FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-13184
STUARTS DEPARTMENT STORES, INC.
A Delaware corporation
I.R.S. Employer Identification No. 04-2817110
16 Forge Parkway
Franklin, MA 02038
(508) 520-4540
Securities Registered Pursuant to Section 12(g) of the Act:
Title
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value on June 6, 1995 of the voting stock
held by non-affiliates of the registrant was approximately
$443,125.
Common shares outstanding on June 6, 1995: 21,507,175
(excluding 901,899 shares held as treasury shares).
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities and Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a court.
Yes X No
<PAGE>
PART I
ITEM 1. BUSINESS
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CHAPTER 11 FILING
On May 16, 1995, Stuarts Department Stores, Inc. ("Stuarts" or
the "Company") filed a voluntary petition for reorganization
under Chapter 11 ("Chapter 11"), Title 11 of the United States
Code (the "Bankruptcy Code") with the United States Bankruptcy
Court for the District of Massachusetts (Western Division) (the
"Bankruptcy Court"). The Company's voluntary filing was
precipitated by financial and liquidity difficulties. The
Company's inability to pay obligations as they became due caused
many of its vendors to curtail inventory shipments to the
Company, which further impacted adversely the Company's
performance. Prior to the Chapter 11 filing, the Company
unsuccessfully attempted to locate a buyer for the retail chain.
On June 20, 1995, the Company's Board of Directors approved the
orderly liquidation or sale in Chapter 11 of the Company. The
Company's management is exploring various alternatives by which
the liquidation or sale can be effected and intends to formulate
a plan for the liquidation or sale as promptly as practicable.
The Board of Directors' determination had been affected by a
number of factors, including, in particular, poor sales and
operating results achieved over the Father's Day selling period.
The orderly liquidation or sale will involve the closing or the
sale of the remaining Stuarts stores and is likely to take a
number of months to complete. Any liquidation or sale will be
subject to obtaining the requisite approval of the Company's
secured creditor, the Official Committee of Creditors in the
bankruptcy proceeding and the Bankruptcy Court and, accordingly,
there can be no assurance that a plan for the liquidation or
sale formulated by the Company's management will be effected.
Although the Company does not presently believe that the
liquidation or sale will result in any distribution of liquidation or
sale proceeds to the Company's shareholders, the amount, if any,
available for distribution to the COmpany's unsecured creditors
can not presently be estimated.
In connection with the Chapter 11 filing, Stuarts entered into
debtor-in-possession financing arrangements with its lender,
Foothill Capital Corporation ("Foothill"), and is currently
operating its business as a debtor-in-possession, subject to
Bankruptcy Court approval for certain of its actions. The
financing arrangements with Foothill provide for a $6 million
credit facility, which is collateralized by substantially all of
the Company's assets. Borrowings under the facility are subject
to availability under a borrowing base formula and to compliance
with covenants and business plans. Interest is payable at the
prime rate plus 4%, with a minimum rate of 9.75%. The facility
terminates six months from the date approved by the Bankruptcy
Court unless sooner terminated due to failure to achieve
financial projections. The Company has failed to achieve
projected financial results established in connection with its
debtor-in-possession financing arrangements with Foothill. If
such failures continue, Foothill would be entitled to terminate
the financing arrangements under certain circumstances. The
Company's determination to liquidate or sell the Company has
caused an event of default under the financing arrangements with
Foothill. Consequently, Foothill would be entitled to seek Bankruptcy
Court relief from the automatic stay and, if such relief is granted,
<PAGE>
exercise foreclosure remedies as a secured creditor. The Company intends to
seek Foothill's cooperation in connection with the proposed orderly
liquidation or sale of the Company. Although there can be no
assurance that such cooperation will be obtained, the Company
believes that it would be in the interests of the Company and
Foothill to extend the financing arrangements with Foothill
during any liquidation or sale proceeding.
The Company emerged in October 1992 from a previous voluntary
Chapter 11 reorganization pursuant to which it had operated as a
debtor-in-possession during the period from December 1990 until
its emergence. The prior Chapter 11 proceeding was precipitated
by the restriction of merchandise shipments by trade suppliers
following public disclosure by the Company of covenant
violations under its financing arrangements and the
unwillingness of its lender to make further advances to the
Company thereunder.
Pursuant to Section 362 of the Bankruptcy Code, all rights to
payment and legal actions which arose against the Company prior
to its Chapter 11 filing on May 16, 1995 are stayed. In
addition, under the provisions of Section 365 of the Bankruptcy
Code and subject to Bankruptcy Court approval, a
debtor-in-possession, such as the Company, may elect to assume
or reject certain of its unexpired leases and executory
contracts. As the Chapter 11 case progresses, Stuarts will
continue to analyze which of its executory contracts and
unexpired leases it intends to assume or reject.
The Company's Common Stock was delisted from trading on the
Nasdaq Stock Market effective June 8, 1995 after a hearing held
in response to a request by the Company for a temporary
exception to the applicable listing requirements.
GENERAL
Stuarts Department Stores, Inc., as of June 6, 1995,
operated a chain of 8 discount department stores located in
Massachusetts and Rhode Island and one family apparel and home
fashion store located in Massachusetts. Unless the context otherwise
requires, the following description of the Company sets forth information
concerning the Company's business prior to giving effect to the
anticipated liquidation or sale of the Company described above. In view
of such anticipated liquidation or sale, the following description
may be of limited relevance and utility.
The discount department stores sell merchandise selected to
satisfy clothing, home, recreational and convenience needs of
the low-to-middle income family. The family apparel and home
fashion store, which operates under the name "Stuarts too",
sells family apparel, shoes and home fashion merchandise similar
to that offered in Stuarts' department stores. Due to a
determination by the Company that its "Stuarts too" stores, all
of which were introduced in fiscal 1995, were not generating
sufficient sales, the Company has determined to discontinue the
"Stuarts too" concept. Accordingly, two "Stuarts too" stores
were closed during February 1995 and the remaining store
currently operates only during limited hours only due to
applicable lease requirements which expire in January 1996.
Stuarts was incorporated in Delaware in September 1983.
<PAGE>
Unless the context otherwise requires, all references
herein to "Stuarts" or the "Company" shall be to Stuarts
Department Stores, Inc. and its subsidiary.
MERCHANDISING AND MARKETING
Stuarts' department stores are organized into specialized
departments, each offering merchandise at competitive prices.
The major categories of merchandise offered in the
Company's department stores are:
- Apparel for women, men, - Cosmetics and health and
and children beauty aids
- Fashion accessories, including - Giftware and small appliances
shoes and jewelry - Toys, sporting goods, and
- Domestics, including bedspreads, consumer electronics
blankets, sheets and towels - Stationery, greeting cards and
- Notions and yarn candy
- Home furnishings, including - Seasonal merchandise,including
curtains, rugs, lamps and patio and garden in Spring/
ready to assemble furniture Summer and trim-a-tree in Fall
Stuarts offers assortments which include off-price
merchandise in various product categories and manufacturers'
excess inventory.
The Company's department stores offer an assortment of
basic merchandise which consists of a varying mix of items
within 92 departments. Accordingly, individual products and
departments (other than apparel) in these stores do not account
for a significant portion of the Company's revenues. Since
management estimates that approximately 80% of its customers are
women, its merchandising approach emphasizes a higher percentage
of sales from higher margin soft goods (apparel, accessories,
domestics, etc.) and a lower percentage of sales from lower
margin hard goods (giftware and small appliances, hardware,
etc.) than has been the historical average for discount
department stores. During fiscal 1995, the Company's apparel
departments accounted for approximately 48% of the Company's
sales, while non-apparel departments in the aggregate accounted
for approximately 52% of the Company's total sales.
Stuarts' merchandising policies are centrally administered,
but are adjusted at the individual store level in response to
competitive conditions. The Company's management information
system permits the monitoring of apparel inventories and
facilitates the delivery of merchandise to stores. The Company
has installed an in-house host computer system, and a
point-of-sale cash register system in all of its stores. The
Company has full scanning and price look-up in operation in all
departments, including leased departments, in each of its stores.
All merchandise generally is sold through departments owned
and operated by the Company, except for the shoe department in
its department stores. Leased shoe departments are maintained
<PAGE>
by an unaffiliated operator who pays the Company a fee based on
the percentage of net sales of their department. The leased
department operator is required to adhere to the Company's policies with
respect to merchandising, refunds, maintenance of inventories,
prices and hours of operation. Merchandise from leased
departments is purchased at the stores' regular checkout
counters. Leased departments accounted for 6.7% of total sales
in the Company's department stores in fiscal 1995, compared with
7.3% of total store sales in fiscal 1994.
ADVERTISING
The Company's marketing strategy utilizes advertising
circulars and newspaper media. The Company's sales and
promotions are advertised primarily through periodic multi-page
color circulars. Company personnel handle all advertising
planning and much of the preparation to facilitate close
coordination with merchandising policies and programs.
ADMINISTRATION, PURCHASING AND DISTRIBUTION
Merchandising, planning, purchasing, finance, advertising
and other administrative functions are performed centrally from
the Company's general office and warehouse facility in Franklin,
Massachusetts. The Company presently is in the process of
moving to a smaller facility within the same industrial park in
Franklin, see Part I, Item 2, "Properties."
The Company purchases merchandise from many manufacturers
and distributors. The Company has a long-term purchase
commitment with a supplier of greeting cards. The Company has
experienced difficulties in receiving current merchandise from
its vendors due to the serious cash flow shortages which
precipitated its Chapter 11 filing and caused the Company to
fail to make timely payments in respect of inventory. Since its
Chapter 11 filing, the Company has experienced improved
relations with its vendors and presently is receiving current
merchandise, although the Company continues to be subject to
shorter credit terms from these vendors. The Company believes
that additional sources of supply are presently limited.
Most merchandise is shipped from the vendor to the
Company's central warehouse facility where it is inspected,
ticketed and shipped by commercial carrier to the stores.
Merchandise which is purchased from distributors is delivered
directly to the stores by the distributors.
Although the Company's merchandise includes a significant
percentage of imported goods, the Company's direct purchases of
imports are not significant (less than 2% of fiscal 1995 sales).
The Company believes that changes in foreign currency or import
restrictions would have a minimal competitive effect should they
be imposed in the future.
STORE OPERATIONS
The Company's stores, with the exception of the "Stuarts
too" store located in Springfield, Massachusetts, which operates
on a limited schedule, generally are open seven days a week,
from 9:00 A.M. to 9:30 P.M. weekdays and Saturday, and from 9:00
A.M. to 6:00 P.M. on Sunday. Most of the Company's sales are
made on a cash-and-carry basis, although the Company also
accepts certain national credit cards. Credit card sales
<PAGE>
accounted for approximately 18.1% of fiscal 1995 sales. Layaway
sales, which generally require a fee of $2.00 plus a deposit of at
least 10% of the purchase price and payment in full within 30 days,
accounted for approximately 4.7% of fiscal 1995 sales.
Most merchandise is sold on a self-selection basis.
Stuarts' stores, however, maintain customer service departments
and offer a "satisfaction guaranteed" policy under which
merchandise may be returned at any reasonable time. The stores
give cash refunds for items returned with the sales slip and
merchandise credits when the customer does not have the receipt.
Stores are visited periodically by senior management,
district manager, merchandise managers and buyers to review
inventory levels and merchandise presentation, staff training
and personnel performance, expense control, security,
cleanliness and adherence to Company operating procedures. In
addition, store managers periodically meet with senior
management to review store policies and to discuss purchasing,
merchandising and advertising strategies.
CONTROL SYSTEMS
The Company utilizes a computer-based merchandise control
system which is administered by its in-house computer system.
The system tracks buyer's orders, warehouse receiving, price
marking, shipments to stores, inventory markdowns, store sales
and individual merchandise item performance.
STORE CLOSINGS
In November 1994, the Company closed two of its lower
producing stores located in Barre, Vermont and Biddeford, Maine.
As a result of a poor Christmas season, which created serious
cash flow shortages, the Company closed another five stores in
March 1995. These stores were located in Malden, Taunton and
Haverhill, Massachusetts; Johnston, Rhode Island; and Nashua,
New Hampshire. The Company also announced plans in early May
1995 to close an additional four stores located in Athol,
Chelsea, and Fitchburg, Massachusetts and Goffstown, New
Hampshire. The Company has entered into an arrangement with a
liquidator in respect of the sale of the inventory at these
stores and is no longer operating these stores. See, Part I,
Item 1, "Business" and Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
In addition, the Company has determined that the "Stuarts
too" concept did not generate sufficient sales to justify its
investment and existence. Consequently, the Company also closed
its "Stuarts too" stores located in Fall River and East
Providence in March 1995. Although the Company has commenced
efforts to close its Springfield, Massachusetts store, the
Company presently anticipates that the Springfield store will
continue to operate during limited hours through January 1996.
Since the filing of its Chapter 11 petition on May 16, 1995,
the Company has been operating its business as a
debtor-in-possession and, accordingly, certain of the Company's
actions are subject to the approval of the Bankruptcy Court.
Any additional store closings or new store openings, as to each
of which the Company presently has no plans, may require
Bankruptcy Court approval. There can be no assurance that such
approval, if required, would
<PAGE>
be obtained. See, Part I, Item 1, "Business"
and Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION
The discount department business is highly competitive.
The Company competes in most of its markets with a variety of
national, regional and local discount and other department and
specialty stores, many of which are larger chains with
substantially greater financial resources than the Company. The
Company's principal discount department store competitors
include Ames, Bradlees, Rich's, Kmart, Caldor and Wal-mart. The
Company believes that competition in its department stores is
based in large part on price, breadth and depth of merchandise
selection and convenience of store location. The Company's
focus on securing a customer base in small and medium size,
predominantly low-and-middle-income suburban and metropolitan
communities is intended to enable the Company to compete
effectively in the discount department store market.
Nevertheless, due to difficulties which the Company is
experiencing with its vendors, the Company's ability to compete
on the basis of its merchandise selection has been seriously
impaired. Moreover, the Company believes that competition is
intensifying and that new competitors may open stores in markets
where the Company now operates stores. In addition, the growth
of wholesale clubs and other forms of distribution is changing
consumer spending patterns and increasing competition. These
developments could adversely affect the Company's future results.
EMPLOYEES
As of January 28, 1995, Stuarts had approximately 677
employees, of whom approximately 390 were employed on a
full-time basis and 287 on a part-time basis. Of these
employees, approximately 105 were employed in the main office in
Franklin and approximately 572 were employed in its stores.
Since the close of fiscal 1995, the Company has reduced its
staff to approximately 282 employees, of whom approximately 167
are full-time and 115 are part-time employees.
None of the Company's employees are covered by a collective
bargaining agreement. Except for problems arising in connection
with the financial difficulties experienced by the Company, the
Company considers its employee relations to be good.
SEASONALITY
The Company's business, like that of most retailers, is
subject to seasonal influences, with the major portion of sales
and earnings realized during the last half of each fiscal year,
which includes the back-to-school and Christmas selling seasons.
<PAGE>
ITEM 2. PROPERTIES
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The Company's department stores generally are located in
well-populated, low-to-middle income suburban and metropolitan
communities in Massachusetts and Rhode Island. A majority of
these stores are located within a 70 mile radius of the
Company's general office, warehouse and distribution facility.
The Company's present department store locations are listed below:
Massachusetts Rhode Island
Billerica Lowell (2 stores) Pawtucket
Lawrence New Bedford
Tewksbury Worcester
These stores average approximately 60,000 square feet of
selling floor area, which generally includes a 4,500 to 8,000
square foot area for on-premises storage. Selling space is
equal to approximately 80% of total floor space of the stores.
In addition to its department stores, the Company operates
a "Stuarts too" store in Springfield, Massachusetts. This store
is located in a strip shopping center and is approximately
25,000 square feet, of which approximately 23,000 square feet
constitute selling space.
Total sales of the Company's stores that were open
throughout fiscal 1995 ranged from $4 million to $7 million per
store. The following table shows the number of Stuarts'
department stores operated by the Company, their total floor
space, their total selling space and the sales per square foot
of selling space for each of the last five fiscal years.
Fiscal Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1992 1991
Number of Stores
at End of Period 20 19 20 20 23
Total Floor Area
(sq. ft.) 1,092,000 1,158,000 1,220,000 1,257,000 1,257,000
Total Selling
Area (sq. ft.) 870,000 917,000 976,000 983,000 983,000
Sales
per Square Foot
of Selling Area $112 $128 $127 $121 $140
Nine department stores and two "Stuarts too" stores have
been closed since the end of fiscal 1995. All of the Company's
stores are leased on a long-term basis. All of the leases for
the 9 stores operating as of June 6, 1995 have remaining terms
ranging from one year to 12 years. Rental payments for both
current and renewal terms under most of the leases for the
Company's full-line stores include percent-of-sales rent consisting
of from .5% to 4.0%
<PAGE>
of amounts in excess of various formulations ofnet sales
ranging from $3,000,000 to $14,900,000. Certain leases provide
that rental payments during the renewal terms also will be based
on cost-of-living formulas specified in the leases. Net rental
payments (including percent-of-sales rent) and excluding common
area maintenance, real estate taxes and leasehold amortization
for the Company's stores was $3,672,000 for fiscal 1995, or
approximately $3.05 per square foot.
