OPINION OF FOLEY HOAG & ELIOT 1 EXHIBIT 8.1 [LETTERHEAD OF FOLEY, HOAG & ELIOT LLP] June 13, 1996 HILLS STORES COMPANY 15 Dan Road Canton, Massachusetts 02021 Re: Hills Stores Company Registration Statement on Form S-4 Registration Number 333-05003 Ladies and Gentlemen: We have acted as counsel to Hills Stores Company, a Delaware corporation (the "Company"), in connection with its preparation and issuance of a Registration Statement on Form S-4 (Registration No. 333-05003), as amended by Amendment No. 1 thereto, under the Securities Act of 1933, with respect to $195,000,000 aggregate principal amount of its 12 1/2% Senior Notes due 2003, Series B (the "Series B Notes"). The Company has offered (the "Exchange Offer") to exchange $1,000 principal amount of Series B Notes for each $1,000 principal amount of its 12 1/2% Senior Notes due 2003 (the "Series A Notes") sold by the Company on April 19, 1996. Such Registration Statement is referred to herein as the "Registration Statement" and the Prospectus forming a part of the Registration Statement is referred to as the "Prospectus." In arriving at the opinion expressed below, we have examined and relied on copies of the Registration Statement and the Prospectus, as well as originals or copies certified or otherwise identified to our satisfaction of all such corporate records of the Company and such other instruments and other certificates of officers and representatives of the Company and such other persons, and we have made such investigations of law, as we have deemed appropriate as a basis for the opinion expressed below. Based on the foregoing, we are of the opinion that the statements made in the Prospectus under the caption "Certain Federal Income Tax Considerations" accurately reflect the material United States federal income tax consequences, to a holder of Series A Notes, of the exchange of the Series B Notes for the Series A Notes pursuant to the Exchange Offer. 2 HILLS STORES COMPANY June 13, 1996 Page 2 We hereby consent to the filing of this letter as an exhibit to the Registration Statement and to the reference to our name under the caption "Legal Matters" in the Prospectus. This letter is not to be used, circulated, quoted or otherwise referred to for any other purpose. Very truly yours, FOLEY, HOAG & ELIOT LLP By: /s/ Richard Schaul-Yoder ------------------------ A Partner EX-12.1 16 STATEMENT OF RE-COMP OF RATIO OF EARNINGS TO FIXED 1 EXHIBIT 12.1 Statement re Computation of Ratio of Earnings to Fixed Charges The following table sets forth the ratio of earnings to fixed charges for the Company for the periods shown. These ratios were computed by dividing earnings from continuing operations, before income taxes and fixed charges, by fixed charges. Fixed charges consist of interest expense, approximately 45% of rent expense (estimated by management to be the interest component of such rent expense) and preferred stock dividends.
Seventeen Thirty-five Year ended Quarter ended Quarter ended Year ended Year ended weeks ended weeks ended --------------------------- May 4, April 29, February 3, January 28, January 29, October 2, January 30, February 1, 1996 1995 1996 1995 1994 1993 1993 1992 - ------------- ------------- ----------- ----------- ----------- || ----------- ----------- ----------- || || -- -- -- 2.33x 4.16x || -- 2.17x 1.46x
For the quarters ended May 4, 1996 and April 29, 1995, the deficiency of earnings to cover fixed charges was $29.9 million and $8.0 million, respectively. For the year ended February 3, 1996, the deficiency of earnings to cover fixed charges was $13.5 million and for the thirty-five weeks ended October 2, 1993, the deficiency was $0.5 million. Pursuant to the Plan of Reorganization, the Company adopted "fresh-start" reporting as of October 2, 1993. As a result, the Company's consolidated financial statements for the periods subsequent to the adoption of fresh-start reporting have been prepared on a basis not comparable to prior periods. Black lines have been drawn to separate the Company's post-emergence financial statements from those prior to October 3, 1993 since they have not been prepared on a comparable basis. 2 Hills Stores Company and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
Seventeen Quarter Quarter Year ended Year ended weeks ended ended ended February 3, January 28, January 29, May 4, 1996 April 29, 1995 1996 1995 1994 ----------- -------------- ----------- ----------- ----------- || || Earnings (loss) from continuing || operations before income taxes $(29,940) $ (8,016) $(13,479) $ 76,284 $62,844 || Add: Fixed charges deducted from || earnings (loss) 18,570 15,778 69,180 57,286 19,899 || Less: Pre-tax equivalent of preferred || stock dividend requirements -- -- -- -- -- || -------- -------- -------- -------- ------- || Earnings available for payment of || fixed charges $(11,370) $ 7,762 $ 55,701 $133,570 $82,743 || ======== ======== ======== ======== ======= || || Fixed charges: || Capital lease interest $ 3,409 $ 3,579 $ 14,066 $ 14,707 $ 5,029 || Other interest 10,256 7,392 35,431 24,005 8,112 || Portion of operating lease rentals || deemed to represent interest(1) 4,905 4,807 19,683 18,574 6,758 || Pre-tax equivalent of preferred || stock dividend requirements -- -- -- -- -- || -------- -------- -------- -------- ------- || Total fixed charges $ 18,570 $ 15,778 $ 69,180 $ 57,286 $19,899 || ======== ======== ======== ======== ======= || Ratio of earnings to fixed charges -- -- -- 2.33x 4.16x || Deficiency of earnings available to || cover fixed charges $ 29,940 $ 8,016 $ 13,479 || Thirty-five Year ended weeks ended ------------------------- October 2, January 30, February 1, 1993 1993 1992 ----------- ---------- ----------- Earnings (loss) from continuing operations before income taxes $ 1,157 $56,533 $27,641 Add: Fixed charges deducted from earnings (loss) 27,604 44,043 48,102 Less: Pre-tax equivalent of preferred stock dividend requirements (1,662) (4,843) (5,388) ------- ------- ------- Earnings available for payment of fixed charges $27,099 $95,733 $70,355 ======= ======= ======= Fixed charges: Capital lease interest $10,284 $16,151 $16,395 Other interest 3,364 5,865 9,156 Portion of operating lease rentals deemed to represent interest(1) 12,294 17,184 17,163 Pre-tax equivalent of preferred stock dividend requirements 1,662 4,843 5,388 ------- ------- ------- Total fixed charges $27,604 $44,043 $48,102 ======= ======= ======= Ratio of earnings to fixed charges -- 2.17x 1.46x Deficiency of earnings available to cover fixed charges $ 505
