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§7.607 PROXY STATEMENTS: STRATEGY & FORMS © 1997 Jefren Publishing Company, Inc. 7-1000 STUARTS DEPARTMENT STORES, INC.PROXY STATEMENT SPECIAL MEETING OF SHAREHOLDERS May 18, 1993 This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Stuarts Department Stores, Inc. for use at the Special Meeting of Shareholders to be held on May 18, 1993, or any adjournments thereof. This Proxy Statement and the enclosed proxy card are being furnished to shareholders on or about April 7, 1993. An Annual Meeting of Shareholders for the election of directors is not being held at this time because the Joint Plan of Reorganization (the “Reorganization Plan”) of the Company and its Official Committee of Unsecured Creditors (the “Creditors' Committee”) confirmed by the United States Bankruptcy Court for the District of Massachusetts (Western Division) (the “Bankruptcy Court”) on October 13, 1992 and the Company's Restated Certificate of Incorporation require that a meeting of the shareholders of the Company be convened on a dat e within 30 days before the expiration of the one-year period following consummation of the Reorganization Plan (the “Initial Year”) for the purpose of electing new directors. The Initial Year expires on October 18, 1993. Accordingly, the Company anticipates that an Annual Meeting of Shareholders will be held during late September or early October of 1993. The Company had 17,058,636 shares of Common Stock outstanding as of the record date, April 6, 1993. Each share of Common Stock is entitled to one vote. The affirmative vote of two-thirds of the votes cast is required to approve the opening of the new store. PROPOSAL 1 - APPROVAL OF NEW STORE OPENING The Company generally pursues a strategy for new store sites which is founded upon entering into long-term leases for existing space previously occupied by other discount stores or mass merchandisers which the Company remodels into the Stuarts prototype. The Company believes that new Company stores on sites previously occupied by other retailers gene rally require limited alterations. This enhances the Company's ability to establi sh stores in new locations within a relatively short period of time and at relatively low cost. The Company also attempts to locate the new stores in areas having demographic a nd competitive profiles which are similar to existing store locations. In selecting pa rticular sites, the Company formulates volume and market penetration estimates based upon an analysis of the operating histories of other retailers in these locations, coupled with related demogra phic and competitive data and, thereby, attempts to identify locations in which the Company can CORPORATE RESTRUCTURING§7.607 September 1996 7-1001 favorably apply its merchandising format and operational and marketing strengths. The Company believes that, by clustering new stores in communities contiguous to its present trading areas, the Company enhances its ability to build upon its market position, take advant age of an “advertising umbrella” and, over a longer term, obtain economies of scale by reducing it s distribution and executive supervision costs. The Board of Directors of the Company recommends the opening of a new store in Taunton, Massachusetts. The proposed site was previously a location for Bradlee's Department Stores. The new store would be 67,147 square feet in size and located in the Taunton Ma ll, a 160,000 square foot mall located in the central business district of Taunton, the county se at for Bristol County. Taunton is an industrial city with a working class population base of approximately 50,000 to 100,000 located within five miles of the proposed new store site. The Company believes that per capita income in, and certain other characte ristics of, the Taunton area are comparable to other urban areas where the Company presently operates stores. In particular, the Company believes that the proposed site has certain characterist ics which are similar to the Lawrence and Haverhill stores that the Company opened last year. St ore operating profits for the first six months of operations for the Lawrence and Haverhill stores exceeded management's expectations due to better sales per square foot, lower rent structure and better gross profit margins than the two stores they replaced. Although there can be no assurance tha t the proposed Taunton store, if opened, will perform similarly to the Lawrence and Ha verhill stores or that it will be a profitable store location for the Company, the Company be lieves that these demographics and the operating history of the Lawrence and Haverhill stores, as wel l as the volume of pedestrian traffic attributable to the proposed site's central loca tion and proximity to local governmental offices, present a promising opportunity for a new Stuarts store.. The Company presently is engaged