The Company's store leases typically provide that the
Company is responsible for its proportionate share of real
property taxes and common area maintenance costs, as well as
maintenance of the leased facilities themselves. The Company
also is required under most of these leases to maintain
specified levels of general liability, property and casualty
insurance. The Company owns all store fixtures except those
used in the leased shoe department.
The Company presently leases an 88,000 square foot general
office, warehouse and distribution facility in Franklin,
Massachusetts pursuant to a lease which originally was scheduled
to expire on December 31, 1999. The Company has renegotiated
its arrangements with its landlord and is in the process of
relocating to a 31,000 square foot facility in the same
industrial park. The Company's new lease will expire on March
31, 1998 unless the Company provides the landlord with at least
60 days' prior notice of its intent to terminate on December 1,
1995. The Company anticipates that its move will be completed
by August 15, 1995. The Company's relocation of its home office
is subject to Bankruptcy Court approval. See Part I, Item 3
"Legal Proceedings."
Substantially all apparel merchandise and certain hard
goods are shipped from the Company's vendors to the central
warehouse in Franklin, where they are inspected, ticketed and
shipped by commercial carrier to the stores. All other
merchandise is shipped from vendors directly to the stores.
Under the provisions of Section 365 of the Bankruptcy Code and
subject to Bankruptcy Court approval, a debtor-in-possession,
such as the Company, may elect to assume or reject certain of
its unexpired leases and executory contracts. The Company's
ongoing policy is to evaluate the performance of all its stores
individually in order to target and close stores which fail to
meet performance standards. As the Chapter 11 case progresses,
Stuarts will continue to analyze which of its executory
contracts and unexpired leases it intends to assume or reject
pursuant to rights afforded it under the Bankruptcy Code. The
Company has until July 15, 1995 to assume or reject, or to move
to the Bankruptcy Court to extend the time in which to assume or
reject, certain of its store leases. On June 13, 1995, the
Bankruptcy Court approved the termination of the Company's
Pawtucket, Rhode Island store lease.
ITEM 3. LEGAL PROCEEDINGS
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On May 16, 1995, the Company filed a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code with the
Bankruptcy Court. See Part I, Item 1, "Business -- Chapter 11
Filing," Part I, Item 2, "Properties" and Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." Pursuant to Section 362 of the
Bankruptcy Code, during a Chapter 11 case, creditors and other
parties in interest
<PAGE>
may not, without Bankruptcy Court approval: (i) commence
or continue a judicial, administrative or other proceeding against
a debtor which was or could have been commenced prior to
commencement of the Chapter 11 case, or to recover a claim that
arose prior to commencement of the case; (ii) enforce any
pre-petition judgments against the debtor; (iii) take any action
to obtain possession of property of the debtor or to exercise
control over property of the debtor or the debtor's estate; (iv)
create, perfect or enforce any lien against the property of the
debtor; (v) collect, assess or recover claims against the debtor
that arose before the commencement of the case; or (vi) set off
any debt owing to the debtor that arose prior to the
commencement of the case against a claim of such creditor or
party-in-interest against the debtor that arose before the
commencement of the case.
On June 20, 1995, the Company's Board of Directors approved the
orderly liquidation or sale of the Company. The Company's
management is exploring various alternatives by which the
liquidation or sale can be effected and intends to formulate a
plan for the liquidation or sale as promptly as practicable.
Any liquidation or sale will be subject to obtaining the
requisite approval of the Company's secured creditor, the
Official Committee of Creditors in the bankruptcy proceeding and
the Bankruptcy Court and, accordingly, there can be no assurance
that a plan for the liquidation or sale formulated by the
Company's management will be effected.
The Company is a party to certain other legal actions
arising in the ordinary course of its business. Based upon the
information presently available to the Company, management is of
the opinion that the ultimate outcome of these actions will not
materially adversely affect the Company's operations or its
financial position. The continuance of such actions by the
parties in interest is subject to Bankruptcy Court approval as
discussed above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted to a vote of security holders during the
13 week period ended January 28, 1995.
PART II - OTHER INFORMATION
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
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The Company's Common Stock is traded in the
over-the-counter market and, until June 8, 1995, was quoted on
the Nasdaq National Market System under the symbol STUS. During
May 1995, the Company was notified by The Nasdaq Stock Market,
Inc. that, as a result of the low trading price and publicly
held market value of the Company's Common Stock, the Company may
no longer meet the listing requirements for continued inclusion
in the Nasdaq National Market and may be subject to delisting.
The Company had requested that a temporary exception from the
applicable listing requirements be granted in respect of its
Common Stock, while the Company develops and implements a
reorganization under Chapter 11. The Company received notice on
June 7, 1995 that its request for a temporary exception had been denied
and that its Common Stock
<PAGE>
would be delisted from the Nasdaq National Market System
effective June 8, 1995.
The following table sets forth the range of high and low
bid information as quoted in the NASDAQ National Market System
for the periods indicated.
High Low
Fiscal 1995
First quarter............. 9/16 9/32
Second quarter............ 3/8 13/64
Third quarter............. 3/8 7/32
Fourth quarter............ 1/4 1/8
Fiscal 1994
First quarter............. 1 7/16
Second quarter............ 7/8 1/4
Third quarter............. 1/2 7/32
Fourth quarter............ 11/16 9/32
The market prices in the above table reflect inter-dealer
quotations without adjustments for retail markup or commissions
and may not necessarily represent actual transactions.
Notwithstanding the foregoing price information, the Company
cannot predict the trading value, if any, of the Common Stock.
In recent years, the Company's Common Stock has been thinly
traded. If the Company's former creditors that received Common
Stock in connection with its prior reorganization proceedings
under Chapter 11 (the "Prior Reorganization") seek to sell a
substantial number of their shares of Common Stock in the public
market, or if there otherwise is a large number of shares for
sale in the public market, the market price of the Common Stock
could be adversely affected. Pursuant to the reorganization
plan confirmed by the Bankruptcy Court in respect of the Prior
Reorganization (the "Prior Reorganization Plan"), two former
creditors of the Company were granted registration rights in
respect of the Common Stock issued to them in connection with
the Prior Reorganization. Although those creditors have caused
the Company to file a Registration Statement with the Securities
and Exchange Commission in respect of an aggregate of 7,271,687
shares of Common Stock, the Registration Statement would need to
be updated in order to be utilized in connection with a sale of
Common Stock by those creditors and, accordingly, those
creditors have been advised that they should not utilize the
Registration Statement in connection with any offer of sale by
them of Common Stock.
As of June 6, 1995, the Company had approximately 1,027
holders of record of its Common Stock (excluding beneficial
owners of shares held of record by nominees).
The Company has not paid any cash dividends since its
incorporation in September 1983. Since the Company is currently
in Chapter 11, no dividends can be paid without the approval of
the Bankruptcy Court. See Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" for additional information regarding the impact of
the Chapter 11 proceedings on the Company's ability to pay
dividends.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
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The selected consolidated financial data for the 39 weeks
ended October 31, 1992 give effect to the consummation of the
Prior Reorganization Plan as if it occurred on October 31, 1992
and to the adoption of "fresh-start reporting" by the Company as
of that date in accordance with the American Institute of
Certified Public Accountants' Statement of Position 90-7
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP-97"). Accordingly, periods prior to
October 31, 1992 have been designated "Predecessor Company" and
periods subsequent to October 31, 1992 have been designated
"Successor Company". Selected historical consolidated balance
sheet and income statement data of the Predecessor Company is
not comparable to that of the Successor Company and a line has
been drawn to separate the Successor Company financial data from
that of the Predecessor Company.
The following table presents selected (1) historical
consolidated financial data of the Predecessor Company for the
three fiscal years ended February 1, 1992 (fiscal 1992) and
February 2, 1991 (fiscal 1991) and the 39 weeks ended October
31, 1992; (2) historical consolidated financial data of the
Successor Company for the 13 weeks ended January 30, 1993, for
the fiscal year ended January 29, 1994 (fiscal 1994) and for the
fiscal year ended January 28, 1995 (fiscal 1995); and (3) pro
forma combining consolidated income statement and operating data
for the fiscal year ended January 30, 1993 (pro forma combined
fiscal 1993).
The pro forma data (a) combine the results of the
Predecessor Company for the 39 weeks ended October 31, 1992 with
the results of the Successor Company for the 13 weeks ended
January 30, 1993; (b) eliminate the effect of non-recurring
transactions resulting from the Prior Reorganization included in
the results of the Predecessor Company; (c) adjust results of
the Predecessor Company to reflect the implementation of
"fresh-start reporting" as of February 1, 1992; (d) assume that
the Company's fiscal 1993 payments to the unsecured creditors'
fund required pursuant to the Prior Reorganization Plan of
$5,200,000 and $6,000,000 were made by the Company as of
February 1, 1992; and (e) assume the issuance as of February 1,
1992 of 17,205,740 shares of common stock issued to creditors
pursuant to the Prior Reorganization Plan. The information
below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations", the consolidated financial statements and the
related notes.
The historical consolidated financial data presented on the
following pages for the fiscal years ended February 1, 1992 and
February 2, 1991 have been derived from the Company's
Consolidated Financial Statements, which were audited by Grant
Thornton, independent accountants. The historical consolidated
financial data for the 13 weeks ended January 30, 1993, the 39
weeks ended October 31, 1992, the fiscal years ended January 29,
1994 and January 28, 1995 have been derived from the Company's
consolidated financial statements, which were audited by Coopers
& Lybrand L.L.P., independent accountants.
<PAGE>
<TABLE>
Stuarts Department Stores, Inc. and Subsidiary
Selected Financial Data
(Dollars in thousands, except per share data and ratios)
<CAPTION>
Successor Comp Predecessor Company
Pro Forma
Combined 13 Weeks 39 Weeks
Fiscal Fiscal Fiscal Ended Ended Fiscal Fiscal
1995 1994 1993(9) 01/30/93 10/31/92 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data (1)(2)
Total store sales $105,269 $117,082 $123,533 $37,352 $86,181 $119,330 $148,741
Net store sales 98,165 108,563 114,865 34,942 79,923 110,889 138,780
Leased department and other
income 1,592 1,802 1,834 543 1,291 1,949 2,552
Costs and expenses:
Costs of sales, buying and
distribution...... 73,962 79,289 83,040 26,438 56,152 80,142 103,732
Restructuring and
asset impairment charges. 4,555
Selling and administrative 34,389 33,012 31,875 8,818 23,057 31,432 38,190
Depreciation and amortization 2,105 1,941 1,730 486 1,694 2,182 2,234
Total Costs and Expenses 115,011 114,242 116,645 35,742 80,903 113,756 144,156
Income (loss) before interest,
reorganization items, income
taxes, and extraordinary gain (15,254) (3,877) 54 (257) 311 (918) (2,824)
Interest expense (contractual
amounts of approximately
$1,157 for 39 weeks ended
10/31/92, $1,953 for Fiscal
1992 and $2,053 for Fiscal
1991) (6) 973 52 16 8 8 26 1,703
Interest(income) 0 (71) (280) (34) (496) (1,099) (198)
Income (loss) before
reorganization items, income
taxes and extraordinary gain (16,227) (3,858) 318 (231) 799 155 (4,329)
Reorganization items:
Reorganization expenses(4) (7,132) (1,722) (3,235)
Adjust accounts to fair value (6,657)
Income (loss) before income taxes
and extraordinary gain (16,227) (3,858) 318 (231) (12,990) (1,567) (7,564)
Income tax expense (127)
Income (loss) before
extraordinary gain (16,227) (3,858) 191 (231) (12,990) (1,567) (7,564)
Extraordinary gain on
discharge of pre-petition
liabilities (8) 8,835
Net income (loss) ($16,227) ($3,858) $191 ($231) ($4,155) ($1,567) ($5,635)
Income (loss) before
extraordinary gain
per share(3) ($0.75) ($0.18) $0.01 ($0.01) ($2.98) ($0.36) ($1.31)
Net income (loss)
per share (3) ($0.75) ($0.18) $0.01 ($0.01) ($0.95) ($0.36) ($1.31)
<FN>
* See Footnotes for Selected Financial Data on page 15
</FN>
</TABLE>
<PAGE>
<TABLE>
Stuarts Department Stores, Inc. and Subsidiary
Selected Financial Data
(Dollars in thousands, except per share data and ratios)
<CAPTION>
Successor Comp Predecessor Company
Proforma
Combined 13 Weeks 39 Weeks
Fiscal Fiscal Fiscal Ended Ended Fiscal Fiscal
1995 1994 1993(9) 01/30/93 10/31/92 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Number of stores
beginning of period...... 19 20 20 20 20 20 23
Opened during period 3 1 2 0 2 0 0
Closed during period 2 2 2 0 2 0 3
Number of stores end of period 20 19 20 20 20 20 20
Total square footage 1,092,000 1,158,000 1,220,000 1,220,000 1,220,000 1,257,000 1,257,000
Total selling square foot 870,000 917,000 976,000 976,000 976,000 983,000 983,000
Sales per selling square $112 $128 $127 $121 $140
<CAPTION>
Successor Compnay Predecessor Company
Balance Sheet Data: (1)(2)
01/28/95 01/29/94 01/30/93 02/01/92 02/02/91
<S> <C> <C> <C> <C> <C>
Total assets $24,378 $33,397 $43,449 $64,501 $62,028
Amount due creditors 5,000
Long-term debt 6,394 1,495
Liabilities subject to compromise (5)...... 46,156 46,545
Total liabilities. 16,553 9,345 15,539 54,717 50,677
Stockholders' equity 7,825 24,052 27,910 9,784 11,351
Working capital 7,171 15,263 18,174 42,061 32,572
<FN>
* See Footnotes for Selected Financial Data on page 15
</FN>
</TABLE>
<PAGE>
ITEM 6. FOOTNOTES (Dollars in thousands, except share data)
1) On December 7, 1990, the Company filed a voluntary petition
for reorganization under Chapter 11 of the United States
Bankruptcy Code. The Company operated as a debtor-in-possession
until October 19, 1992, when the Reorganization Plan was
consummated.
2) The historical financial data give effect to the
Reorganization Plan (including the issuance of all Common Stock
issuable pursuant to the Reorganization Plan) as of October 31,
1992.
3) Earnings per share of the Predecessor and Successor Companies
are not comparable due to reorganization and revaluation entries
as well as the issuance of 17,205,740 shares of Common Stock
pursuant to the Reorganization Plan.
4) Reorganization expenses consist of the following:
39 Weeks
Ended Fiscal Fiscal
10/31/92 1992 1991
Costs of bankruptcy:
Allowed claims in excess of
recorded liabilities......... $2,900
Professional Fees.............. 3,232
Administrative Claims.......... 1,000
Costs to close stores........... $1,722 $2,553
Other........................... - 682
Total reorganization expenses... $7,132 $1,722 $3,235
5) Liabilities subject to compromise consist of liabilities
which arose before the Company filed its petition for
reorganization and which were subject to adjustment depending on
the nature of the claim, Bankruptcy Court actions and the plan
of reorganization negotiated by the Company with its creditors.
6) In accordance with the Bankruptcy Code, no interest expense
was recorded by the Company on its unsecured pre-petition debt
which it operated as a debtor-in-possession. If the Company had
recorded interest expense in accordance with its contractual
commitments during this period, interest expense would have been
$1,157 for the 39 week period ended October 31, 1992, $1,953 for
the year ended February 1, 1992 and $2,053 for the year ended
February 2, 1991.
7) Sales per selling square foot data on other than an annual
basis are not meaningful due to the seasonality of the Company's
sales.
8) The Company recorded an extraordinary gain of $8,835 relating
to the discharge of pre-petition liabilities during the 39 weeks
ended October 31, 1992.
9) See Note 2 to Consolidated Financial Statements of the
Company filed herewith.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------
CHAPTER 11 FILING
On May 16, 1995, the Company filed for reorganization under
Chapter 11 with the Bankruptcy Court. The Company's voluntary
filing was precipitated by financial and liquidity difficulties,
which caused the Company to fail to make timely payments to its
vendors and other suppliers as well as to certain of its
landlords under store leases. The Company's inability to pay
these obligations as they became due caused many of its vendors
to curtail inventory shipments to the Company, which further
impacted adversely the Company's performance. Prior to the
Chapter 11 filing, the Company unsuccessfully attempted to
locate a buyer for the retail chain.