- ------------------------------------------------- (1) Management has estimated that approximately 45% of rent expense could be considered interest if the Company's operating leases were considered debt obligations. EX-23.1 17 CONSENT OF DELOITTE & TOUCHE 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT ----------------------------- We consent to the incorporation by reference in this Amendment No. 1 to Registration Statement No. 333-05003 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), appearing 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 such Registration Statement. DELOITTE & TOUCHE LLP Boston, Massachusetts June 12, 1996 EX-23.2 18 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23.2 INDEPENDENT ACCOUNTANT'S CONSENT We consent to the incorporation by reference in Amendment No. 1 to 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. 333-05003) 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 June 12, 1996 EX-25 19 STATEMENT OF ELIGIBILITY 1 EXHIBIT 25 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM T-1 ---------- STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ---------- / / CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) FLEET NATIONAL BANK --------------------------------------------------------- (Exact name of trustee as specified in its charter) Not applicable 04-317415 - ------------------------------- ----------------------------- (State of incorporation (I.R.S. Employer if not a national bank) Identification No.) One Monarch Place, Springfield, MA 01102 - ---------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code)
Pat Beaudry, 777 Main Street, Hartford, CT 06115 (203) 728-2065 -------------------------------------------------------------- (Name, address and telephone number of agent for service) HILLS STORES COMPANY --------------------------------------------------- (Exact name of obligor as specified in its charter) Hills Department Store Company Canton Advertising, Inc. Corporate Vision, Inc. C.R.H. International, Inc. HDS Transport, Inc. Hills Distributing Company ------------------------------------------------------ (Exact name of guarantors as specified in its charter) Delaware 31-1153510 Delaware 04-3201920 Massachusetts 31-1110263 Massachusetts 04-3033031 Ohio 31-0843874 Ohio 31-0799137 Delaware 04-3078935 - ------------------------------- ----------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15 Dan Road, Canton, Massachusetts 02021 - ---------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code)
12 1/2% Senior Notes due 2003, Series B ------------------------------------------------------------------ (Title of the indenture securities) 2 Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject: The Comptroller of the Currency Washington, D.C. Federal Reserve Bank of Boston Boston, Massachusetts Federal Deposit Insurance Corporation Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers: The trustee is so authorized. Item 2. Affiliations with obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None with respect to the trustee. Item 16. List of exhibits. List below all exhibits filed as a part of this statement of eligibility and qualification. (1) A copy of the Articles of Association of the trustee as now in effect. (See Exhibit 25, of Registration Statement No. 333-01843) (2) A copy of the Certificate of Authority of the trustee to do business. (See Exhibit 25, Registration Statement No. 333-01843) (3) The authorization of the Trustee to exercise corporate trust powers is referenced in Exhibit 1 of this Item 16. (4) A copy of the By-Laws of the trustee as now in effect. (See Exhibit 25, Registration Statement No. 333-01843) (5) Consent of the trustee required by Section 321(b) of the Act is reiterated in Exhibit 2 of this item 16. (6) A copy of the latest Report of Condition of the trustee published pursuant to law or the requirements of its supervising or examining authority as now in effect. (See Exhibit 25 of Registration Statement No. 333-02183). *The Exhibits thus designated are incorporated herein by reference. Following the description of such Exhibits is a reference to the copy of the Exhibit heretofore filed with the Securities and Exchange Commission to which there have been no amendments or changes. 3 NOTES In as much as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base answers to Item 2, the answers to said Items are based upon incomplete information. Item 2 may, however, be considered correct unless amended by an amendment to this Form T-1. 