in negotiations with Taunton Associates Limited Partnership regarding a lease (which may be executed and delivered, subjec t to the receipt of shareholder approval, prior to the Meeting) for the proposed new site. Certain terms of the proposed lease which have been agreed upon, subject to the execution and delivery of a definitive lease agreement, include a free-rent period from the projected opening in August 1993 until February 1, 1994, a base rent of $1.75 per square foot (which would increase by $1.00 per square foot if a large supermarket becomes a tenant in the mall), percentage of sales rent of 1½% of sales in excess of the amount of base rent divided by .015 (subject to reduction to 1% upon attainment of specified sales levels), a term expiring on January 31, 2004 and an option to terminate after five years if the landlord has not procured a large supermarket as a tenant by such time. In addition, it is estimated that the Company's annual pro rata share of comm on area maintenance charges and real estate taxes in respect of the proposed new site will be $47,002 and $23,500, respectively. Since the building was originally constructed and has been operated since as a discount department store, the Company believes that it is suited for use as a Smarts store and that minimal expenditures will be required to open the store. Specifically, the Company anticipates that approximately $500,000 will be required in connection with fixtures, lea sehold improvements and pre-opening expenses for the new store. Moreover, the Taunton site is located within 15 miles of two existing stores of the Company. The Company anticipates that the district manager presently assigned to these two stores will be in a position to cover the proposed Taunton store. In addition, because the Company anticipates closing one of its existing stores in connection with the opening of the proposed new site, as discussed below, the number of store §7.607 PROXY STATEMENTS: STRATEGY & FORMS © 1997 Jefren Publishing Company, Inc. 7-1002 managers employed by the Company is not expected to change as a result of the opening of the Taunton store. Consequently, the Company anticipates that no additional supervisory CORPORATE RESTRUCTURING§7.607 September 1996 7-1003 costs will be incurred in connection with the proposed new site. The Company anticipates that internally generated funds will be used to meet expenditures required in connection with the opening of the Taunton store, if approved. As a result, the Company's resources available for other purposes will be reduced accordingly. In connection with the proposed opening of the Taunton store, the Company is considering closing one of two existing stores located in Massachusetts. The two stores under consideration have not performed at a level consistent with management's expectat ions for its stores due largely, in the Company's opinion, to their location in shopping centers where t he landlords have experienced financial difficulties and in which a number of stores a re presently vacant. The leases for these stores expire in October 1993 and February 1994, respectively, a nd the base rent in respect of such leases is $5.30 per square foot and $1.34 per square foot, respectively. The Company's annual pro rata share of common area maintenance charges, in respect of these leases is $8,085 and $25,285, respectively. Annual real estate taxes payable by the Company in respect of these leases amounts to $20,112 and $7,846, respectively. In addition, the percentage of sales rent payable in respect of these leases is 2½% of sales ove r $4,000,000 annual total store sales (after returns) and 2% of sales in excess of $3,500,000 annual tot al sales (after returns), respectively. It is anticipated that fixtures located at the close d store will be relocated to the Taunton store and that funds budgeted for inventory purchases for the closed store will be used to purchase inventory to stock the Taunton store. In the event tha t the store selected for closing is closed prior to the expiration of the underlying lease, the Compa ny may be required to pay the rent owing in respect of the balance of the lease term. The Reorganization Plan and the Company's Restated Certificate of Incorporation each provide that during the Initial Year any opening of new stores shall require the a pproval of two-thirds of all issued and outstanding shares of Common Stock voting thereon. Although the Company presently does not have specific plans to open any new stores other than the proposed Taunton store or to enter into any other material tra nsactions during the balance of the Initial Year, the Company intends to be opportunistic in seeking new store locations and is aware that, due to retrenchment or contraction by other discount department store chains, opportunities may become available to obtain attractive locations at favorable prices. In