On June 20, 1995, the Company's Board of Directors approved the
orderly liquidation or sale in Chapter 11 of the Company. The
Company's management is exploring various alternatives by which
the liquidation or sale can be effected and intends to formulate
a plan for the liquidation or sale as promptly as practicable.
The Board of Directors' determination had been affected by a
number of factors, including, in particular, poor sales and
operating results achieved over the Father's Day selling period.
The orderly liquidation or sale will involve the closing or the
sale of the remaining Stuarts stores and is likely to take a
number of months to complete. Any liquidation or sale will be
subject to obtaining the requisite approval of the Company's
secured creditor, the Official Committee of Creditors in the
bankruptcy proceeding and the Bankruptcy Court and, accordingly,
there can be no assurance that a plan for the liquidation or
sale formulated by the Company's management will be effected.
Although the Company does not presently believe that the
liquidation will result in any distribution of liquidation or
sale proceeds to the Company's shareholders, the amount, if any,
available for distribution to the Company's unsecured creditors
can not presently be estimated.
In connection with the Chapter 11 filing, Stuarts entered into
debtor-in-possession financing arrangements with its lender,
Foothill, and is currently operating its business as a
debtor-in-possession, subject to Bankruptcy Court approval for
certain of its actions. The financing arrangements with
Foothill provide for a $6 million credit facility, which is
collateralized by substantially all of the Company's assets.
Borrowings under the facility are subject to availability under
a borrowing base formula and to compliance with covenants and
business plans. Interest is payable at the prime rate plus 4%,
with a minimum rate of 9.75%. The facility terminates six
months from the date approved by the Bankruptcy Court unless
sooner terminated due to failure to achieve projected results.
The Company has failed to achieve financial projections
established in connection with its debtor-in-possession
financing arrangements with Foothill. If such failures
continue, Foothill would be entitled to terminate the financing
arrangements under certain circumstances. The Company's
determination to liquidate or sell the Company has caused an
event of default under the financing arrangements with Foothill.
Consequently, Foothill would be entitled to seek Bankruptcy
Court relief from the automatic stay and, if such relief is
granted, exercise foreclosure remedies as a secured creditor. The Company
intends to seek Foothill's cooperation in connection with the proposed
orderly liquidation or
<PAGE>
sale of the Company. Although there can be no
assurance that such cooperation will be obtained, the Company believes
that it would be in the interests of the Company and Foothill to extend
the financing arrangements with Foothill during any liquidation
or sale proceeding.
The Company emerged in October 1992 from a previous voluntary
Chapter 11 reorganization pursuant to which it had operated as a
debtor-in-possession during the period from December 1990 until
its emergence. The prior Chapter 11 proceeding was precipitated
by the restriction of merchandise shipments by trade suppliers
following public disclosure by the Company of covenant
violations under its financing arrangements and the
unwillingness of its lender to make further advances to the
Company thereunder.
Pursuant to Section 362 of the Bankruptcy Code, all rights to
payment and legal actions which arose against the Company prior
to its recent Chapter 11 filing are stayed. In addition, under
the provisions of Section 365 of the Bankruptcy Code and subject
to Bankruptcy Court approval, a debtor-in-possession, such as
the Company, may elect to assume or reject certain of its
unexpired leases and executory contracts. As the Chapter 11
case progresses, Stuarts will continue to analyze which of its
executory contracts and unexpired leases it intends to assume or
reject. See Part I, Item 2, "Properties" for additional
information regarding the assumption and rejection of leases by
the Company.
The Company's Common Stock was delisted from trading on the
Nasdaq Stock Market effective June 8, 1995 after a hearing held
in response to a request by the Company for a temporary
exception to the applicable listing requirements.
EMERGENCE FROM PRIOR REORGANIZATION/FRESH-START REPORTING
On the date of confirmation of the Prior Reorganization Plan,
the sum of the allowed claims plus post-petition liabilities of
the Company exceeded the value of its pre-confirmation assets.
In addition, the Company experienced a change in control in
connection with the implementation of the Prior Reorganization
Plan as its unsecured creditors received 80% of the Common Stock
and pre-organization equity holders retained only 20% of the
Common Stock pursuant to the Prior Reorganization Plan.
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7") requires that, under these
circumstances, a new reporting entity be created and assets and
liabilities be recorded at their fair values based upon the
allocation thereto of the Company's reorganization value. This
accounting treatment is referred to herein as "fresh-start
reporting". In accordance with SOP 90-7, the Company adopted
"fresh-start reporting" and reflected the effects of such
adoption as of October 31, 1992. Financial statements for
periods subsequent to October 31, 1992 are designated as
"Successor Company" to signify that they are those of a new
entity for financial reporting purposes and have been prepared
on a basis not comparable to prior periods. Financial
statements for periods prior to October 31, 1992 have been
designated "Predecessor Company" and a black line has been drawn
to separate Successor Company financial statements from
Predecessor Company financial statements. The following
discussion reflects the Company's implementation of "fresh-start
reporting." For additional information regarding the Company's
prior reorganization proceedings, see Part I, Item 1, "Business".
<PAGE>
RESULTS OF OPERATIONS
FIFTY-TWO WEEK PERIOD ENDED JANUARY 28, 1995 COMPARED TO THE
FIFTY-TWO WEEK PERIOD ENDED JANUARY 29, 1994
Total store sales and net store sales for the 52 week period
ended January 28, 1995 decreased by 10.1% and 9.7%,
respectively, from the comparable period last year. After
extracting the sales of the four stores opened (Taunton, Fall
River, East Providence and Springfield) and the four stores
closed (Grafton, Salisbury, Biddeford and Barre) during fiscal
1994 and fiscal 1995, total and net store sales of the remaining
16 stores decreased by 7.2% and 6.7%, respectively. Subsequent
to January 28, 1995, the Company closed or commenced the closing
of eleven additional stores. The Company continues to face
intense competitive activity, including intense promotional
activity from competitors, who principally are larger full-line
discount department stores with greater financial resources than
the Company. The Company believes that this competitive
activity resulted in reduced customer traffic which adversely
impacted revenues for the 52 weeks ended January 28, 1995. The
Company also was affected adversely by a continued weak New
England retailing environment. These factors have continued to
materially adversely impact revenues during the first and second
quarters of fiscal 1996. In addition, the Company's failure to
make timely payments to its vendors has resulted in inventory
shortages, beginning in February 1995, which also have had a
material adverse impact upon the Company's sales.
During the 52 weeks ended January 28, 1995, Stuarts operated 17
general purpose discount department stores, selling a varying
mix of thousands of items within 92 departments and, therefore,
individual products and departments (other than apparel) did not
account for a significant portion of the Company's revenues from
these stores. Stuarts also operated three family apparel and
home fashion stores during this period. During fiscal 1995, the
Company's apparel departments accounted for approximately 49% of
the Company's total sales. No other single department
constituted a material portion of the Company's total sales.
Apparel departments generally produce higher gross profits than
non-apparel departments.
Cost of sales, buying and distribution expense was 75.3% of net
store sales for the 52 week period ended January 28, 1995,
compared with 73.0% for the 52 week period ended January 29,
1994. The increase in cost of sales, buying and distribution
expense as a percentage of net store sales during the 52 weeks
ended January 28, 1995 was due primarily to higher markdown
activity. This higher than normal promotional activity
resulted, in part, from a heightened competitive retail market
and has continued into the first and second quarters of fiscal
1996.
Selling and administrative expenses for the 52 week period ended
January 28, 1995 as a percentage of net sales increased to 35.0%
from 30.4% for the 52 week period ended January 29, 1994. This
increase resulted primarily from the cost of closing two stores
(Biddeford, Maine and Barre, Vermont) ($900,000), along with
increased common area maintenance charges ($93,000), preopening
expense ($105,000), real estate taxes ($54,000), professional
fees ($113,000), legal fees ($94,000), health insurance
($61,000), warehouse expense ($45,000) and merchandise payroll
($69,000).
<PAGE>
During fiscal 1995, the Company incurred restructuring and asset
impairment charges of $4,555,000. In accordance with FASB EITF
94-3 (liability recognition for certain costs incurred in a
restructuring), a restructuring and asset impairment reserve was
established in fiscal 1995. During the fourth quarter of fiscal
1995, expenses relating to this reserve were incurred in
connection with the store closings. It is anticipated that the
Company will incur expenses of approximately $1,900,000 and
$2,875,000 pursuant to FASB EITF 94-3 during the second quarter
of fiscal 1996, respectively, in connection with store closings.
Depreciation and amortization for the 52 week period ended
January 28, 1995 increased by approximately $163,000 from the 52
week period ended January 29, 1994. This increase resulted
principally from capital expenditures for the three new "Stuarts
too" stores that were opened during the period.
There was no interest income for the 52 week period ended
January 28, 1995 as compared to approximately $71,000 for the 52
week period ended January 29, 1994. This decrease in interest
income is attributable principally to the lack of cash
investment balances.
Interest expense for the 52 week period ended January 28, 1995
was approximately $973,000 compared to approximately $52,000 for
the 52 week period ended January 29, 1994. This increase is
primarily attributable to interest on larger balances
outstanding under the Company's credit facility during fiscal
1995.
The net loss for the 52 week period ended January 28, 1995 was
approximately $16,227,000 compared with a net loss of
approximately $3,858,000 for the 52 week period ended January
29, 1994. Factors contributing to this year's loss include a
6.7% decrease in net store sales on a same store basis, combined
with higher than normal markdowns and the closing costs of the
two stores closed in November 1994 located in Biddeford, Maine
and Barre, Vermont. In addition, a restructuring and asset
impairment charge in the amount of $4,555,000 was established in
January 1995. See Note 10 of the Notes to Consolidated
Financial Statements.
THIRTEEN WEEK PERIOD ENDED JANUARY 29, 1994 COMPARED TO 13 WEEK
PERIOD ENDED JANUARY 30, 1993
Total store sales and net store sales for the 13 week period
ended January 29, 1994 decreased 9.2% and 9.6%, respectively,
from the prior year. After extracting the sales of the new
store opened in Taunton and the store closed in Grafton during
these periods, the total and net store sales of the existing 19
stores decreased by 10.3% and 10.7%, respectively. This decline
is largely attributable to a continued weak retail environment
in New England and lower customer activity.
In the fourth quarter of fiscal 1994, the Company's apparel
departments accounted for approximately 46% of the Company's
total sales, while non-apparel departments in the aggregate
accounted for approximately 54% of the Company's total sales.
Cost of sales, buying and distribution expense was 78.8% of net
store sales for the 13 week period ended January 29, 1994,
compared with 75.7% of net
<PAGE>
store sales for the 13 week period ended January 30, 1993. This
percentage increase principally resulted from higher
promotional markdowns in response to increased promotional
activity by the Company's competitors, combined with a higher
shrinkage during the 13 weeks ended January 29, 1994.
Selling and administrative expense for the 13 week period ended
January 29, 1994 was $9,304,000 (29.4% of net store sales)
versus $8,819,000 (25.2% of net store sales) for the 13 week
period ended January 30, 1993. This increase of $485,000
compared to the prior period is largely attributable to the
following expense areas: advertising $276,000; and legal fees
$90,000.
The increase in depreciation and amortization of $13,000 for the
13 week period ended January 29, 1994 compared to the 13 week
period ended January 30, 1993 resulted from expenditures for
capital improvements during the 13 week period ended January 29,
1994.
Interest income for the 13 week period ended January 29, 1994
amounted to $14,000 compared to $34,000 for the 13 week period
ended January 30, 1993. This decrease in interest income is
primarily attributable to lower cash balances due to the
payments to unsecured creditors of the Company in connection
with the Company's emergence from reorganization proceedings.
Interest expense for the 13 week period ended January 29, 1994
amounted to $34,000 compared to $8,000 for the 13 week period
ended January 30, 1993. This increase is principally
attributable to the interest paid on long term debt incurred
during the 13 weeks ended January 29, 1994.
The Company experienced a net loss of $2,632,000 for the 13 week
period ended January 29, 1994 as compared to a net loss of
$231,000 for the 13 week period ended January 30, 1993. Factors
contributing to the loss for the 13 weeks ended January 29, 1994
include a 9.6% decrease in net store sales due largely to the
continued weak New England retail environment, higher markdowns
and shrinkage and increased advertising costs of $276,000.
THIRTY-NINE WEEKS ENDED OCTOBER 30, 1993 VERSUS 39 WEEKS ENDED
OCTOBER 31, 1992
Total store sales and net store sales for the 39 week period
ended October 30, 1993 decreased by 3.5% and 3.7%, respectively,
from the comparable period ended October 31, 1992. After
extracting the sales of the three new stores opened (Lawrence,
Haverhill, Taunton) and the two stores closed (Brockton and
Swansea) during these periods, the total and net store sales of
the comparable 18 stores decreased by 3.4% and 3.7%,
respectively. Sales in February and March 1993 were seriously
impacted by severe winter storms in New England which caused
certain stores to be closed during certain portions of such
periods. Sales during the 39 week period ended October 30, 1993
also were adversely affected by a continued weak New England
retailing environment and lower customer activity.
In the first three quarters of fiscal 1994, the Company's
apparel departments accounted for approximately 50% of the
Company's total sales. No other single department constituted a
material portion of the Company's total sales during this period.
<PAGE>
Cost of sales, buying and distribution expense was 70.7% of net
store sales for the 39 week period ended October 30, 1993
compared with 70.3% of net store sales during the 39 week period
ended October 31, 1992. The increase in cost of goods sold as a
percentage of sales for the 39 week period ended October 30,
1993 versus the comparable period during the prior year resulted
primarily from "fresh-start reporting" adjustments whereby the
Company revalued its inventory to reflect the full impact of
retail price adjustments in cost of goods sold. For the 39 week
period ended October 30, 1993, the impact of the inventory
revaluation was to increase cost of goods sold by approximately
$826,000.
Selling and administrative expense for the 39 week period ended
October 30, 1993 was $23,708,000 (30.8% of net store sales)
versus $23,057,000 (28.8% of net store sales) for the 39 week
period ended October 31, 1992. This increase of $651,000
compared to the prior period is largely attributable to the
following expense areas: advertising $303,000; amortization of
preopening expenses $183,000; health and workers' compensation
insurance $189,000; and store common area maintenance and real
estate taxes $258,000; and is offset in part by a decrease in
leasehold amortization expense of $389,000.
The decrease in depreciation and amortization of $252,000 for
the 39 week period ended October 31, 1992 principally resulted
from adjustments to leasehold amortization required in
connection with the Company's adoption of "fresh-start
reporting" during October 1992, which offset expenditures for
capital improvements during the period ended October 30, 1993.
Interest income for the 39 week period ended October 30, 1993
amounted to $39,000 compared to $488,000 for the 39 week period
ended October 31, 1992. This decrease in interest income is
largely attributable primarily to lower cash balances due to the
payment of $11,200,000 to unsecured creditors of the Company in
connection with the Company's emergence from reorganization
proceedings during fiscal 1993.
Loss before reorganization items and extraordinary gain for the
39 week period ended October 30, 1993 was $1,226,000 compared
with income before reorganization items and extraordinary gain
of $799,000 for the 39 week period ended October 31, 1992. This
loss is principally attributable to lower sales as well as to
increased costs of goods sold due to "fresh-start reporting"
adjustments and higher selling and administrative expense during
the more recent period. In addition, interest income for the
first 39 weeks of fiscal 1994 was below the comparable prior
period by $449,000.
The Company experienced a net loss of $1,226,000 during the 39
week period ended October 30, 1993 compared with a net loss of
$4,155,000 during the 39 week period ended October 31, 1992.
During the 39 week period ended October 31, 1992 the Company
incurred certain bankruptcy related charges of $7,132,000 and
$6,657,000, for reorganization expenses and to adjust accounts
to fair value, respectively. The Company also recognized an
extraordinary gain of $8,835,000 as the result of the discharge
of pre-petition liabilities.
FIFTY-TWO WEEK PERIOD ENDED JANUARY 29, 1994 COMPARED TO THE PRO
FORMA COMBINED 52 WEEK PERIOD ENDED JANUARY 30, 1993
To facilitate comparisons, the operating results for the 52 week
period ended January 29, 1994 are compared to the pro forma
combined results of operations
<PAGE>
for the 52 week period ended January 30, 1993. The pro forma data
combine the results of the Predecessor Company for the 39
weeks ended October 31, 1992 with the results of the Successor
Company for the 13 weeks ended January 30, 1993. The pro forma
income statement assumes that the Company implemented
"fresh-start reporting" as of February 1, 1992. The effect of
this adjustment is to increase historical cost of sales by
approximately $450,000 and decrease depreciation and
amortization by an equal amount for the 39 weeks ended October
31, 1992. In addition, the pro forma results eliminate the
effect of nonrecurring transactions related to the Prior
Reorganization: reorganization expenses of $7,132,000, fair
value adjustments of $6,657,000 and the extraordinary gain of
$8,835,000 realized upon discharge of pre-petition liabilities.