4 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, Fleet National Bank, a national banking association organized and existing under the laws of the United States, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Hartford, and State of Connecticut, on the 12th day of June, 1996. FLEET NATIONAL BANK, AS TRUSTEE By: /s/ FRANK KIMBALL ------------------------- Frank Kimball Its Vice President 5 EXHIBIT 1 CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE TRUST INDENTURE ACT OF 1939 The undersigned, as Trustee under the Indenture to be entered into between Hills Stores Company and Fleet National Bank, as Trustee, does hereby consent that, pursuant to Section 321(b) of the Trust Indenture Act of 1939, reports of examinations with respect to the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. FLEET NATIONAL BANK, AS TRUSTEE By /s/ FRANK KIMBALL ------------------------------- Frank Kimball Its Vice President Dated: June 12, 1996 6 EXHIBIT 2 [LOGO] - -------------------------------------------------------------------------------- COMPTROLLER OF THE CURRENCY ADMINISTRATOR OF NATIONAL BANKS - -------------------------------------------------------------------------------- Washington, D.C. 20219 Certification of Fiduciary Powers I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify the records in this Office evidence "Fleet National Bank of Connecticut", Hartford, Connecticut, (Charter No. 1338), was granted, under the hand and seal of the Comptroller, the right to act in all fiduciary capacities authorized under the provisions of The Act of Congress approved September 28, 1962, 76 Stat. 668, 12 U.S.C. 92a. I further certify the authority so granted remains in full force and effect. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and caused my seal of Office of the Comptroller of the Currency to be affixed to these presents at the Treasury Department, in the City of Washington and District of Columbia, this 4th day of April, 1996. /s/ EUGENE A. LUDWIG ---------------------------------- Comptroller of the Currency EX-99.5 20 FORM OF TRANSMITTAL LETTER 1 EXHIBIT 99.5 LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 12 1/2% SENIOR NOTES DUE 2003 OF HILLS STORES COMPANY Pursuant to Prospectus dated , 1996 HILLS STORES COMPANY WILL ACCEPT ALL 12 1/2% SENIOR NOTES DUE 2003 TENDERED AND NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON , 1996 (AS SUCH DATE AND TIME MAY BE EXTENDED BY HILLS STORES COMPANY IN ITS SOLE DISCRETION, THE "EXPIRATION TIME"). TENDERS OF SUCH NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION TIME. The Exchange Agent is: Fleet National Bank By Registered or By Hand Delivery: Certified Mail: By Overnight Delivery: By Facsimile: Confirm by Telephone: DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS TO A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. 2 The undersigned acknowledges receipt of the Prospectus dated , 1996 (the "Prospectus") of Hills Stores Company (the "Company") and this Letter of Transmittal (the "Letter of Transmittal"), which together with the Prospectus constitutes the Company's offer (the "Exchange Offer") 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"). Recipients of the Prospectus should read the requirements described in such Prospectus with respect to eligibility to participate in the Exchange Offer. Capitalized terms used but not defined herein have the meanings given to them in the Prospectus. The undersigned hereby tenders the Series A Notes described in the box entitled "Description of Series A Notes" below pursuant to the terms and conditions described in the Prospectus and this Letter of Transmittal. The undersigned is the registered owner of all the Series A Notes and the undersigned represents that it has received from each beneficial owner of Series A Notes (each a "Beneficial Owner") a duly completed and executed form of "Instruction to Registered Holder from Beneficial Owner" accompanying this Letter of Transmittal, instructing the undersigned to take the action described in this Letter of Transmittal. This Letter of Transmittal is to be used only by a holder of Series A Notes (i) if certificates representing Series A Notes are to be forwarded herewith or (ii) if delivery of Series A Notes is to be made by book-entry transfer to the Exchange Agent's account at The Depository Trust Company (the "Depositary"), pursuant to the procedures set forth in the section of the Prospectus entitled "The Exchange Offer--Procedures for Tendering." [IF DELIVERY OF THE SERIES A NOTES IS TO BE MADE BY BOOK-ENTRY TRANSFER TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT AT THE DEPOSITARY, THIS LETTER OF TRANSMITTAL NEED NOT BE MANUALLY EXECUTED]; provided, however, that tenders of the Series A Notes must be effected in accordance with the procedures mandated by the Depositary's Automated Tender Offer Program and the procedures set forth in the Prospectus under the caption "The Exchange Offer--Book-Entry Transfer." The undersigned hereby represents and warrants that the information set forth in the box entitled "Beneficial Owner(s)" is true and correct. 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 this 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. In order to properly complete this Letter of Transmittal, a holder of Series A Notes must (i) complete the box entitled "Description of Series A Notes," (ii) if appropriate, check and complete the boxes relating to book-entry transfer, guaranteed delivery, Special Issuance Instructions and Special Delivery Instructions, (iii) sign the Letter of Transmittal by completing the box entitled "Sign Here" and (iv) complete the Substitute Form W-9. Each holder of Series A Notes should carefully read the detailed instructions below prior to completing this Letter of Transmittal. 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 procedure for book-entry transfer on a timely basis, may effect a tender pursuant to the guaranteed delivery procedures set forth in the section of the Prospectus entitled "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2. A holder who wishes to tender Series A Notes must, at a minimum, complete columns (1) through (3) in the box below entitled "Description of Series A Notes" and sign the box below entitled "Sign Here." If only those columns are completed, such holder of Series A Notes will have tendered for exchange all Series A Notes listed in column (3) below. If the holder of Series A Notes wishes to tender for exchange less than all of such Series A -2- 3 Notes, column (4) must be completed in full. In such case, such holder of Series A Notes should refer to Instruction 5.