the event that such an opportunity arises, any necessary shareholder approva l would be sought in respect thereof. Management recommends the execution of the enclosed Proxy FOR the above proposal. §7.607 PROXY STATEMENTS: STRATEGY & FORMS © 1997 Jefren Publishing Company, Inc. 7-1004 BENEFICIAL OWNERSHIP OF COMMON STOCK The following table sets forth beneficial ownership of Stuarts Common Stock as of April 1, 1993 by (i) each person known or believed by the Company to own beneficially more than 5 % of its outstanding Common Stock, (ii) each director who is a stockholder, and (ii i) all officers and directors as a group. Amount Name and Address of Beneficially Beneficial Owner Owned (1) Percent SB Asset Recovery Incorporated 3,968,007(2) 23.26% One Federal Street Boston, MA National Westminster Bank USA 2,757,429 16.16% 175 Water Street New York, NY KuwAm Corporation 987,600(3) 5.79 % 2600 Virginia Avenue, N.W. Suite 900 Washington, D.C. Joseph Ettore 9,000(4) * 16 Forge Parkway Franklin, MA Marc C. Ostrow 85,670 * 477 Madison Avenue 8th Floor New York, NY Officers and directors 313,034(5) 1.84% as a group (11 persons) * Less than 1% (1) The persons named in the table have sole voting and investment power with respect t o all shares of Common Stock shown as beneficially owned by them, subject to the information contained in the notes to the table. CORPORATE RESTRUCTURING§7.607 September 1996 7-1005 (footnotes continued on next page) §7.607 PROXY STATEMENTS: STRATEGY & FORMS © 1997 Jefren Publishing Company, Inc. 7-1006 (footnotes continued from prior page) (2) Based upon a Schedule 13D and amendments thereto filed with the Securities and Exchange Commission, Shawmut Bank, N.A. (“Shawmut”) and Shawmut National Corporation are the direct and indirect parent corporations, respectively, of SB Asset Recovery Incorporated, the transferee of certain of the Common Stock issued to Shawmut pursuant to the Reorganization Plan, and may be deemed to share voting and dispositive power in respect of such Common Stock. (3) Based upon a Schedule 13D and amendments thereto filed with the Securities and Exchange Commission, KuwAm Corporation (“KuwAm”), has sole voting power and sole dispositive power with respect to 920,000 of such shares; Special Situation Investment Holdings, Inc. (a limited partnership of which KuwAm is the general partner) has sole voting power and sole dispositive power with respect to 895,000 of such shares; Mishal Y. Al Sabah (a private investor) has sole voting power and sole dispositive power with respect to 40,000 of such shares; Wirt D. Walker III (a director and officer of KuwAm) and Sally W. Walker (his wife) have sole voting power and sole dispositive power with respect to 1,000 of such shares and shared voting power and shared dispositive power with respect to 975,000 of such shares; Wirt D. Walker III, custodian for W. Alexander Walker, has sole voting power and sole dispositive power with respect to 1,000 of such shares; Charles S. White III (a private investor) and Patricia T. White (his wife) have sole voting power and sole dispositive power with respect to 15,000 of such shares; Pamela S. Singelton (an officer of KuwAm) has sole voting power and sole dispositive power with respect to 4,000 of such shares; and J. Richard Cordsen (a director of KuwAm) has sole voting power and sole dispositive power with respect to 7,600 of such shares. These shares are under common management and are held in accounts which are either managed by or beneficially owned by KuwAm. (4) Does not include 200,000 shares of Common Stock issuable upon the exercise of options granted to Mr. Ettore pursuant to the Company's 1992 Employee Stock Option Plan which are not exercisable until the Company's 1992 Employee Stock Option Plan is approved by the Company's stockholders. (5) Does not include 550,000 shares of Common Stock issuable upon the exercise of options granted to five executive officers of the Company, including Mr. Ettore, pursuant to the Company's 1992 Employee Stock Option Plan which are not exercisable until the Company's 1992 Employee Stock Option Plan is approved by the Company's stockholders. CERTAIN DEVELOPMENTS On October 13, 1992, the Bankruptcy Court entered an order confirming the Reorganization Plan filed with the Bankruptcy Court by the Company and the Credit ors' CORPORATE RESTRUCTURING§7.607 September 1996 7-1007 Committee on July 23, 1992. The reorganization of the Company, as contemplated by the Reorganization Plan (the “Reorganization”), was consummated on October 19, 1992 (the “Consummation Date”). §7.607 PROXY STATEMENTS: STRATEGY & FORMS © 1997 Jefren Publishing Company, Inc. 7-1008 Pursuant to the Reorganization Plan, the general unsecured creditors of the Company are entitled to receive, in exchange for the cancellation of indebtedness aggregating approximately $47,000,000 of allowed claims, cash payments