Pro forma interest income has been calculated assuming the
fiscal 1993 payments to the creditor fund required pursuant to
the Prior Reorganization Plan of $5,200,000 and $6,000,000 were
made by the Company as of February 1, 1992. Pro forma net
income is net of income taxes provided at an effective rate of
40%. Pro forma earnings per share reflect the issuance as of
February 1, 1992 of 17,205,740 shares of common stock issued to
creditors in connection with the Prior Reorganization Plan.
Total store sales and net store sales for the 52 week period
ended January 29, 1994 decreased 5.2% and 5.5%, respectively,
over the pro forma combined 52 week period ended January 30,
1993. During fiscal 1993, the Company closed two stores
(Brockton and Swansea) and opened two stores (Lawrence and
Haverhill). During fiscal 1994, the Company closed two stores
(Grafton and Salisbury) and opened one store (Taunton). On a
same store basis (16 stores), total store sales and net store
sales also decreased by 6.1% and 6.5%, respectively. Sales in
February and March 1993 were seriously impacted by severe winter
storms in New England which caused certain stores to be closed
during certain portions of such periods. Sales during the 52
week period ended January 29, 1994 also were adversely affected
by a continued weak New England retailing environment.
Cost of sales, buying and distribution expense was 73.0% of net
store sales for the 52 week period ended January 29, 1994,
compared with 72.3% for the pro forma combined 52 week period
ended January 30, 1993. The increase in cost of goods sold as a
percentage of net sales during the 52 weeks ended January 29,
1994 was due primarily to decreased initial markup percentages
combined with higher shrinkage.
Selling and administrative expense as a percentage of net sales
for the 52 week period ended January 29, 1994 increased to 30.4%
from 27.8% for the pro forma combined 52 weeks ended January 30,
1993. This increase resulted primarily from increased
advertising expenditures of $1,102,000.
Depreciation and amortization for the 52 week period ended
January 29, 1994 increased by $211,000 from the prior pro forma
combined 52 week period. This increase principally resulted
from fiscal 1994 expenditures for capital improvements.
Interest income for the 52 week period ended January 29, 1994
amounted to $71,000 as compared to $280,000 for the pro forma
combined 52 week period ended January 30, 1993. This decrease
in interest income from the pro forma period is attributable
principally to lower cash balances.
<PAGE>
Interest expense for the 52 week period ended January 29, 1994
was $52,000 compared to $16,000 for the pro forma period. This
increase is primarily attributable to interest on long term debt
incurred during fiscal 1994.
The Company experienced a net loss for the 52 week period ended
January 29, 1994 of $3,858,000 compared with income of $191,000
for the pro forma 52 week period ended January 30, 1993.
Factors contributing to the fiscal 1994 loss included a 5.5%
decrease in net store sales largely due to a continued weak New
England retail environment, increased advertising expenditures
of $1,102,000 and increased depreciation and amortization during
fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the 52 week period ended January 28, 1995, the net cash
used by operating activities amounted to approximately
$3,100,000. This resulted principally from the net loss for
such period which was offset in part by regular inventory and
inventory held for sale, depreciation and amortization and
impaired equipment and leasehold improvements.
During the 52 week period ended January 28, 1995, the net cash
used in investing activities amounted to approximately
$2,078,000 which resulted primarily from the purchase of
fixtures and leasehold improvements.
During the 52 week period ended January 28, 1995, the net cash
provided by financing activities amounted to approximately
$4,899,000, which was comprised solely of proceeds from the
issuance of long-term debt under the Company's credit facility.
The Company's working capital at January 28, 1995 decreased by
approximately $14,486,000 from January 29, 1994. This decrease
is primarily due to the loss for the year ended January 28, 1995
and proceeds from short term debt.
Capital expenditures during fiscal 1995 amounted to
approximately $2,119,000. Of this amount, approximately
$1,555,000 was for capital expenditures of the three new
"Stuarts too" stores opened in fiscal 1995. The Company also
closed two existing stores located in Biddeford, Maine and
Barre, Vermont. The costs associated with these closings
amounted to approximately $880,000. During fiscal 1995, the
Company incurred restructuring and asset impairment charges of
$4,555,000. In accordance with FASB EITF 94-3 (liability
recognition for certain costs incurred in a restructuring), a
restructuring and asset impairment reserve was established in
fiscal 1995. During the fourth quarter of fiscal 1995, expenses
relating to this reserve were incurred in connection with
store closings. Management presently expects that expenditures
during the first half of fiscal 1996 will include approximately
$4,800,000 to be incurred in connection with the closing of
stores in accordance with FASB EITF 94-3 (liability in
recognition for certain costs incurred in a restructuring) (see
Note 10). The Company does not anticipate that any new stores
will be opened during fiscal 1996.
In connection with the Chapter 11 filing, Stuarts entered into
debtor-in-possession financing arrangements with Foothill and is
currently operating
<PAGE>
its business as a debtor-in-possession,
subject to Bankruptcy Court approval for certain of its actions. The
financing arrangements with Foothill provide for a $6 million
credit facility, which is collateralized by substantially all of
the Company's assets. Borrowings under the facility are subject
to availability under a borrowing base formula and to compliance
with covenants and business plans. Foothill also has agreed to
permit the Company to use cash collateral from its pre-petition
financing arrangements during the reorganization proceeding.
Both the debtor-in-possession financing arrangement and the cash
collateral arrangement will require the approval of the
Bankruptcy Court. The Company has failed to achieve financial
projections established in connection with its
debtor-in-possession financing arrangements with Foothill. If
such failures continue, Foothill would be entitled to terminate
the financing arrangements under certain circumstances. The
Company's determination to liquidate or sell the Company has
caused an event of default under the financing arrangements with
Foothill. Consequently, Foothill would be entitled to seek
Bankruptcy Court relief from the automatic stay and, if such
relief is granted, exercise foreclosure remedies as a secured
creditor. The Company intends to seek Foothill's cooperation in
connection with the proposed orderly liquidation or sale of the
Company. Although there can be no assurance that such
cooperation will be obtained, the Company believes that it would
be in the interests of the Company and Foothill to extend the
financing arrangements with Foothill during any liquidation or
sale proceeding.
In Chapter 11 cases, substantially all of the liabilities of a
debtor, such as the Company, as of the date of the filing of the
petition for reorganization are subject to settlement under a
plan of reorganization to be voted upon by the debtor's impaired
creditors and stockholders and confirmed by the Bankruptcy
Court. There are certain risks to a Company operating as a
debtor-in-possession. Such risks may include (i) potential
deterioration of the business of the Company during the
bankruptcy proceedings, (ii) a reduced ability to attract and
retain employees, (iii) additional expenses associated with the
bankruptcy reorganization process and (iv) liquidation of the
Company's assets under Chapter 7 of the Bankruptcy Code or, as
may be the case with the Company, under a liquidation plan under
Chapter 11. Because the bankruptcy proceedings are in an early
stage, the Company is not yet able to estimate the total
financial effect of the bankruptcy on its financial condition.
Current payments due on almost all pre-petition liabilities are
deferred except as may be required by Bankruptcy Court order.
The Company has not paid dividends since its inception. Since
the Company is currently in Chapter 11, no dividends can be paid
without the approval of the Bankruptcy Court.
Impact of Inflation
Stuarts has generally been able to pass on inflationary cost
increases through higher merchandise selling prices. Therefore,
inflation has not had a material negative impact on operating
results.
<PAGE>
Stuarts Department Store
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Schedules Page
Consolidated Statements of Operations 26
Successor Company
Fiscal 1995
Fiscal 1994
Pro Forma Combined Fiscal 1993 (Unaudited)
13 Weeks Ended 01/30/93
Predecessor Company
39 Weeks Ended 10/31/92
Consolidated Balance Sheets 27
Successor Company
January 28, 1995
January 29, 1994
Consolidated Statements of Cash Flows 28
Successor Company
Fiscal 1995
Fiscal 1994
13 Weeks Ended 01/30/93
Predecessor Company
39 Weeks Ended 10/31/92
Consolidated Statements of Stockholders' Equity 29
Successor Company
Fiscal 1995
Fiscal 1994
13 Weeks Ended 01/30/93
Predecessor Company
39 Weeks Ended 10/31/92
Notes to Consolidated Financial Statements. 30-46
Report of Independent Certified Public Accountants. 47-48
<PAGE>
<TABLE>
Stuarts Department Stores, Inc. and Subsidiary
Consolidated Statements of Operations
<CAPTION>
Successor Company Predecessor
Pro Forma Company
Combined
Fiscal 1993 13 Weeks 39 Weeks
Fiscal Fiscal (Unaudited) Ended Ended
1995 1994 (Note 2) 01/30/93 10/31/92
<S> <C> <C> <C> <C> <C>
Total store sales $105,268,774 $117,081,640 $123,533,511 $37,352,125 $86,181,386
Less leased department sales 7,104,156 8,518,795 8,668,466 2,410,232 6,258,234
Net store sales 98,164,618 108,562,845 114,865,045 34,941,893 79,923,152
Leased department and other income 1,591,726 1,801,912 1,833,164 542,551 1,290,613
99,756,344 110,364,757 116,698,209 35,484,444 81,213,765
Costs and expenses
Cost of sales buying and
distribution 73,961,741 79,288,505 83,039,081 26,437,682 56,151,399
Restructuring and asset
impairment charges (Note 11) 4,555,000 0 0 0 0
Selling and administrative 34,389,132 33,011,767 31,875,260 8,818,581 23,056,679
Depreciation and amortization 2,104,748 1,941,440 1,730,479 486,094 1,694,385
Total costs and expenses 115,010,621 114,241,712 116,644,820 35,742,357 80,902,463
Income (loss) before interest,
reorganization items,income
taxes and extraordinary gain (15,254,277) (3,876,955) (53,389) (257,913) 311,302
Interest income 0 71,085 280,156 34,316 495,840
Interest expense (Contractual amounts
are approximately $1,157,00 for
39 Weeks ended October 31, 1992
and $1,953,000 for Fiscal 1992) (973,212) (52,162) (15,517) (7,805) (7,712)
Income (loss) before reorganization
items, income taxes and
extraordinary gain (16,227,489) (3,858,032) 318,028 (231,402) 799,430
Reorganization items (Note 2):
Reorganization expenses (7,132,303)
Adjust accounts to fair value (6,657,432)
Income (loss) before income taxes
and extraordinary gain (16,227,489) (3,858,032) 318,028 (231,402) (12,990,305)
Income tax expense (127,211)
Income (loss) before extraordinary
gain (16,227,489) (3,858,032) 190,817 (231,402) (12,990,305)
Extraordinary gain on discharge of
pre-petition liabilities (Note 2) 8,835,028
Net income (loss) (16,227,489) (3,858,032) 190,817 (231,402) (4,155,277)
Income (loss) before extraordinary
gain per share ($0.75) ($0.18) $0.01 ($0.01) ($2.98)
Net income (loss) per share ($0.75) ($0.18) $0.01 ($0.01) ($2.98)
Number of weighted average
common shares outstanding 21,507,175 21,507,175 21,507,175 21,507,175 4,364,460
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
Stuarts Department Stores, Inc. and Subsidiary
Consolidated Balance Sheets Successor
January 28, 1995 and January 29,1994 Company
1995 1994
Assets
Current Assets
Cash and cash equivalents $64,731 $344,075
Merchandise Inventory 12,376,497 20,511,040
Merchandise available for sale (Note 12) 3,282,000 0
Other 1,288,541 1,848,006
Total current assets 17,011,769 22,703,121
Equipment and leasehold improvements at cost
Store fixtures 8,527,424 10,822,134
Store leasehold improvements 2,582,584 2,908,736
Office and warehouse equipment 3,183,232 2,998,037
14,293,240 16,728,907
Less allowance for depreciation and
amortization 9,313,761 9,084,935
4,979,479 7,643,972
Leaseholds (less accumulated amortization
of $5,995,289 in 1995
and $5,545,873 in 1994) 1,010,209 1,380,470
Reorganization value in excess of amounts
allocable to identifiable assets
(less accumulated amortization $157,415
in 1995 and $87,275 in 1994) 543,585 613,725
Deferred finance costs (less accumulated
amortization of $167,197 in 1995 and
$12,132 in 1994) 321,062 424,624
Other assets 511,692 631,358
Total assets $24,377,796 $33,397,270
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable - trade 3,868,470 3,993,054
Accrued expenses
Rent 693,644 942,641
Compensation and fringe 251,951 271,421
Other (Note 13) 5,026,372 2,233,146
Current portion of long term
debt (Note 6) 6,394,185
Total current liabilities 16,234,622 7,440,262
Long term debt (Note 6) 1,494,801
Other liabilities 318,567 410,111
Stockholders' equity
Common stock - authorized 25,000,000
shares of $.01 par value, issued
22,409,074 shares 224,091 224,091
Additional paid in capital 29,725,274 29,725,274
Retained earnings (deficit) (20,316,923) (4,089,434)
9,632,442 25,859,931
Less treasury stock at cost
(901,899 shares) (1,807,835) (1,807,835)
Total stockholders' equity 7,824,607 24,052,096
Total liabilities and stockholders'
equity $24,377,796 $33,397,270
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
Stuarts Department Stores, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<CAPTION>
Successor Predecessor
Company Company
13 Weeks 39 Weeks
Fiscal Fiscal Ended Ended
1995 1994 01/30/93 10/31/92
<S> <C> <C> <C> <C>
Increase(decrease)in cash and cash equivalents
Cash flows from operating activities:
Net loss ($16,227,489) ($3,858,032) ($231,402) ($4,155,277)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 2,381,142 1,941,442 486,094 1,704,087
Inventory available for sale (3,282,000)
Impairment of equipment and leasehold
improvements 2,393,294
Restructuring Accural 1,988,694
(Increase)decrease in inventory 8,134,543 1,742,027 9,402,509 (11,656,378)
(Increase)decrease in other current assets 559,465 349,542 613,709 (1,458,681)
Increase(decrease) in accounts payable
and accrued expenses 1,043,570 (2,593,478) (2,124,434) 1,613,678
Increase in liabilities subject to compromise 889,455
(Decrease) in other liabilities (91,545) (94,736) (137,280) (55,992)
Reorganization items:
Reorganization expenses 6,203,451
To adjust accounts to fair value 6,657,432
Extraordinary gain on discharge
of pre-petition liabilities (8,835,028)
Net cash provided (used) by operating activities (3,100,326) (2,513,235) 8,009,196 (9,093,253)
Cash flows from investing activities:
Purchases of equipment & leasehold
improvements (2,118,914) (1,657,601) (93,994) (1,316,454)
(Increase) decrease in leaseholds and other
assets 40,512 265,785 (56,648)
Net cash used in investing activities (2,078,402) (1,391,816) (150,642) (1,316,454)
Cash flows from financing activities:
Proceeds from issuance of debt 4,899,384
Proceeds from issuance of long-term debt 1,494,801
Cost of obtaining debt (436,756)
Release of restricted cash 11,416,219
Cash distribution pursuant to reorganization
plan (5,000,000) (6,993,989) (6,389,411)
Net cash (used in) provided by financing
activities 4,899,384 (3,941,955) (6,993,989) 5,026,808
Net increase (decrease) in cash and cash
equivalents (279,344) (7,847,006) 864,565 (5,382,899)
Cash and cash equivalents at beginning of
period 344,075 8,191,081 7,326,516 12,709,415
Cash and cash equivalents at end of
period $64,731) $ 344,075 $8,191,081 $ 7,326,516
Supplemental disclosures of cash flows information:
Cash paid during the period for: Interest $ 747,013 $ 35,730 $ 26,061 $ 4,404
Income taxes 53,584 60,900 17,550 63,536
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
Stuarts Department Store s, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
For the 52 Weeks Ended 01/28/95, the 52 Weeks Ended 01/29/94, the 13 Weeks
Ended 01/30/93,and the 39 Weeks Ended 10/31/92.