============================================================================================================================= DESCRIPTION OF SERIES A NOTES ============================================================================================================================= (1) (2) (3) (4) Principal Amount Tendered For Exchange (only if different amount from Name(s) and Address(es) of Registered Series A Note column (3)) Holder(s) of Series A Note(s), exactly as Number(s)(1) (must be in name(s) appear(s) on Series A Note (Attach Aggregate integral Certificate(s) signed List if Principal multiples (Please fill in, if blank) necessary) Amount of $1,000)(2) - ----------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ =============================================================================================================================
(1) Column (2) need not be completed by holders of Series A Notes tendering Series A Notes for exchange by book-entry transfer. Please check the appropriate box below and provide the requested information. (2) Column (4) need not be completed by holders of Series A Notes who wish to tender for exchange the principal amount of Series A Notes listed in Column (3). Completion of column (4) will indicate that the holder of Series A Notes wishes to tender for exchange only the principal amount of Series A Notes indicated in column (4). / / CHECK HERE IF TENDERED SERIES A NOTES ARE ENCLOSED HEREWITH. / / CHECK HERE IF TENDERED SERIES A NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE DEPOSITARY AND COMPLETE THE FOLLOWING (FOR USE ONLY BY ELIGIBLE INSTITUTIONS, AS HEREINAFTER DEFINED): Name of Tendering Institution ------------------------------------------ Account Number --------------------------------------------------------- Transaction Code Number ------------------------------------------------ -3- 4 / / CHECK HERE IF TENDERED Series A Notes ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR USE ONLY BY ELIGIBLE INSTITUTIONS): Name of Registered Holder of Series A Note(s) -------------------------- Date of Execution of Notice of Guaranteed Delivery --------------------- Window Ticket Number (if available) ------------------------------------ Name of Institution which Guaranteed Delivery -------------------------- Account Number (if delivered by book-entry transfer) ------------------- / / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ------------------------------------------------------------------ Address: --------------------------------------------------------------- ================================================================================ SPECIAL ISSUANCE INSTRUCTIONS (See Instructions 1, 6, 7 and 8) To be completed ONLY (i) if the Series B Notes issued in exchange for Series A Notes, certificates for Series A Notes in a principal amount not exchanged for Series B Notes or Series A Notes (if any) not tendered for exchange, are to be issued in the name of someone other than the undersigned, or (ii) if Series A Notes tendered by book-entry transfer which are not exchanged are to be returned by credit to an account maintained at the Depositary. Issue to: Name ---------------------------------------------------------------------------- (Please Print) Address ------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) - -------------------------------------------------------------------------------- (Tax Identification or Social Security No.) Credit Series A Notes not exchanged and delivered by book-entry transfer to the Depositary account set forth below: - -------------------------------------------------------------------------------- (Account Number) ================================================================================ ================================================================================ SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 6, 7 and 8) To be completed ONLY (i) if the Series B Notes issued in exchange for Series A Notes, certificates for Series A Notes in a principal amount not exchanged for Series B Notes or Series A Notes (if any) not tendered for exchange, are to be mailed or delivered to someone other than the undersigned, or to the undersigned at an address other than the address shown below the undersigned's signature. Mail or delivered to: Name ---------------------------------------------------------------------------- (Please Print) Address ------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) - -------------------------------------------------------------------------------- (Tax Identification or Social Security No.) ================================================================================ -4- 5 ================================================================================ BENEFICIAL OWNER(S) - -------------------------------------------------------------------------------- STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF SERIES A NOTES BENEFICIAL OWNER OF SERIES A NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER(S) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ If delivery of Series A Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at the Depositary, then tenders of Series A Notes must be effected in accordance with the procedures mandated by the Depositary's Automated Tender Offer Program and the procedures set forth in the Prospectus under the caption "The Exchange Offer -- Book-Entry Transfer." -5- 6 SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY LADIES AND GENTLEMEN: Pursuant to the offer by Hills Stores Company (the "Company"), upon the terms and subject to the conditions set forth in the Prospectus dated , 1996 (the "Prospectus") and this Letter of Transmittal (the "Letter of Transmittal"), which together with the Prospectus constitutes the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 12 1/2% Senior Notes Due 2003, Series B (the "Series B Notes") for each $1,000 principal amount of its outstanding 12 1/2% Senior Notes Due 2003 (the "Series A Notes"), the undersigned hereby tenders to the Company for exchange the Series A Notes indicated above. By executing this Letter of Transmittal and subject to and effective upon acceptance for exchange of the Series A Notes tendered for exchange herewith, the undersigned will have irrevocably sold, assigned, transferred and