of $16,200,000 and shares of the Company's Common Stock equal to 80% of the total number of outstanding shares of Common Stock after giving effect to the issuance of such shares, or a total of 17,205,740 shares. The cash payments are required to be deposited into an account established for deposit of funds for distribution to general unsecured creditors holding allowed claims (the “Unsecured Creditors' Fund”) in three installments as follows: $5,200,000 on the Consummation Date, $6,000,000 on December 31, 1992 , and $5,000,000 on December 31, 1993. The first such installment payment was deposited into the Unsecured Creditors' Fund on October 19, 1992 and pro rata distributions were made therefrom on November 10, 1992 to claimants whose claims had been allowed by the Bankruptcy Court as of such date. The second installment payment was deposited into the Unsecured Creditors' Fund on December 31, 1992 and pro rata distributions were made therefrom on December 31, 1992 and January 8, 1993 to claimants whose claims had been allowed by the Bankruptcy Court as of such dates. The Common Stock issuable pursuant to the Reorganization Plan must be distributed to unsecured creditors holding allowed claims on the Consummation Date or a s soon as practicable thereafter. As of April 1, 1993 12,757,201 shares, or 74.8% of the outstanding Common Stock as of such date, had been issued to former unsecured creditors holding allowed claims and the remaining 4,448,539 shares of Common Stock issuable pursuant to the Reorganization Plan were expected to be issued as disputed claims are finally re solved and allowed by the Bankruptcy Court. Former holders of the Common Stock have retained their stock pursuant ot the Reorganization Plan, although their aggregate ownership interest will be diluted to 20 % of the total equity of the Company as a result of the issuance of al l Common Stock to the former unsecured creditors as contemplated by the Reorganization Plan. Pursuant to rights provided to Shawmut under the Reorganization Plan, Shawmut caused the Company to file with the Securities and Exchange Commission on February 12, 1993 a Registration Statement on Form S-1 in respect of the shelf registration of 6,725,436 shares of Common Stock held by SB Asset Recovery Incorporated and National Westminster Bank USA. All expenses in connection with such registration are to be borne by the Company subject to certain exceptions. The sale of such Common Stock pursuant to the Registration Stat ement could result in an additional change in control. The Reorganization Plan also requires that, during the Initial Year the Company's Board of Directors be increased from three to seven members and that its membership be comprised of two individuals designated by Shawmut, two individuals designated by the trade and factor representatives on the Creditors' Committee, one outside director approved the Creditors' Committee and two pre-Reorganization directors. SHAREHOLDER PROPOSALS CORPORATE RESTRUCTURING§7.607 September 1996 7-1009 In order to be considered for inclusion in the proxy materials for the Company's 1993 Annual Meeting of Shareholders, any shareholder proposal to take action at such meeti ng must be received at the Company's principal executive offices by April 12, 1993. Proposals §7.607 PROXY STATEMENTS: STRATEGY & FORMS © 1997 Jefren Publishing Company, Inc. 7-1010 should be directed to the Secretary of the Company at the principal executive offices of the Company. OTHER MATTERS Management does not know of any other matters which may come before the Meeting. However, if any other matters properly come before the Meeting, the persons na med in the enclosed proxy will vote, or otherwise act, in accordance with their judgment on such matters. Shares represented by proxies will be voted in accordance with the instructions contained thereon and, if no direction is given with respect to a particula r proposal, will be voted in favor of such proposal. A shareholder giving a proxy has the right to revoke it by giving notice to the Secretary of the Company before it has been voted. The cost of the solicitation of proxies will be borne by the Company. In addition to the solicitation of proxies by mail, certain of the officers and employees of the Company, without extra remuneration, may solicit proxies personally, or by telephone, telegraph or c able. The Company also will request brokerage houses, nominees, custodians and fiduciaries to forward soliciting materials to the beneficial owners of stock held of record and will reimburse such persons for forwarding such materials. In addition. the Company may retain a proxy, soliciting organization at a cost not to exceed $10,000. By Order of the Board of DirectorsAntone F. Moreira,Secretary April 7, 1993 Stuarts Department Stores, Inc. 4/7/93 CORPORATE RESTRUCTURING§7.607 September 1996 7-1011 [THE NEXT PAGE IS 7-1183]