[CAPTION]
<TABLE>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C>
Predecessor Company
Balance 02/01/92 $52,034 $11,402,487 $137,121 ($1,807,835) $9,783,807
Income before restructuring
for the 39 weeks ended 10/31/92 799,430 799,430
Reorganization expenses (7,132,303) (7,132,303)
Adjust to Fair Value (6,657,432) (6,657,432)
Extraordinary gain - debt discharge 8,835,028 8,835,028
Issuance of new shares 172,057 22,340,943 22,513,000
Elimination of retained earnings (4,018,156) 4,018,156 0
Balance 10/31/92 $224,091 $29,725,274 $0 ($1,807,838) $28,141,530
Successor Company
Balance 10/31/92 $224,091 $29,725,274 $0 ($1,807,838) $28,141,530
Net loss for 13 weeks ended 01/30/93 (231,402) (231,402)
Balance 01/30/93 $224,091 $29,725,274 ($231,402) ($1,807,838) $27,910,128
Net loss for 52 weeks ended 01/29/94 (3,858,032) (3,858,032)
Balance 01/29/94 $224,091 $29,725,274 ($4,089,434) ($1,807,838) $24,052,096
Net loss for 52 weeks ended 01/28/95 (16,227,489) (16,227,489)
Balance 01/29/95 $224,091 $29,725,274 ($20,316,923) ($1,807,838) $7,824,607
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CHAPTER 11 FILING
On May 16, 1995, Stuarts Department Stores, Inc. ("Stuarts" or
the "Company") filed a voluntary petition for reorganization
under Chapter 11 ("Chapter 11"), Title 11 of the United States
Code (the "Bankruptcy Code") with the United States Bankruptcy
Court for the District of Massachusetts (Western Division) (the
"Bankruptcy Court"). The Company is presently operating as a
debtor-in-possession under Chapter 11 and is subject to the
jurisdiction of the Bankruptcy Court. In Chapter 11 cases,
substantially all liabilities as of the date of the filing of
the petition for reorganization are subject to settlement under
a plan of reorganization to be voted upon by the Company's
impaired creditors and stockholders and confirmed by the
Bankruptcy Court. Although the Company has an exclusive period
until September 13, 1995 to file such a plan with the Bankruptcy
Court, as more fully discussed below, the Company's Board of
Directors has approved the orderly liquidation or sale in
Chapter 11 of the Company. If a plan of reorganization is not
filed with the Bankruptcy Court by such date or such date is not
extended, other parties in interest may submit proposed plans.
If a reorganization plan is filed by the Company by September
13, 1995, the Company has until November 13, 1995 to solicit
acceptances with respect to such plan and no other party may
solicit acceptances with respect to any other plan during this
period. No plan of reorganization has yet been filed with the
Bankruptcy Court. The Company continues to manage its affairs
and operate its business as a debtor-in-possession, subject to
the supervision of the Bankruptcy Court while these cases are
pending.
Schedules are due to be filed with the Bankruptcy Court on June
30, 1995 setting forth the assets and liabilities of the Company
and its subsidiary as of the filing date as shown by the
Company's accounting records. Differences between amounts shown
by the Company and claims filed by creditors will be
investigated and resolved. The ultimate amount and settlement
terms of such liabilities are subject to a plan of
reorganization, and accordingly, are not presently determinable.
Under the Bankruptcy Code, the Company may elect to assume or
reject in the future, real estate leases, employment contracts,
personal property leases, service contracts and other unexpired
executory pre-petition contracts, subject to Bankruptcy Court
approval. As the Chapter 11 case progresses, the Company will
continue to analyze which of its executory contracts and
unexpired leases it intends to assume or reject. The Company
cannot presently determine or reasonably estimate the ultimate
liability which may result from the filing of claims for all
contracts which may be rejected. The Chapter 11 filing,
uncertainty regarding the eventual outcome of the reorganization
case and effect of other unknown adverse factors raise
substantial doubt about the Company's ability to continue in
existence as a going concern.
In connection with the Chapter 11 filing, Stuarts has entered
into debtor-in possession financing arrangements with its
lender, Foothill Capital Corporation ("Foothill"), and is
currently operating its business as a debtor-in-possession,
subject to Bankruptcy Court approval for certain of its actions.
The financing arrangements with Foothill provide for a $6
<PAGE>
million credit facility, which is collateralized by
substantially all of the Company's assets. Borrowings
under the facility are subject to
availability under a borrowing base formula and to compliance
with covenants and business plans. Foothill also has agreed to
permit the Company to use cash collateral from its pre-petition
financing arrangements during the reorganization proceeding.
Both the debtor-in-possession financing arrangement and the cash
collateral arrangement will require the approval of the
Bankruptcy Court.
On June 20, 1995, the Company's Board of Directors approved the
orderly liquidation or sale in Chapter 11 of the Company. The
Company's management is exploring various alternatives by which
the liquidation or sale can be effected and intends to formulate
a plan for the liquidation or sale as promptly as practicable.
The Board of Directors' determination had been affected by a
number of factors, including, in particular, poor sales and
operating results achieved over the Father's Day selling period.
The orderly liquidation or sale will involve the closing or the
sale of the remaining Stuarts stores and is likely to take a
number of months to complete. Any liquidation or sale will be
subject to obtaining the requisite approval of the Company's
secured creditor, the Official Committee of Creditors in the
bankruptcy proceeding and the Bankruptcy Court and, accordingly,
there can be no assurance that a plan for the liquidation or
sale formulated by the Company's management will be effected.
Although the Company does not presently believe that the
liquidation or sale will result in any distribution of liquidation
or sale proceeds to the Company's shareholders, the amount, if any,
available for distribution to the Company's unsecured creditors
can not presently be estimated.
NOTE 2 - PRIOR REORGANIZATION
On October 19, 1992, Stuarts emerged from reorganization
proceedings under Chapter 11 pursuant to the terms of a Joint
Plan of Reorganization (the "Prior Reorganization Plan") filed
by the Company and its Official Committee of Unsecured Creditors
(the "Creditors' Committee") on July 23, 1992. The Prior
Reorganization Plan, which was confirmed by the United States
Bankruptcy Court for the District of Massachusetts, Western
Division (the "Bankruptcy Court"), on October 13, 1992 following
receipt of requisite creditor and stockholder approval, provided
for the cancellation of approximately $47,000,000 of allowed
unsecured claims in exchange for (i) payment to the Company's
unsecured creditors of $16,200,000 in the form of three cash
payments as follows: $5,200,000 upon consummation of the Prior
Reorganization Plan; $6,000,000 on December 31, 1992; and
$5,000,000 on December 31, 1993; and (ii) the issuance of eighty
percent (80%) of the common stock of the reorganized Company to
the Company's unsecured creditors. The Prior Reorganization
Plan also provided for, among other things, the discharge and
payment in full of certain administrative, priority, secured
party and small claims aggregating approximately $2,900,000. In
addition, upon confirmation of the Prior Reorganization Plan,
the Company assumed 18 existing store leases. The Company's
financial statements give effect to such reorganization as of
October 31, 1992.
The prior Chapter 11 proceedings of the Company were commenced
on December 7, 1990 by the filing of voluntary petitions by the
Company with the Bankruptcy Court. During the pendency of the
prior Chapter 11 proceedings, the Company operated its business
<PAGE>
as a debtor-in-possession, subject to the approval of the
Bankruptcy Court. No interest accrued on unsecured pre-petition
liabilities during the pendency of the prior Chapter 11
proceedings. For financial reporting purposes, those
liabilities and obligations whose disposition was dependent upon
the outcome of the Chapter 11 case were segregated and
classified as liabilities subject to compromise on the
Consolidated Balance Sheet as of February 1, 1992. All payments
and distributions in respect of pre-petition claims against the
Company have been made as of January 28, 1995 and no further
recourse to the Company may be had by any person with respect to
such pre-petition claims.
Professional fees for attorneys and accountants of the debtor
and creditors' committee and bank fees associated with the
debtor-in-possession financing arrangements which existed during
the prior reorganization proceeding were deferred pending the
confirmation of the Prior Reorganization Plan and the approval
of such costs by the Bankruptcy Court. These costs were
expensed during the 39 week period ended October 31, 1992 upon
the Company's emergence from the prior reorganization
proceedings. During this period, the Company also provided for
certain costs associated with other bankruptcy claims.
Reorganization expenses associated with the 39 week period ended
October 31, 1992 were:
39 Weeks Ended
10/31/92
Costs of bankruptcy:
Allowed claims in excess of
recorded liabilities $2,900,000
Professional fees 3,232,003
Administrative claims 1,000,000
$7,132,003
=========
The value of the cash and securities required to be distributed
pursuant to the Prior Reorganization Plan was less than the
allowed claims and, accordingly, the Company recorded an
extraordinary gain of $8,835,000 relating to the discharge of
pre-petition liabilities. On the date of confirmation of the
Prior Reorganization Plan, the sum of the allowed claims plus
post-petition liabilities exceeded the value of pre-confirmation
assets. The Company experienced a change in control in
connection with the consummation of the Reorganization Plan as
its unsecured creditors received 80% of the Company's common
stock and pre-reorganization equity holders retained 20% of such
common stock pursuant to the Reorganization Plan. AICPA
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7") requires
that, under these circumstances, a new reporting entity be
created for financial reporting purposes and assets and
liabilities be recorded at their fair values based upon the
allocation thereto of the Company's reorganization value. This
accounting treatment is referred to herein as "fresh-start
reporting." Financial statements for periods subsequent to
October 31, 1992 are designated as "Successor Company" to
signify that they are those of a new entity for financial
reporting purposes and have been prepared on a basis not
comparable to prior periods. Financial statements for periods
prior to October 31, 1992 have been designated "Predecessor
Company" and a black line has been drawn to separate Successor
Company financial statements from Predecessor Company financial
statements.
<PAGE>
"Fresh-start reporting" reorganization value represents a
negotiated value which was determined with the assistance of the
financial advisors employed by the Creditors' Committee using a
discounted cash flow analysis based, in part, on five-year cash
flow projections prepared by management. The discounted cash
flow analysis of the Company over the five fiscal years
beginning in 1993 through 1997 was determined by adding the
projected cash flow for the first four years to a
"capitalization" of the fifth year's projected cash flow. The
fifth year's projected cash flow was capitalized by establishing
a terminal value for the Company as of the end of such period
equal to 6.5 times the Company's projected earnings before
interest and taxes for the fifth year. The aggregate cash flow
value was then discounted to its present value, using an 11%
discount rate to establish a going concern value.
The five-year cash flow projections were based on estimates and
assumptions about circumstances and events that had not yet
taken place. Such estimates and assumptions are inherently
subject to significant economic and competitive uncertainties
and contingencies beyond the control of the Company, including,
but not limited to, those with respect to the course of the
Company's business activity after the date of preparation of
such projections. Accordingly, there usually will be, and, in
the case of the Company, have been, differences between
projections and actual results, because events and circumstances
frequently do not occur as expected, and those differences may
be material. Differences between the Company's projected and
actual results following its emergence from Chapter 11 did not
alter the determination of "fresh-start reporting"
reorganization value because such reorganization value was not
contingent upon the Company achieving the projected results.
In accordance with SOP 90-7, the Company adopted "fresh-start
reporting" and reflected the effects of such adoption in its
consolidated balance sheet as of October 31, 1992. The value of
the cash and securities distributed pursuant to the Prior
Reorganization Plan was less than the allowed claims and,
accordingly, the Company recorded an extraordinary gain of
$8,835,000 in connection with the discharge of pre-petition
liabilities. The adjustments to reflect the consummation of the
Prior Reorganization Plan, including the subsequent gain on debt
discharge of pre-petition liabilities and the adjustment to
record assets and liabilities at their fair values (including
the establishment of a reorganization value in excess of amounts
allocable to identifiable assets), were reflected in the
accompanying consolidated financial statements for the 39 week
period ended October 31, 1992. Reorganization value in excess
of amounts allocable to identifiable assets is being amortized
on a straight-line basis over ten years.
In connection with "fresh-start reporting," at October 31, 1992,
the Company revalued its inventory to reflect the full impact of
retail price adjustments in cost of goods sold. The impact
during the 13 week period ended January 30, 1993 of the
"fresh-start" inventory revaluation was to increase cost of
goods sold by approximately $500,000. Reorganization costs
deferred during the period in which the Company operated as a
debtor-in-possession were expensed when the Company emerged from
bankruptcy proceedings and were included in the reorganization
expenses reflected in the statement of operations for the 39
weeks ended October 31, 1992.
<PAGE>
In connection with the adoption of "fresh-start reporting," the
Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS No. 109") as of
October 31, 1992. The cumulative effect of the adoption of SFAS
No. 109 was not material. Prior to the adoption of "fresh-start
reporting," the Company accounted for income taxes under
Statement of Financial Accounting Standards No. 96 ("SFAS 96").
Under both SFAS 109 and SFAS 96, deferred income taxes are
provided for at the statutory rates on the differences between
financial statement basis and tax basis of assets and
liabilities and, under SFAS No. 109, are classified in the
balance sheet as current or non-current, consistent with the
assets and liabilities which give rise to such deferred income
taxes.
<PAGE>
The effect of the Prior Reorganization Plan on the Company's
balance sheet as of October 31, 1992 was as follows (amounts in
thousands):
Adjustments to Record Confirmation of Plan
Pre- Stuarts'
Confirmation Reorganized
Balance Debt Fresh Balance
Sheet Discharge Start Sheet
CURRENT ASSETS
Cash and cash equivalents $ 13,716 $ (6,389) $ 7,327
Merchandise inventory 35,443 $ (3,788) 31,655
Income tax receivable 52 (52)
Other 3,722 (345) 3,377
Total current assets 52,933 (6,389) (4,185) 42,359
EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET 7,907 7,907
LEASEHOLDS, NET 3,557 (2,100) 1,457
GOODWILL, NET 399 (399)
DEFERRED REORGANIZATION COSTS 2,432 (2,432)
REORGANIZATION VALUE IN EXCESS OF
AMOUNTS ALLOCABLE TO IDENTIFIABLE
ASSETS 701 701
OTHER ASSETS 512 512
TOTAL ASSETS $ 67,740 $ (6,389) $ (8,415) $52,936
====== ======= ======= ======
<PAGE>
Adjustments to Record Confirmation of Plan
Pre- Stuarts'
Confirmation Reorganized
Balance Debt Fresh Balance
Sheet Discharge Start Sheet
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable-trade $ 7,054 $7,054
Accrued expenses
Rent 1,079 1,079
Compensation and
fringe benefits 304 $ 570 874
Reorganization items 1,063 800 1,863
Other 1,288 1,288
Amount due to creditors $ 6,994 6,994
TOTAL CURRENT LIABILITIES 10,788 6,994 1,370 19,152
LIABILITIES SUBJECT TO
COMPROMISE 49,945 (49,945)
AMOUNT DUE CREDITORS 5,000 5,000
OTHER LIABILITIES 324 214 105 643
STOCKHOLDERS' EQUITY
Common stock - authorized
25,000,000 shares of $.01 par
value; issued 22,409,740 shares
upon reorganization 52 172 224
Additional paid-in capital 11,402 22,341 (4,018) 29,725
Retained earnings (2,963) 8,835 (5,872) 0
8,491 31,348 (9,890) 29,949
Less treasury stock at cost
(901,899 shares) 1,808 1,808
Total stockholders'
equity 6,683 31,348 (9,890) 28,141
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 67,740 $ (6,389) $ (8,415) $52,936
====== ====== ====== ======
<PAGE>
NOTE 3 - PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
FOR
THE 52 WEEKS ENDED JANUARY 30, 1993 (UNAUDITED)
The pro forma data contained in the following table (i) combine
the results of the Predecessor Company for the 39 weeks ended
October 31, 1992 with the results of the Successor Company for
the 13 weeks ended January 30, 1993; (ii) eliminate the effect
of non-recurring transactions resulting from the prior
reorganization included in the results of the Predecessor
Company; (iii) adjust results of the Predecessor Company to
reflect the implementation of "fresh-start reporting" as of
February 1, 1992; (iv) assume that the fiscal 1993 payments to
the Company's creditors required pursuant to the Prior
Reorganization Plan of $5,200,000 and $6,000,000 were made by
the Company as of February 1, 1992; and (v) assume issuance of
the 17,205,740 shares of Common Stock issuable to creditors
pursuant to the Prior Reorganization Plan as of February 1, 1992.