exchanged, to the Company, all right, title and interest in, to and under all of the Series A Notes tendered for exchange hereby, and hereby appoints the Exchange Agent as the true and lawful agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as agent of the Company) of such holder of Series A Notes with respect to such Series A Notes, with full power of substitution, to (i) deliver certificates representing such Series A Notes, or transfer ownership of such Series A Notes on the account books maintained by the Depositary (together, in any such case, with all accompanying evidences of transfer and authenticity), to the Company, (ii) present and deliver such Series A Notes for transfer on the books of the Company, and (iii) receive all benefits and otherwise exercise all rights and incidents of beneficial ownership with respect to such Series A Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed to be irrevocable and coupled with an interest. The undersigned hereby represents and warrants to the Company that (i) the undersigned is the owner; (ii) has a net long position within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4") equal to or greater than the principal amount of Series A Notes tendered hereby; (iii) tender of such Series A Notes complies with Rule 14e-4 (to the extent that Rule 14e-4 is applicable to such exchange); (iv) the undersigned has full power and authority to tender, exchange, assign and transfer the Series A Notes and (v) that when such Series A Notes are accepted for exchange by the Company, the Company will acquire good and marketable title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. The undersigned will, upon receipt, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the Series A Notes tendered for exchange hereby. The undersigned hereby further represents and warrants to the Company that (i) the Series B Notes to be acquired by the undersigned in exchange for the Series A Notes tendered hereby and any beneficial owner(s) of such Series A Notes in connection with the Exchange Offer will be acquired by the undersigned and such beneficial owner(s) in the ordinary course of business of the undersigned and such beneficial owner(s), (ii) neither the undersigned nor any beneficial owner is an "affiliate," as defined in Rule 405 of the Securities Act of 1933, as amended (the "Securities Act"), of the Company, (iii) the undersigned has no arrangement or understanding with any person to engage in any distribution of the Series B Notes and if the undersigned 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) the undersigned and each beneficial owner acknowledge and agree that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended, or any person 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 any secondary resale transaction of the Series B Notes acquired by such person and cannot rely on the position of the staff of the Securities and Exchange Commission (the "Commission") set forth in certain no-action letters (see the section of the Prospectus entitled "The Exchange Offer-Resale of Series B Notes"), and (v) the undersigned and each beneficial owner understand that any secondary resale transaction described in clause (iv) above and any resale of Series B Notes obtained by the undersigned and each beneficial owner in exchange for Series A Notes acquired by the undersigned and each beneficial owner directly from the Company should be covered -6- 7 by an effective registration statement containing the selling securityholder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the SEC. If the undersigned 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, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Series B Notes received in respect of such Series A Notes pursuant to the Exchange Offer; by so acknowledging and by delivering a prospectus, however, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For purposes of the Exchange Offer, the Company will be deemed to have accepted for exchange, and to have exchanged, validly tendered Series A Notes, if, as and when the Company gives oral or written notice thereof to the Exchange Agent. Tenders of Series A Notes for exchange may be withdrawn at any time prior to the Expiration Time. See "The Exchange Offer--Withdrawal of Tenders" in the Prospectus. Any Series A Notes tendered by the undersigned and not accepted for exchange will be returned to the undersigned at the address set forth above unless otherwise indicated in the box above entitled "Special Delivery Instructions." The undersigned acknowledges that the Company's acceptance of Series A Notes validly tendered for exchange pursuant to any one of the procedures described in the section of the Prospectus entitled "The Exchange Offer" and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. Unless otherwise indicated in the box entitled "Special Issuance Instructions," please return any Series A Notes not tendered for exchange in the name(s) of the undersigned. Similarly, unless otherwise indicated in the box entitled "Special Delivery Instructions," please mail any certificates for Series A Notes not tendered or exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Issuance Instructions" and "Special Delivery Instructions" are completed, please issue the certificates representing the Series B Notes issued in exchange for the Series A Notes accepted for exchange in the name(s) of, and return any Series A Notes not tendered for exchange or not exchanged to, the person(s) so indicated. The undersigned recognizes that the Company has no obligation pursuant to the "Special Issuance Instructions" and "Special Delivery Instructions" to transfer any Series A Notes from the name of the holder of Series A Note(s) thereof if the Company does not accept for exchange any of the Series A Notes so tendered for exchange or if such transfer would not be in compliance with any transfer restrictions applicable to such Series A Note(s). IN ORDER TO VALIDLY TENDER SERIES A NOTES FOR EXCHANGE, HOLDERS OF SERIES A NOTES MUST COMPLETE, EXECUTE, AND DELIVER THIS LETTER OF TRANSMITTAL. Except as stated in the Prospectus, all authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as otherwise stated in the Prospectus, this tender for exchange of Series A Notes is irrevocable. -7- 8 SIGN HERE - -------------------------------------------------------------------------------- (Signature(s) of (Owners(s)) Date: , 1996 ---------------- Must be signed by the registered holder(s) of Series A Notes exactly as name(s) appear(s) on certificate(s) representing the Series A Notes or on a security position listing or by person(s) authorized to become registered Series A Note holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information. (See Instruction 6). Name(s) ------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Please Print) Capacity (full title) ----------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) Area Code and Telephone No. ( ) ----- -------------------------------------------- Tax Identification or Social Security Nos. -------------------------------------- Please complete Substitute Form W-9 GUARANTEE OF SIGNATURE(S) (Signature(s) must be guaranteed if required by Instruction 1) Authorized Signature ------------------------------------------------------------ Dated --------------------------------------------------------------------------- Name and Title ------------------------------------------------------------------ (Please Print) Name of Firm -------------------------------------------------------------------- -8- 9 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by an institution which is a member of a registered national securities exchange or a member 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 Securities Exchange Act of 1934, as amended, which is a member of one of the following recognized Signature Guarantee Programs (an "Eligible Institution"): a. The Securities Transfer Agents Medallion Program (STAMP); b. The New York Stock Exchange Medallion Signature Program (MSP); or c. The Stock Exchange Medallion Program (SEMP). Signatures on this Letter of Transmittal need not be guaranteed (i) if this Letter of Transmittal is signed by the registered holder(s) of the Series A Notes tendered herewith and such registered holder(s) have not completed the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (ii) if such Series A Notes are tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION. 2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND SERIES A NOTES; GUARANTEED DELIVERY PROCEDURE. This Letter of Transmittal is to be completed by holders of Series A Notes (i) if certificates are to be forwarded herewith or (ii) if tenders are to be made pursuant to the procedures for tender by book-entry transfer or guaranteed delivery set forth in the section of the Prospectus entitled "The Exchange Offer." Certificates for all physically tendered Series A Notes or any confirmation of a book-entry transfer (a "Book-Entry Confirmation"), as well as a properly completed and duly executed copy of this Letter of Transmittal or facsimile hereof, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth on the cover of this Letter of Transmittal prior to the Expiration Time. A holder who elects to tender Series A Notes (i) whose Series A Notes are not immediately available, (ii) who cannot deliver its Series A Notes or 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 (by telegram, telex, facsimile transmission, mail or hand delivery) (1) setting forth the name and address of the holder of such Series A Notes, the certificate number or numbers of such Series A Notes and the principal amount of Series A Notes tendered for exchange, (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 this Letter of Transmittal, will be deposited by such Eligible Institution with the Exchange Agent; and (c) such properly executed Letter to Transmittal (or a facsimile thereof), together with a 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 this Letter of Transmittal are received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Time. THE METHOD OF DELIVERY OF SERIES A NOTES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER OF SERIES A NOTES. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT TENDERING HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO -9- 10 ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION TIME. NO SERIES A NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY. No alternative, conditional or contingent tenders will be accepted. All tendering holders of Series A Notes, by execution of this Letter of Transmittal (or facsimile hereof, if applicable), waive any right to receive notice of the acceptance of their Series A Notes for exchange. 3. INADEQUATE SPACE. If the space provided in the box entitled "Description of Series A Notes" above is inadequate, the certificate numbers and principal amounts of the Series A Notes being tendered should be listed on a separate signed schedule affixed hereto. 4. WITHDRAWALS. A tender of Series A Notes may be withdrawn at any time prior to the Expiration Time by delivery of written notice of withdrawal to the Exchange Agent at the address set forth on the cover of this Letter of Transmittal. To be effective, a notice of withdrawal of Series A Notes 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), (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Series A Notes were tendered (including any required signature guarantees). 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 in the section of the Prospectus entitled "The Exchange Offer -- Procedures for Tendering" at any time prior to the Expiration Time. 5. PARTIAL TENDERS. (Not applicable to holders of Series A Notes who tender Series A Notes by book-entry transfer). Tenders of Series A Notes will be accepted only in integral multiples of $1,000 principal amount. If a tender for exchange is to be made with respect to less than the entire principal amount of any Series A Notes, fill in the principal amount of Series A Notes which are tendered for exchange in column (4) of the box entitled "Description of Series A Notes," as more fully described in the footnotes thereto. In case of a partial tender for exchange, a new certificate, in fully registered form, for the remainder of the principal amount of the Series A Notes, will be sent to the holders of Series A Notes unless otherwise indicated in the appropriate box on this Letter of Transmittal as promptly as practicable after the expiration or termination of the Exchange Offer. 