<PAGE>
<TABLE>
Table for Note 2
Consolidated Statements of Operations
Pro Forma Combined Consolidated Statement of Operations for the 52 Weeks
Ended January 30, 1993 (Unaudited)
<CAPTION>
Successor Predessor Pro Forma Pro Forma
Company Company Combined Adjustments Combined
13 Weeks 39 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
01/30/93 10/31/92 Jan. 30,1993 Jan. 30, 1993
<S> <C> <C> <C> <C> <C>
Total store sales $ 37,352,125 $ 86,181,386 $ 123,533,511 $ 123,533,511
Less leased department sales 2,410,232 6,258,234 8,668,466 8,668,466
Net store sales 34,941,893 79,923,152 114,865,045 114,865,045
Leased department and
other income 542,551 1,290,613 1,833,164 1,833,164
35,484,444 81,213,765 116,698,209 116,698,209
Costs and expenses
Cost of sales, buying and
distribution 26,437,682 56,151,399 82,589,081 450,000 83,039,081
Selling and administrative 8,818,581 23,056,679 31,875,260 31,875,260
Depreciation and amortization 486,094 1,694,385 2,180,479 (450,000 1,730,479
Total costs and expenses 35,742,357 80,902,463 116,644,820 0 116,644,820
Income (loss) before interest,
reorganization items, income
taxes and extraordinary gain (257,913) 311,302 53,389 0 53,389
Interest (income), net (26,511) (488,128) (514,639) 250,000 (264,639)
Income (loss) before reorganization
items, income taxes and
extraordinary gain (231,402) 799,430 568,028 (250,000) 318,028
Reorganization items (13,789,735) (13,789,735) 13,789,735
Income (loss) before income taxes
and extraordinary gain (231,402) (12,990,305) (13,221,707) 13,539,735 318,028
Income Taxes (127,211) (127,211)
Income (loss) before extraordinary
gain (231,402) (12,990,305) (13,221,707) 13,412,524 190,817
Extraordinary gain on discharge of
pre-petition liabilities 8,835,028 8,835,028 (8,835,028)
Net income (loss) (231,402) (4,155,277) (4,386,679) 4,577,496 190,817
Net income per share of
common stock ($0.01) ($0.95) $0.01
<PAGE>
(i) In connection with "fresh-start reporting," at October 31,
1992 the Company revalued its inventory to reflect the full
impact of retail price adjustments in cost of goods sold. The
pro forma adjustment reflects the impact of this inventory
revaluation upon results for the 52 week period ended January
30, 1993 assuming that "fresh-start reporting" had been
implemented on February 1, 1992.
(ii) In connection with "fresh-start reporting", the Company
revalued its leaseholds. The pro forma adjustment reflects the
impact upon leasehold amortization for the 52 weeks ended
January 30, 1993 assuming this reduction in value had been made
at February 1, 1992.
(iii) Pro forma interest (income) was adjusted giving effect to
the payment to creditors of approximately $11,200,000 on
February 1, 1992.
(iv) Pro forma shares outstanding at January 30, 1993 are
21,507,175.
(v) Pro forma adjustment assumes an effective tax rate of 40%.
(vi) Eliminate the effect of non-recurring transactions
resulting from the prior reorganization included in the results
of the Predecessor Company.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Stuarts Department Stores, Inc. and its subsidiary.
All significant intercompany transactions and balances have been
eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the last Saturday nearest the
end of January. The fiscal years ended January 28, 1995,
January 29, 1994 and January 30, 1993 included fifty-two weeks.
Nature of Business
At January 28, 1995, the Company operated 17 self-service
full-line discount department stores and three "Stuarts too"
stores (see Notes 10 and 11).
Merchandise Inventory
Merchandise inventory is valued at the lower of cost or market
using the retail inventory method on a first-in, first-out basis.
<PAGE>
Depreciation and Amortization
Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to
operations over their estimated service lives using the
straight-line method. Leasehold improvements are amortized over
the lives of the respective lease or the service lives of the
improvements, whichever is shorter. The estimated useful lives
for depreciation of equipment and leasehold improvements are
seven to ten years for store fixtures and office and warehouse
equipment, and ten years for store leasehold improvements.
Leaseholds have been purchased and are being amortized over the
remaining period of each lease.
Loss Per Share
Loss per common share has been calculated based upon the
weighted average number of common shares outstanding for the
respective periods. The effects of stock options have been
excluded as the result would be anti-dilutive for each period
presented.
Store Opening Costs
Store opening costs are amortized over the first year of store
operations.
Cash and Cash Equivalents
All liquid investments with a maturity of three months or less
at the date of purchase are considered to be cash equivalents.
Reclassification
Certain amounts in prior periods' financial statements have been
reclassified for comparative purposes.
NOTE 5 - LEASE COMMITMENTS (SEE ALSO NOTE 1)
The Company conducts its business in leased facilities. At
January 28, 1995, the leased facilities consisted of 20 retail
store locations and a combination warehouse and office facility.
The leases are classified as operating leases; remaining lease
terms vary from 3 months to 12 years, and 20 leases have an
option to renew. Rental payments for the facilities are based
on a minimum rental plus a percentage of sales in excess of a
stipulated amount. Certain leases provide for payments of real
estate tax cost and common area maintenance charges.
Total rental expense for the thirty-nine week period ended
October 29, 1994 was approximately $4,413,000. Of this amount,
real estate taxes and common area charges were $1,622,000 and
percentage rentals of $113,000. Total rental expense for the
thirty-nine week period ended October 29, 1993 was approximately
$4,423,000. Of this amount, real estate taxes and common area
charges were $1,495,000 and percentage rentals of $140,000.
<PAGE>
Total rental expense for the thirteen week period ended January
28, 1995 was approximately $1,438,000. Of this amount, real
estate taxes and common area charges were $557,000. Total
rental expense for the thirteen week period ended January 29,
1994 was approximately $1,380,000. Of this amount, real estate
taxes and common area charges were $551,000.
Total rental expense for the 52 week period ended January 28,
1995 was approximately $5,851,000. Of this amount, real estate
taxes and common area charges were $2,179,000 and percentage
rentals were $82,000. Total rental expense for the 52 week
period ended January 29, 1994 was approximately $6,044,000. Of
this amount, real estate taxes and common area charges were
$2,046,000 and percentage rentals were $127,000.
The following is a schedule of future minimum rental payments,
as of January 28, 1995, required under operating leases:
Year ending January Total
1996 $ 4,226,000
1997 3,637,000
1998 3,236,000
1999 2,939,000
2000 2,523,000
Later Years 5,891,000
Total minimum payments required $22,452,000
==========
NOTE 6 - LONG TERM DEBT (SEE ALSO NOTE 1)
The Company entered into a Loan and Security Agreement (the
"Agreement") dated December 16, 1993 with Foothill which
provided the Company with a three year revolving line of credit
with a maximum amount of $15,000,000 (the "Credit Facility"),
subject to availability under a borrowing base formula.
Interest was payable at the prime rate (8.25% at January 28,
1995) plus 1.75% (minimum rate of 7.5%). Payment of a monthly
commitment fee of $2,000 plus 0.375% per annum of the average
unused portion of the Credit Facility during the preceding month
also was required. The Agreement prohibited the payment of
dividends and required the Company to maintain certain minimum
amounts of net worth and working capital. The Company and
Foothill, on March 20, 1995, entered into Amendment One to the
Credit Facility, which amended the tangible net worth and
working capital covenants to reduce the applicable thresholds.
A facility fee of $25,000 was paid to Foothill in connection
with the Amendment. The Credit Facility is collateralized by
substantially all of the Company's assets. The Agreement also
restricted the Company's ability to incur additional
indebtedness and to make capital expenditures and provided for
payment of a penalty upon termination prior to December 27,
1996. The Company incurred certain costs in order to obtain the
Credit Facility; these costs are being amortized over the
initial three year life of the Credit Facility. Included in
these costs is a fee of $250,000 which was paid to an investment
banking firm of which a director of the Company is an officer.
No principal or interest payments will be made on pre-petition
debt without Bankruptcy Court approval or until a reorganization
plan defining
<PAGE>
the repayment terms has been approved. If the Company is determined to
have been insolvent as of the date of the filing, interest does
not continue to accrue on unsecured pre-petition debt. The
Bankruptcy Court has not yet determined this issue.
NOTE 7 - COMMITMENTS (SEE ALSO NOTE 1)
The Company has employment agreements with two of its executive
officers, which were effective in August 1994 and provide for
terms expiring on February 1, 1997. Beginning in fiscal 1994,
each of these executives is entitled to a cash bonus based on
base salary and achievement of operating profit targets.
The Company entered into an agreement with Gibson Greetings,
Inc. ("Gibson") for a period of five years commencing on October
1, 1992. Pursuant to this agreement, Gibson will serve as the
exclusive supplier of greeting cards, everyday gift wrap and
related products.
The Bankruptcy Court has not yet approved the assumption or
rejection of these contracts.
NOTE 8 - INCOME TAXES
In connection with "fresh-start reporting," the Company adopted
SFAS No. 109 as of October 31, 1992. Prior periods have not
been restated to apply the provisions of SFAS No. 109. The
Company had previously accounted for income taxes under the
liability method described in SFAS 96. Under SFAS No. 109,
deferred income taxes are recognized for the tax consequences of
differences between financial statement carrying amounts and the
tax bases of existing assets and liabilities ("temporary
differences") by applying enacted statutory tax rates applicable
to future years. Under SFAS No. 109, the effect of a change in
tax rates on deferred taxes is included in the income for the
period in which the rate change occurs.
There was no income tax benefit for the fiscal year ended
January 28, 1995, the fiscal year ended January 29, 1994, the 13
weeks ended January 30, 1993 or the 39 weeks ended October 31,
1992.
<PAGE>
The effective tax rate differs from the statutory rate as
follows:
Successor Company | Predecessor Company
52 Weeks 52 Weeks 13 Weeks | 39 Weeks
Ended Ended Ended | Ended
1/28/95 1/29/94 1/30/93 | 10/31/92
|
Statutory Federal |
tax rate (34.0%) (34.0%) (34.0%) | (34.0%)
State Income taxes - - - | -
Unused net operating |
loss 34.0 34.0 34.0 | 34.0
|
|
- - - | -
====== ====== ====== | ======
As of January 28, 1995, the Company had approximately $580,000
of deferred tax liabilities, $13,180,000 of deferred tax assets,
and a valuation allowance of $12,600,000. The approximate
amounts of the principal temporary differences resulting in the
deferred tax assets and liabilities are: net operating loss
carryforwards - $9,290,000, depreciation - $(580,000), fair
value adjustments to assets recorded upon the adoption of Fresh
Start reporting - $2,070,000 and $1,820,000 relating to
restructuring reserves.
As a result of the implementation of the Prior Reorganization
Plan, the Company's creditors received consideration in
extinguishment of debt which is worth less than such debt.
Accordingly, the Company recorded an extraordinary gain of
$8,835,000 on debt discharged in connection with the Prior
Reorganization Plan. No income tax was recorded related to this
extraordinary gain as no income will be recognized for tax
purposes because it results from a discharge of debt pursuant to
a case under the Bankruptcy Code.
At January 28, 1995, the Company had approximately $23,220,000
of operating loss carryforwards available to reduce future
payments of federal income taxes. These carryforwards expire in
varying amounts through 2008. The effects of the Prior
Reorganization Plan together with transactions that have
occurred within the three year period preceding the consummation
of the Prior Reorganization Plan have caused an "ownership
change" for federal income tax purposes. As a result,
utilization of the Company's net operating loss carryforward
will be subject to an annual limitation determined by
multiplying the federal long-term tax exempt bond rate by the
fair market value of the Company's stock immediately prior to
such "ownership change." As a result of the ownership change,
$4,680,000 of the loss carryforward is subject to limitation.
In accordance with SFAS No. 109 and SOP 90-7, benefits realized
subsequent to October 31, 1992 from reductions in the valuation
allowance (primarily attributable to the use of net operating
loss carryforwards) will first reduce reorganization value in
excess of amounts allocable to identifiable assets and other
intangible assets until exhausted and thereafter be reported as
a direct addition to paid-in capital. As of January 28, 1995,
$4,600,000 of the $12,600,000 valuation allowance arose prior to
the confirmation of the Prior Reorganization Plan.
<PAGE>
NOTE 9 - COMMON STOCK
In connection with the confirmation of the Prior Reorganization
Plan, authorized capital stock of the Company increased to
25,000,000 shares of common stock, par value $.01 per share. In
addition, in accordance with the Prior Reorganization Plan, the
general unsecured creditors of the Company received 17,205,740
shares of common stock. The accompanying financial statements
reflect the issuance of all 17,205,740 shares required to be
issued to general unsecured creditors as of October 31, 1992.
On October 28, 1992, as contemplated by the Prior Reorganization
Plan, the Board of Directors of the Company adopted the 1992
Employee Stock Option Plan ("the 1992 Plan"). The 1992 Plan was
amended in May 1994 to increase the number of shares available
for awards thereunder and presently provides for the issuance of
up to 2,000,000 shares of the Company's common stock to officers
and other key employees of the Company and its subsidiary.
Transactions under the 1992 Plan are summarized as follows:
No. of Shares Option Price
Option Shares
Outstanding at January 30, 1993 $.66
Granted 197,000 $.36-.94
Cancelled (200,000) .66
Outstanding at January 29, 1994 697,000 $.36-.94
Granted -0-
Cancelled 100,000 $.66
Outstanding at January 28, 1995 597,000 $.36-.94
=======
All options were issued at an exercise price equal to the fair
market value of the Company's common stock at the date of grant.
The 1992 Plan was approved by the stockholders of the Company on
October 14, 1993. Upon such approval, all options granted prior
to such date became immediately exercisable. As of January 28,
1995, 403,000 shares were available for future grant under the
1992 Plan.
On July 13, 1995, the Company's 1994 Directors Stock Option
Plan (the "Directors' Plan") became effective upon being
approved by the Company's shareholders. The Directors' Plan
provides for the issuance of stock options exercisable for up to
an aggregate of 1,000,000 shares of the Company's common stock
(subject to adjustment in the event of any stock dividend, stock
split, recapitalization or similar event) to directors of the
Company who are not also full-time employees of the Company,
subject to annual maximum awards of options which are
exercisable for no more than 150,000 shares of the Company's
common stock. Awards under the plan may only be in the form of
non-qualified stock options. The exercise price for each option
will be equal to the
<PAGE>
greater of $.75 and the fair market value of the Company's
Common Stock at the time of grant. For this purpose, fair
market value will be the closing price of the Company's Common
Stock as quoted on the National Association of Securities
Dealers Automated Quotation System on the business day
immediately preceding the date of grant.
Transactions under the Directors' Plan are summarized as
follows:
Option Shares No. of Shares Option Price
Outstanding at January 29, 1994 -0- --
Granted 220,000 $ .75
Cancelled -0- --
Outstanding at January 28, 1995 220,000 $ .75
=======
NOTE 10 - RETIREMENT PLAN
The Company maintains a 401(k) savings plan to which eligible
employees make pre-tax contributions. The Plan is subject to
the provisions of the Employee Retirement Income Security Act of
1974. The Company made matching contributions to this plan of
approximately $46,235 during the year ended January 28, 1995,
$41,500 during the year ended January 29, 1994, $11,000 during
the 13 weeks ended January 30, 1993, and $33,000 during the 39
weeks ended October 31, 1992.
NOTE 11 - RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
In accordance with FASB EITF 94-3 (liability in recognition for
certain costs incurred in a restructuring), a restructuring and
asset impairment reserve was established in fiscal 1995. The
reserve covers the closing of two stores in Nashua, New
Hampshire and Johnston, Rhode Island. In addition, this reserve
covers the asset impairment in connection with the closing of
additional stores, the closing of which was announced in fiscal
1996 (February 1995). The total amount of this charge to fiscal
1995 was approximately $4,555,000 as outlined below. In
addition, as per the rules outlined in FASB EITF 94-3,
approximately $1,913,000 of additional expense will be charged
to the first quarter of fiscal 1996.
<PAGE>
Impairment of fixed assets and leaseholds $ 2,566,000
(8 stores)
Rental commitments 351,000
Store preopening cost 220,000
Loss on sale of inventory (5 stores) 753,000
Deferred cost of goods sold charges 408,000
Other store closing costs 257,000
$ 4,555,000
=========
NOTE 12 - MERCHANDISE AVAILABLE FOR SALE
On February 26, 1995, the merchandise inventory of the five
stores located in Malden, Taunton and Haverhill, Massachusetts,
Nashua, New Hampshire and Johnston, Rhode Island was sold to the
Great American Asset Management Co. This inventory became
impaired as of fiscal year end 1995 and is reported on a
separate line on the balance sheet.
NOTE 13 - SUBSEQUENT EVENT
On April 30, 1995, The Company's Board of Directors approved the
closing of four additional stores located in Athol, Chelsea and
Fitchburg, Massachusetts and Goffstown, New Hampshire. As per
rules outlined in FASB EITF 94-3, approximately $2,875,000 in
expense will be charged to the second quarter of fiscal 1996 to
cover the closing of these stores.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Stuarts Department Stores, Inc. and Subsidiary,
Debtor-in-Possession:
We have audited the accompanying consolidated balance sheets of
Stuarts Department Stores, Inc. and Subsidiary,
Debtor-in-Possession, as of January 28, 1995 and January 29,
1994, and the related consolidated statements of operations,
cash flows and stockholders' equity for the years ended January
28, 1995 and January 29, 1994, the thirteen week period ended
January 30, 1993 and the thirty-nine week period ended October
31, 1992. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Stuarts Department Stores, Inc. and
Subsidiary, Debtor-in-Possession, as of January 28, 1995 and
January 29, 1994 and the consolidated results of its operations
and its cash flows for the years ended January 28, 1995 and
January 29, 1994, the thirteen week period ended January 30,
1993 and the thirty-nine week period ended October 31, 1992 in
accordance with generally accepted accounting principles.
On October 19, 1992, the Company emerged from reorganization
proceedings under Chapter 11 of the U.S. Bankruptcy Code. As
described in Note 2 to the consolidated financial statements,
the Company accounted for this reorganization and adopted "fresh
start reporting" as of October 31, 1992. As a result, the
consolidated statements of operations for the years ended
January 28, 1995 and January 29, 1994, and the thirteen week
period ended January 30, 1993, are not comparable to the
Company's consolidated statements of operations for prior
periods.
The consolidated financial statements of the Company do not
reflect any adjustments which may result from the outcome of the
following uncertainties: (1) As discussed in Note 1 on May 16,
1995, Stuarts Department Stores, Inc. and its subsidiary, filed
a petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. The process of determining the amount of
allowable pre-petition claims has just begun, and the ultimate
settlement of these claims will be determined when a plan of
reorganization has been confirmed by the Bankruptcy Court. The
Company is a debtor-in-possession under Chapter 11 of the U.S.
Bankruptcy Code and is subject to the jurisdiction of the
Bankruptcy Court; (2) As discussed in Notes 5 and 8, the Company
is subject to a number of
<PAGE>
commitments. Although some provision has been made for these
matters, the final outcomes and their effect, if any, on the
Company's consolidated financial statements is not presently
determinable; (3) The accompanying consolidated financial
statements have been prepared in conformity with accounting
principles applicable to a going concern. Continuation of the
Company as a going concern and realization of its assets and the
liquidation of its liabilities are dependent upon, among other
things: (a) confirmation of a Plan of Reorganization (which
will, among other things, result in significant adjustments and
reclassifications in the amounts reflected as assets,
liabilities and stockholders' equity in the accompanying
consolidated financial statements), (b) the ability of the
Company to maintain adequate financing combined with achievement
of profitable operations, and (c) obtaining adequate shipments
of merchandise from vendors with reasonable credit terms; (4) As
discussed in Note 11, the consolidated financial statements for
fiscal 1995 include a restructuring charge resulting from the
Company's decision to close facilities. As part of the Chapter
11 proceedings, the Company is reviewing the potential closing
of stores, and its warehouse, and distribution center.
Depending on the outcome of the review, the actual facilities to
be closed will be determined. The costs related to these
closings may be greater or less than the amount provided in the
consolidated financial statements. The Chapter 11 filing,
uncertainty regarding the eventual outcome of the reorganization
case and effects of other unknown adverse factors raise
substantial doubt about the Company's ability to continue as a
going concern. The eventual outcome of these matters is not
presently determinable and the consolidated financial statements
do not include any adjustments that might be necessary should
the Company be unable to continue its existence because of the
above uncertainties.
Coopers & Lybrand
L.L.P.
Boston, Massachusetts
March 29, 1995, except for Note 13, as
to which the date is April 30, 1995 and except
for Note 1 and paragraph two of Note 6, as to
which the date is May 16, 1995
<PAGE>
Item 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- -------------------------------------------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------------
Directors and Executive Officers
The executive officers of the Company, their positions with the
Company, business history and certain other information, as of
January 28, 1995, are set forth below.
NAME OFFICE AGE
David S. Ferguson President, Chief Operating Officer 50
and Director
S. Joseph Hoffman Chairman of the Board 75
Antone F. Moreira Executive Vice President, Chief Financial 58
Officer, Secretary and Treasurer
Eugene W. Twomey Senior Vice President - Real Estate 59
Margaret Coughlin Director 39
Ronald C. Curhan Director 64
Joshua R. Goldberg Director 37
Joseph A. Lategano Director 62
Morton H. Sigel Director 65
David S. Ferguson has been President, Chief Operating Officer
and a director of the Company since August 1994. Prior to such
time, Mr. Ferguson served as Senior Vice President-Operations
from October 1992 until August 1994 and as Senior Vice
President-Stores and Store Operations of the Company beginning
in February 1989. Mr. Ferguson was formerly Vice President of
Stores for Upton's Department Stores, a division of Amcena
Corporation, from September 1985 to January 1989. Prior to his
association with Upton's Department Stores, Mr. Ferguson served
as Divisional Vice President of Richway, a division of Federated
Department Stores, from July 1983 to September 1985.
S. Joseph Hoffman has been Chairman of the Board of the Company
since November 1993 and a director of the Company since October
1992. Mr. Hoffman served as acting Chairman and acting
President of the Company from June 1993 until November 1993,
while the Company conducted an executive search. Mr. Hoffman
also has served as a consultant to Balsams Spring Water Co.,
Inc., a producer of bottled spring water and affiliate of
Veryfine Products, Inc., since February 1994, President and a
director of Advintage, a wine
<PAGE>
distributor, since April 1993, Treasurer and a director of BWC,
Inc. (formerly known as Balsams Water Co., Inc.) since 1992.
Chairman Emeritus of and a consultant to Ingalls, Quinn &
Johnson, Inc., an advertising firm, since 1988, President and a
director of Andover Distributors, Inc. a spring water
distributor, since 1987, and President and a director of Andover
Liquors, a package store, since 1976. Mr. Hoffman was President
of Balsams Water Co., Inc. from 1991 through 1992 and Chairman
and Chief Executive Officer of Ingalls, Quinn & Johnson from
1982 until his retirement in 1988. Prior thereto, Mr. Hoffman
served in various other capacities with that firm beginning in
1960. Mr. Hoffman also served as a director of TJX Companies,
Inc., an off-price apparel retailer, from 1988 until its merger
with Zayre Corp. in 1989.
Antone F. Moreira has been Executive Vice President of the
Company since August 1994 and Chief Financial Officer, Secretary
and Treasurer of the Company since October 1992. Mr. Moreira
also served as Senior Vice President of the Company from October
1992 until August 1994 and as Senior Vice President-Finance from
February 1991 to October 1992. From May 1990 to February 1991,
Mr. Moreira was a principal of Advantage Resources, Inc., a
consulting firm specializing in retail companies. From October
1987 to May 1990, Mr. Moreira was Senior Vice President and
Chief Financial Officer of Brooks Brothers, Inc., a division of
Allied Stores Corp. Mr. Moreira also served as Senior Vice
President of Finance and Operations for Plymouth Shops, a
division of Allied Stores Corp. from 1982 to 1987 and as
Executive Vice President and Chief Financial Officer for Maison
Blanche & Richards, divisions of City Stores Company, from 1974
to 1982.
Eugene W. Twomey was Senior Vice President-Real Estate of the
Company from July 1993 until January 31, 1995. From November
1992 to July 1993, Mr. Twomey served as Vice President-Real
Estate of the Company. From April 1989 to November 1992, Mr.
Twomey was President of EWT Inc., a real estate consulting firm.
Prior thereto, Mr. Twomey was Senior Vice President-Real Estate
and Property Development of Zayre Stores, a division of Zayre
Corp., an operator of a diversified group of chain stores, from
March 1979 through January 1989.
Margaret Coughlin has been President of Cone/Coughlin, an
advertising and public relations firm, since 1993. From 1992
until her appointment as President of Cone/Coughlin, Ms.
Coughlin served as Executive Vice President of Cone/Coughlin.
For more than three years prior thereto, Ms. Coughlin served as
Executive Vice President of Ingalls, Quinn & Johnson. Ms.
Coughlin has been a director of the Company since July 1994.
Ronald C. Curhan has been a Professor of Marketing at the
School of Management, Boston University, since 1975 and a
consultant to corporations and organizations regarding marketing
strategy, marketing research, distribution practices and
operations; and a seminar leader in executive education and
management development programs for corporations since 1970.
Mr. Curhan served as a director of TJX Companies Inc., a
national discount retailer, from its formation in 1987 through
its merger in 1989. Mr. Curhan has been a director of the
Company since October 1993.
Joshua R. Goldberg has been Managing Director of Financo, Inc.,
an investment banking firm, since January 1993. Prior thereto,
Mr. Goldberg was Senior Vice President of Financo, Inc. from
June 1989 until January 1993 and Vice President of Shearson
Lehman Brothers, Inc.'s Merchandising Group from December 1986
until June 1989. Mr. Goldberg has been a director of the
Company since October 1992.
<PAGE>
Joseph A. Lategano has been an independent consultant to
various law firms, banks and companies since January 1992.
Prior thereto, Mr. Lategano was a senior consultant to National
Westminster Bank USA from June 1988 until May 1992. Mr.
Lategano has been a director of the Company since October 1992.
Morton H. Sigel has been Chairman of the Board and President of
Tekscan Inc., a technology based company, since 1992 and
President of A.S.R. Associates, a chain of card and gift stores,
for over 20 years. Mr. Sigel was Chairman of the Board and
President of Millbrook Distributors, Inc., a distributor of
general merchandise, health and beauty aids and gourmet foods,
from 1960 until December 1991. Mr. Sigel has been an advisory
member of the Board of Directors of Shawmut Bank, N.A. since
1991 and a director of the Company since October 1993.
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules promulgated
thereunder require the Company's officers and directors and
persons who own more than ten percent of a registered class of
the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission
and to furnish the Company with copies of all such filings.
Based solely upon a review of (i) those reports and amendments
thereto furnished to the Company during and with respect to the
year ended January 28, 1995 and (ii) written representations
from certain reporting persons stating that no Form 5's are
required to be filed by such reporting persons, the Company has
determined that (i) Ms. Coughlin failed to file a Form 3 upon
becoming a director of the Company, (ii) each of Ms. Coughlin
and Messrs. Curhan, Goldberg, Hoffman, Lategano and Sigel failed
to file a Form 4 or Form 5 reporting three transactions eligible
for deferred reporting under Section 16, and (iii) Denis T.
Lemire failed to file a Form 4 or Form 5 reporting one
transaction.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------
The following table summarizes, for the fiscal years ended
January 28, 1995, January 29, 1994 and January 30, 1993, all
compensation paid to those persons who served or acted as the
Company's Chief Executive Officer during the fiscal year ended
January 28, 1995 and the four most highly compensated executive
officers other than the Chief Executive Officer whose salary and
bonus exceeded $100,000 for the fiscal year ended January 28,
1995.
<PAGE>
</TABLE>
<TABLE>
Stuarts Department Stores, Inc. and Subsidiary
Summary Compensation Table
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
Name and Principal Fiscal Other Annual All Other
Position Year Salary($) Bonus($)(1) Compensation($)(2) Options(#) Compensations($)
<S> <C> <C> <C> <C> <C> <C>
David S. Ferguson 1995 $ 188,942 ---- -------- ------ $ 1,103 (3)
President and director 1994 166,923 (4) ---- -------- ------ 1,124 (3)
1993 154,327 100,000 (5) 1,079 (3)
Denis T. Lemire(6) 1995 $ 116,731 $ 894 (3)
President and director 1994 171,730 (7) 1,214 (3)
1993 143,654 100,000 (5) 95 (3)
S. Joseph Hoffman(8) 1995 52,000 50,000 (9) --
Chairman of the 1994 34,500 --
Board and director 1993 --
Antone F. Moreira 1995 $ 176,923 $ 655 (3)
Executive Vice 1994 166,923 (10) 743 (3)
President,Chief 1993 150,769 100,000 (5) 349 (3)
Financial Officer
Secretary and Treasurer
Eugene W. Twomey(11) 1995 $ 155,769 $1,095 (3)
Vice President- 1994 135,096 50,000 (5) --
Real Estate 1993 131,140 (12) 50,000 (5) --
(footnotes appear on following page)
</TABLE>
<PAGE>
(1) The Company did not, and does not plan to, award bonuses to
any of the named executives during or in respect of fiscal 1993,
1994 or 1995.
(2) Other Annual Compensation amounts paid to the named
executive officers did not meet the threshold reporting
requirements during fiscal 1993, 1994 or 1995.
(3) Consists of matching contributions made to such officer's
account under the Company's 401(k) Plan.
(4) Includes $1,923 in respect of a salary increase granted to
Mr. Ferguson on April 14, 1994, which was retroactive to
November 17, 1993 but received by Mr. Ferguson (and expensed by
the Company) in fiscal 1995.
(5) Issued pursuant to the Company's 1992 Employee Stock Option
Plan approved by the Company's shareholders on October 14, 1993.
(6) Fiscal 1995 information provided in respect of Mr. Lemire
represents compensation for his services as an officer of the
Company during the period from January 30, 1994 through August
8, 1994, the date of Mr. Lemire's resignation from the Company.
No other amounts were paid to Mr. Lemire during fiscal 1995.
(7) Includes $6,730 in respect of a salary increase granted to
Mr. Lemire on April 14, 1994 which was retroactive to November
19, 1993 but received by Mr. Lemire (and expensed by the
Company) in fiscal 1995.
(8) Mr. Hoffman first served as an officer of the Company in
June 1993. From June 1993 until November 1993, Mr. Hoffman
served as acting Chairman and acting President and since
November 1993, Mr. Hoffman has served as Chairman of the
Company. Accordingly, no information for fiscal 1993 is
provided in this table in respect of Mr. Hoffman.
(9) Issued pursuant to the Company's 1994 Directors Stock Option
Plan approved by the Company shareholders on July 13, 1994.
(10) Includes $1,923 in respect of a salary increase granted to
Mr. Moreira on April 14, 1994, which was retroactive to November
19, 1993 but received by Mr. Moreira (and expensed by the
Company) in fiscal 1995.
(11) Mr. Twomey joined the Company as Vice President-Real Estate
on November 16, 1992. Accordingly, no information for fiscal
1992 is provided in this table in respect of Mr. Twomey.
(12) Includes $115,756 paid indirectly to Mr. Twomey through EWT
Inc. pursuant to a consulting arrangement with the Company prior
to the date Mr. Twomey became an officer of the Company. EWT
Inc. is a real estate consulting firm of which Mr. Twomey is the
President and sole shareholder. See Part III, Item 13, "Certain
Relationships and Related Transactions."
<PAGE>
The following table sets forth certain information, as of January 28,1995
concerning individual grants of stock options made during the fiscal year
then ended to the persons named in the Summary Compensation Table above.
Option Grants in Fiscal 1995
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
<TABLE>
Individual Grants For Option Term
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted(#) Fiscal Year Price ($/sh) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
S. Joseph Hoffman 40,000 (1) 18.2% $ 0.75 07/12/04 $17,800 $44,570
5,000 2.3% 0.75 08/31/04 $ 2,812 $5,608
5,000 2.3% 0.75 11/30/04 $ 2,310 $5,829
</TABLE>
(1) Granted pursuant to the Company's 1994 Directors' Stock Option Plan.
No stock options were exercised during the fiscal year ended January 28,1995
by ther persons named in the Summary Compensation Table above. The following
table sets forth certain information, as of January 28, 1995, concerning
unexercised stock options for each of such persons.
<TABLE>
Fiscal Year-End Option Values
<S> <C> <C> <C> <C>
Value of
Number of Unexercised
Unexercised In-the-Money
Options (#) Options ($)
Name (1) Exercisable Unexercisable Exercisable(2)(3) Unexercisable(3)
David S. Ferguson 100,000 (2) --- ----- ------
S. Joseph Hoffman ----- 50,000 (4) ----- ------
Antone F. Moreira 100,000 (2) --- ----- ------
Eugene W. Twomey 100,000 (2) --- ----- ------
</TABLE>
(1) Options granted during fiscal 1993 to one of the persons
named in the Summary Compensation Table above were cancelled effective
upon his resignation from the Company on August 8, 1994.
(2) Options became exercisable upon approval of the Company's 1992 Employee
Stock Option Plan by the Company's shareholders on October 14, 1993.
(3) Calculated based on $0.12 per share closing market value at January 30,1995.
(4) Options become exercisable in annual increments of 33 1/3% beginning one
year from the date of grant pursuant to the Company's 1994 directors
Stock Option Plan.
<PAGE>
Certain Employment Arrangements. During August 1994, the
Company entered into employment agreements with each of Messrs.
Ferguson and Moreira, which provide for base salaries of
$200,000 and $175,000 per year and terms expiring on February 1,
1997, subject to renewal upon the mutual agreement of the
Company and such executives prior to the termination thereof.