6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, POWERS OF ATTORNEY AND ENDORSEMENTS. (a) The signature(s) of the holder of Series A Notes on this Letter of Transmittal must correspond with the name(s) as written on the face of the Series A Notes without alternation, enlargement or any change whatsoever. (b) If tendered Series A Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. (c) If any tendered Series A Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal and any necessary or required documents as there are different registrations or certificates. (d) When this Letter of Transmittal is signed by the holder of the Series A Notes listed and transmitted hereby, no endorsements of Series A Notes or separate powers of attorney are required. If, however, Series A Notes not tendered, or not accepted, are to be issued or returned in the name of a person other than the holder of Series A Notes, then the Series A Notes transmitted hereby must be endorsed or accompanied by an appropriate power of attorney in a form satisfactory to the Company, which power of attorney shall be signed by such holder as such holder's name appears on the Series A Notes. Signatures on such Series A Notes or powers of attorney must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). -10- 11 (e) If this Letter of Transmittal or Series A Notes or 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 proper evidence satisfactory to the Company of their authority so to act must be submitted. (f) If this Letter of Transmittal is signed by a person other than the registered holder of any Series A Notes listed, the Series A Notes must be endorsed or accompanied by an appropriate power of attorney, which power of attorney shall be by such holder as such holder's name appears on the Series A Notes. Signatures on such Series A Notes or powers of attorney must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). 7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company will pay all transfer taxes, if any, applicable to the transfer and exchange of Series A Notes pursuant to the Exchange Offer. If, however, issuance of Series B Notes is to be made to, or Series A Notes not tendered for exchange are to be issued or returned in the name of, any person other than the holder of Series A Notes, and satisfactory evidence of payment of such taxes or exemptions from taxes therefrom is not submitted with this Letter of Transmittal, the amount of any transfer taxes payable on account of the transfer to such person will be imposed on and payable by the holder of Series A Notes tendering Series A Notes for exchange prior to the issuance of the Series B Notes. 8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Series B Notes are to be issued, or if any Series A Notes not tendered for exchange are to be issued or sent to someone other than the holder of Series A Notes or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be complete. Holders of Series A Notes tendering Series A Notes by book-entry transfer may request that Series A Notes not accepted be credited to such account maintained at the Depositary as such holder of Series A Notes may designate. 9. IRREGULARITIES. All questions as to the form of documents and the validity, eligibility (including time of receipt), acceptance and withdrawal of Series A Notes will be determined by the Company, in its sole discretion, whose determination shall be final and binding. The Company reserves the absolute right to reject any or 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 as to any particular Series A Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions herein) 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. Any Series A Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Time. 10. WAIVER OF CONDITIONS. The Company reserves the right in its sole discretion to waive, amend or modify certain of the specified conditions as described under "The Exchange Offer--Procedures for Tendering" in the Prospectus in the case of any Series A Notes tendered (except as otherwise provided in the Prospectus). 11. MUTILATED, LOST, STOLEN OR DESTROYED SERIES A NOTES. If a holder of Series A Notes desires to tender Series A Notes pursuant to the Exchange Offer, but any of such Series A Notes has been mutilated, lost, stolen or destroyed, such holder of Series A Notes should write to or telephone the Trustee at the address listed below, concerning the procedures for obtaining replacement certificates for such Series A Notes, arranging for indemnification or any other matter that requires handling by the Trustee: -11- 12 Fleet National Bank [Address] [Telephone Number] 12. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for information or for additional copies of the Prospectus and this Letter of Transmittal may be directed to the Exchange Agent at the address or telephone number set forth on the cover of this Letter of Transmittal. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION TIME. IMPORTANT TAX INFORMATION Under current federal income tax law, a holder of Series A Notes whose tendered Series A Notes are accepted for exchange may be subject to backup withholding unless the holder provides the Company (as payor), through the Exchange Agent, with either (i) such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN provided on Substitute Form W-9 is correct (or that such holder of Series A Notes is awaiting a TIN) and that (A) the holder of Series A Notes has not been notified by the Internal Revenue Service that it is subject to backup withholding as a result of a failure to report all interest or dividends or (B) the Internal Revenue Service has notified the holder of Series A Notes that it is no longer subject to backup withholding; or (ii) an adequate basis for exemption from backup withholding. If such holder of Series A Notes is an individual, the TIN is such holder's social security number. If the Exchange Agent is not provided with the correct taxpayer identification number, the holder of Series A Notes may be subject to certain penalties imposed by the Internal Revenue Service. Certain holders of Series A Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. Exempt holders of Series A Notes should indicate their exempt status on Substitute Form W-9. A foreign individual may qualify as an exempt recipient by submitting to the Exchange Agent a properly completed Internal Revenue Service Form W-8 (which the Exchange Agent will provide upon request) signed under penalty of perjury, attesting to the holder's exempt status. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (the "Guidelines") for additional instructions. If backup withholding applies, the Company is required to withhold [31%] of any payment made to the holder of Series A Notes or other payee. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The holder of Series A Notes is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the record owner of the Series A Notes. If the Series A Notes are held in more than one name or are not held in the name of the actual owner, consult the enclosed Guidelines for additional guidance regarding which number to report. -12- 13 PAYER'S NAME: -------------------------------------------- - ------------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 - PLEASE PROVIDE YOUR TIN IN THE BOX AT ----------------------------------- FORM W-9 RIGHT AND CERTIFY BY Social Security Number SIGNING AND DATING BELOW Department of the Treasury OR Internal Revenue Service ----------------------------------- Payer's Request for Taxpayer Employer Identification Number Identification Number (TIN) ------------------------------------------------------------------- PART 2 - PART 3 - Certification Under Penalties of Perjury, I certify that: Awaiting (1) The number shown on this form is my current TIN / / taxpayer identification number (or I am waiting for a number to be issued to me) and (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. ------------------------------------------------------------------- Certificate instructions - You must cross out item (2) in Part 2 above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you are subject to backup withholding you receive another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2). SIGNATURE DATE ------------------------------------------- -------- NAME -------------------------------------------------------------- ADDRESS ----------------------------------------------------------- CITY STATE ZIP CODE ------------------------------- ------ --------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF [31%] OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 -13- 14 PAYOR'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver such an application in the near future. I understand that if I do not provide a taxpayer identification number with sixty (60) days, [31%] of all reportable payments made to me thereafter will be withheld until I provide such a number. - -------------------------------------------------------------------------------- Signature Date -14- 15 INSTRUCTION TO REGISTERED HOLDER FROM BENEFICIAL OWNER OF HILLS STORES COMPANY 12 1/2% SENIOR NOTES DUE 2003 The undersigned hereby acknowledges receipt of the Prospectus dated , 1996 (the "Prospectus") of Hills Stores Company (the "Company") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), which together constitute the Company's offer (the "Exchange Offer") 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"). Capitalized terms used but not defined herein have the meanings given to them in the Prospectus. This will instruct you, the registered holder, as to the action to be taken by you relating to the Exchange Offer with respect to the Series A Notes held by you for the account of the undersigned: The aggregate face amount of the Series A Notes held by you for the account of the undersigned is $_______. With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): / / TO TENDER the following Series A Notes held by you for the account of the undersigned (insert principal amount of Series A Notes to be tendered, if any): $__________ of the Series A Notes. / / NOT TO TENDER any Series A Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Series A Notes held by you for the account of the undersigned, it is understood that you are authorized (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner of the Series A Notes, including but not limited to the representations that (i) the undersigned's principal residence is in the State of (fill in state) ____________________, (ii) the undersigned is acquiring the Series B Notes in the ordinary course of business of the undersigned, (iii) the undersigned is not an "affiliate," as defined in Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"), of the Company, (iv) the undersigned has no arrangement or understanding with any person to engage in a distribution of Series B Notes and if the undersigned 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, (v) the undersigned acknowledges and agrees that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended, and any person 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 any 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 the section of the Prospectus entitled "The Exchange Offer--Resales of the Series B Notes"), (vi) the undersigned understands that any secondary resale transaction described in clause (v) above and any resale of Series B Notes obtained by the undersigned in exchange for Series A Notes acquired by the undersigned directly from the Company should be covered by an effective registration statement containing the selling securityholder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Securities and Exchange Commission, and (vii) if the undersigned 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 activities or other trading activities, the undersigned acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Series B Notes received in respect of such Series A Notes pursuant to the Exchange Offer; by so acknowledging and by delivering a prospectus, however, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of Series A Notes. SIGN HERE Name of Beneficial Owner(s):____________________________________________________ Signature(s):___________________________________________________________________ Name(s) (please print):_________________________________________________________ Address:________________________________________________________________________ Telephone Number:_______________________________________________________________ Taxpayer Identification or Social Security Number:______________________________ Date:___________________________________________________________________________ -15- -----END PRIVACY-ENHANCED MESSAGE-----