The employment agreements also provide that, each of these
executive officers is entitled to participate in the Company's
Management Cash Bonus Plan. In addition, Mr. Moreira is
entitled to moving expenses of up to $25,000 associated with his
permanent relocation. Life insurance on the executive's life as
well as certain other benefits also are provided for in these
new employment agreements. Pursuant to employment agreements
which were in effect prior to the August agreements, these
officers were entitled, beginning in fiscal 1994, to a cash
bonus equal to 10% of base salary for the prior year if the
Company achieved its projected operating profit, plus an
additional bonus of 0.5% of base salary for each 1% of operating
profit above projected operating profit if the Company exceeded
projected operating profit by more than 10%, provided, in each
case, that the Company did not exceed its projected capital
expenditures in meeting its projections. In addition, each of
such officers were entitled to receive a bonus of 0 to 10% of
his base salary at the discretion of the Board of Directors,
provided that the total of the formula and discretionary bonuses
did not exceed 25% of base salary. No such bonus payments have
been made pursuant to these provisions. Each of the new
employment agreements also provides that if the Company
terminates the executive for reasons other than cause prior to
the expiration of fiscal 1996, the Company must continue to pay
such executive's base salary for the one-year period following
such termination and that if such a termination occurs
subsequent to the expiration of fiscal 1996, the Company must
continue to pay such executive's base salary for the greater of
the remainder of the employment term or three months. In
addition to these severance provisions, each of the executives
is entitled to severance payments for a period of one year if
the executive's employment is terminated during the term of the
employment agreement after the occurrence of any change in
control of the Company. Prior to his resignation effective
August 8, 1994, Mr. Lemire had an employment agreement with the
Company, which provided for an annual base salary of $200,000
and benefits of the nature described above in respect of Messrs.
Ferguson and Moreira.
Effective May 18, 1995, severance arrangements for Messrs.
Ferguson and Moreira were adopted to provide for payment of six
(6) months salary in the event such executive's employment was
terminated following the Company's Chapter 11 filing, subject to
Bankruptcy Court approval.
Effective as of June 1, 1993, the Company entered into a letter
agreement with Mr. Hoffman providing for the payment of $1,000
per week to Mr. Hoffman in return for his services as acting
Chairman and acting President of the Company on an interim basis
pending engagement by the Company of a full-time successor to
Joseph Ettore, who resigned as Chairman of the Board, President
and Chief Executive Officer of the Company effective June 4,
1993. On November 19, 1993, Mr. Lemire was elected President of
the Company and Mr. Hoffman was elected as Chairman of the
Company. On August 8, 1994, Mr. Ferguson replaced Mr. Lemire as
<PAGE>
President of the Company. The letter agreement with Mr. Hoffman
remains in effect and provides for the payment of $1,000 per
week to Mr. Hoffman in return for Mr. Hoffman's services as
Chairman.
Effective July 1, 1993, the Company entered into an employment
agreement with Mr. Twomey pursuant to which Mr. Twomey would
serve as Senior Vice President-Real Estate of the Company for a
term beginning July 1, 1993 and ending two years from the
Consummation Date at a base salary of $150,000. The contract
also provides for bonus payments identical to these contained in
the old employment agreements of the senior officers as well as
stock option grants, life insurance and other benefits as
described above (other than relocation expenses) in respect of
Messrs. Ferguson, Moreira and Lemire.
1992 Employee Stock Option Plan. The Company's 1992 Employee
Stock Option Plan was adopted by the Company's Board of
Directors on October 28, 1992 and approved by the Company's
shareholders on October 14, 1993. The plan was amended on July
13, 1994 to increase the number of shares of the Company's
Common Stock available for issuance thereunder to 2,000,000
shares (subject to adjustment). Pursuant to the terms of the
plan, executive officers and certain other key employees are
eligible for awards in the form of incentive stock options or
non-qualified options. Annual awards are limited to options for
the purchase of no more than 150,000 shares of Common Stock.
The plan is administered by the Stock Incentive Committee of
the Company's Board of Directors, the members of which are
ineligible for any grants under the plan. The Stock Incentive
Committee is authorized, among other things, to determine the
executive officers and key employees to whom stock options are
granted under the plan, the number of shares subject to awards
and the terms and conditions applicable to such awards. No
awards may be made under the plan after the tenth anniversary of
the plan.
The plan permits the grant of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code as well
as options which do not meet the requirements of that section.
All options will expire not more than 10 years after the date of
grant. The exercise price per share for any option under the
plan shall be equal to the greater of $.75 and the fair market
value of the Common Stock at the time such option is granted.
Payment of an option's exercise price may be made in cash, by
check or by delivery of shares of Common Stock registered in the
name of the grantee, duly assigned by the grantee to the Company
in the manner required by the plan, or by a combination of the
foregoing. Options are not transferrable other than by will or
by the laws of descent and distribution and may be exercised
only by the optionee, his guardian or his legal representative.
The plan may be amended by the Stock Incentive Committee or the
shareholders, provided that the Stock Incentive Committee may
not, without shareholder approval, materially increase the
benefits accruing to participants under the plan, increase the
maximum number of shares as to which options may be granted
under the plan, change the minimum exercise price, change the
class of eligible persons, extend the period for which options
may be granted or exercised, or withdraw the authority to
administer the plan from the Stock Incentive
<PAGE>
Committee. Options to purchase an aggregate of approximately
497,500 shares of Common Stock were outstanding under the plan
as of June 6, 1995.
Under the Company's 1992 Employee Stock Option Plan, in the
event an unaffiliated third party acquires 30% or more of the
Company's voting stock (other than through acquisition of such
shares directly from Shawmut Bank NA within two years from the
date of acquisition of such shares by Shawmut pursuant to the
Prior Reorganization Plan), all options issued under the plan
will become immediately exercisable.
1994 Directors Stock Option Plan. The 1994 Directors Stock
Option Plan was adopted by the Company's Board of Directors on
May 3, 1994 and approved by the shareholders of the Company on
July 13, 1994. A total of 1,000,000 shares of the Company's
Common Stock has been reserved for issuance under the plan to
directors of the Company who are not also full-time employees of
the Company or its subsidiary. Awards under the plan may be in
the form of non-qualified stock options.
The plan is administered by the Stock Incentive Committee of
the Board of Directors, which has the authority to interpret the
plan and prescribe rules, but may not act with respect to the
selection of award recipients, the timing or amounts of awards
or the terms and conditions of such awards. No awards may be
made under the plan after the tenth anniversary thereof.
The plan provides that each eligible director will be granted
options to purchase 5,000 shares of Common Stock on a quarterly
basis beginning on September 1, 1994. In addition, upon the
approval of the plan by the Company's shareholders, each
director received options to purchase 20,000 shares of Common
Stock for each prior year that the director had served on the
Company's Board. The exercise price per share for any option
under the plan shall be equal to the greater of $.75 and the
fair market value of the Common Stock at the time such option is
granted. Payment of an option's exercise price may be made in
cash, by check or, in certain circumstances, by delivery of
shares of Common Stock assigned to the Company, or by a
combination of the foregoing. Options granted under the plan
vest over a three-year period in respect of one-third of the
shares subject thereto on each of the first, second and third
anniversaries of the grant date. Options are not transferable
other than by will or by the laws of descent and distribution
and may be exercised only by the optionee, his guardian or his
legal representative. If a participant terminates employment as
a director for any reason, all unvested options shall be
forfeited.
The plan may be amended by the shareholders or the Board,
provided that the provisions relating to the amount, price and
timing of awards may not be amended more than once every six
months and that the Board may not, without shareholder approval,
materially increase the benefits accruing to participants under
the plan, increase the maximum number of shares as to which
awards may be granted under the plan, change the minimum
exercise price, change the class of eligible persons, extend the
period for which options may be granted or exercised, or
withdraw the authority to administer the plan from the Board.
To date, awards in respect of 220,000 shares have been made
under the plan.
<PAGE>
The Company's 1994 Directors Stock Option Plan provides that
upon the occurrence of any one or more of the following (each, a
"change in control"): (i) the acquisition by any entity, person
or group (other than the Company, a subsidiary of the Company or
any employee benefit plan (including, without limitation, an
employee stock ownership plan) of the Company) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20 percent or more of the outstanding
voting stock of the Company; (ii) the occurrence of a
transaction requiring shareholder approval for the acquisition
of the Company through purchase of stock or assets, by merger,
or otherwise; or (iii) the election during any period of 24
months or less of 20 percent or more of the members of the Board
of Directors without the approval, prior to or after the
effective date of the plan, of the nomination of such members by
a majority of the Board of Directors consisting of members who
were serving at the beginning of the period, all options under
the Plan will become immediately exercisable.
401(k) Plan. The Company has a 401(k) Plan (the "401(k)
Plan"), which covers all non-union employees who are at least 21
years of age and who complete one year of service. An eligible
employee can elect to reduce his pay in any year in an amount
between 3% and 15% and have the Company contribute his reduced
pay to the 401(k) Plan. The Company elected to match 20% of the
employee's contributions up to a maximum of 5% of the employee's
earnings during fiscal 1995. Employee contributions in excess
of 5% of the employee's contributions will not be matched by the
Company. All contributions are subject to limitations imposed
on retirement plans generally and 401(k) plans in particular.
All contributions are fully vested at all times. Participants
have the right to designate the investment of all contributions
to the 401(k) Plan in one or more investment funds designated by
the 401(k) Plan's trustee. Amounts generally remain invested in
the 401(k) Plan until retirement or termination of employment.
In-service distributions are permitted, however, in the event of
financial hardship and loans are permitted from a participant's
account. During the fifty-two weeks ended January 28, 1995,
matching contributions in the aggregate amount of $45,354 were
made pursuant to the 401(k) Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors
consisted of Messrs. Goldberg, Lategano and Sigel during fiscal
1995. In addition, Mr. Curhan became a member of the
Compensation Committee on July 13, 1994 and continued to serve
thereon throughout the remainder of fiscal 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- -----------------------------------------------------------------
The following table sets forth, as of June 6, 1995, the
beneficial ownership of Common Stock by (i) each person known to
the Company to own beneficially more than five percent of the
Company's common stock, (ii) each director who is a shareholder,
(iii) each of the executive officers named in the Summary
Compensation Table who is a shareholder, and (iv) all directors
and executive officers as a group. Under the rules adopted by
<PAGE>
the Securities and Exchange Commission, a person is deemed to be
the beneficial owner of securities with respect to which he,
directly or indirectly, has or shares voting power or investment
power.
Amount
Beneficially Percent of
Class
Name Owned (1) Outstanding
SB Asset Recovery Incorporated(2) 4,319,553 20.08%
One Federal Street
Boston, MA 02111
National Westminster Bank USA 3,001,723 13.96%
175 Water Street
New York, NY 10038
David S. Ferguson 111,000(3) *
Antone F. Moreira 100,000(4) *
Ronald C. Curhan 10,000(5) *
Denis T. Lemire 7,000(6) *
Eugene W. Twomey 771(7) *
All executive officers and
directors as a group (8 persons) 221,000(3)(4)(5)(8) 1.03%
* Less than 1%
(1) Except to the extent otherwise provided herein, the persons
named in the table have sole voting and dispositive power with
respect to the shares of Common Stock shown as beneficially
owned by them.
(2) Shawmut Bank NA and Shawmut National Corporation are the
direct and indirect parent corporations, respectively, of SB
Asset Recovery Incorporated, the assignee of Shawmut Bank NA in
respect of the Common Stock issued to it pursuant to the Prior
Reorganization Plan, and may be deemed to share voting and
dispositive power in respect to such Common Stock.
(3) Includes 100,000 shares of Common Stock issuable upon the
exercise of options granted to Mr. Ferguson pursuant to the
Company's 1992 Employee Stock Option Plan. See "Executive
Compensation."
(4) Includes 100,000 shares of Common Stock issuable upon the
exercise of options granted to Mr. Moreira pursuant to the
Company's 1992 Employee Stock Option Plan. See "Executive
Compensation."
(5) Does not include 30,000 shares of Common Stock issuable upon
the exercise of options granted to Mr. Curhan pursuant to the
Company's 1994 Directors Stock Option Plan which are not yet
exercisable.
(6) Does not include 100,000 shares of Common Stock issuable
upon the exercise of options granted to Mr. Lemire pursuant to
the Company's 1992 Employee Stock Option Plan which were
cancelled following his resignation from the Company on August
8, 1994.
<PAGE>
(7) Includes 771 shares owned by E.W.T., Inc., a consulting
corporation, of which Mr. Twomey is President. Does not include
100,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Twomey pursuant to the Company's 1992
Employee Stock Option Plan which were cancelled following the
termination of his employment on January 31, 1995.
(8) Does not include 190,000 shares of Common Stock issuable
upon the exercise of options granted to directors pursuant to
the Company's 1994 Directors Stock Option Plan which are not yet
exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------------------
CERTAIN TRANSACTIONS
Since the beginning of fiscal 1995, the Company has not been
party to any transactions required to be disclosed hereunder.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
- -----------------------------------------------------------------
(a) 1. The following financial statements are filed herewith in
Part II, Item 8:
Consolidated Statements of Operations
- Successor Company
Fiscal 1995
Fiscal 1994
Pro Forma Combined Fiscal 1993 (Unaudited)
13 Weeks Ended 1/30/93
- Predecessor Company
39 Weeks Ended 10/31/92
Consolidated Balance Sheets
- Successor Company
January 28, 1995
January 29, 1994
Consolidated Statements of Cash Flows
- Successor Company
Fiscal 1995
Fiscal 1994
13 Weeks Ended 1/30/93
- Predecessor Company
39 Weeks Ended 10/31/92
Consolidated Statements of Stockholders' Equity
- Successor Company
Fiscal 1995
Fiscal 1994
13 Weeks Ended 1/30/93
- Predecessor Company
39 Weeks Ended 10/31/92
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants<PAGE>
<PAGE>
2. Exhibits
The following exhibit is incorporated by reference from the
Company's Annual Report on Form 10-K for the 52 week period
ended January 28, 1989, File No. 0-13184:
Exhibit
10-1 - Retirement Savings Plan (401(k) Plan) of the Company.
The following exhibit is incorporated by reference from the
Company's Annual Report on Form 10-K for the 52 week period
ended February 1, 1992, File No. 0-13184:
Exhibit
22-1 - Subsidiary of the Company.
The following exhibit is incorporated by reference from the
Company's Current Report on Form 8-K dated October 23, 1992,
File No. 0-13184:
Exhibit
2-1 - Joint Plan of Reorganization under Chapter 11 of the
Bankruptcy Code filed in Cases No. 90-42184-JFQ through
90-42185-JFQ in District of Massachusetts (Western Division)
dated July 22, 1992, confirmed on October 13, 1992.
The following exhibit is incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the 13 weeks ended
October 31, 1992, File No. 0-13184:
Exhibit
10-2 - Agreement dated October 1, 1992 between Gibson
Greetings, Inc. and the Company.
The following exhibits are incorporated by reference from the
Company's Registration Statement on Form S-1, File No. 33-58342:
Exhibits
3-1 - Restated Certificate of Incorporation of the
Company dated October 13, 1992.
4-1 - Specimen Common Stock Certificate.
4-2 - Articles Fourth and Fifth of the Restated
Certificate of Incorporation of the Company dated October 13,
1992 (included in Exhibit 3-1).
<PAGE>
The following exhibit is incorporated by reference from
Amendment No. 2 to the Company's Registration Statement on Form
S-1, File No. 33-58342:
Exhibit
10-3 - *Letter Agreement between the Company and S. Joseph
Hoffman dated as of June 1, 1993.
The following exhibit is incorporated by reference from the
Company's Current Report on Form 8-K dated December 29, 1993,
File No. 0-13184:
Exhibit
10-4 - Loan and Security Agreement between the Company and
Foothill Capital Corporation dated as of December 16, 1993.
The following exhibits are incorporated by reference from
the Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 1994, File No. 0-13184:
Exhibits
3-2 - By-Laws of the Company, as amended.
4-3 - Article 1 of the Amended By-Laws of the Company
(included in Exhibit 3-2).
10-5 - Depository Account Agreement among the Company,
Foothill Capital Corporation and Worcester County Institution
for Savings dated January 26, 1994.
The following exhibit is incorporated by reference from the
Company's Current Report on Form 8-K dated December 2, 1994,
File No. 0-131984:
Exhibit
10-6 - Agency Agreement between the Company and Gordon
Brothers Partners, Inc. dated as of November 3, 1994.
The following exhibit is incorporated by reference from the
Company's Current Report on Form 8-K dated March 5, 1995, File
No. 0-13184:
Exhibit
10-7 - Agency Agreement between the Company and Garcel,
Inc. dated February 24, 1995.
<PAGE>
The following exhibits are filed herewith:
Exhibit
10-8 - *1992 Employee Stock Option Plan, as amended.
10-9 - *1994 Directors Stock Option Plan.
10-10 - *1994 Cash Bonus Plan.
10-11 - *Employment Agreement between the Company and David
S. Ferguson dated as of August 5, 1994.
10-12 - *Employment Agreement between the Company and Antone
F. Moreira dated as of August 8, 1994.
10-13 - Amendment No. One to the Loan and Security Agreement
between the Company and Foothill Capital Corporation dated March
20, 1995.
10-14 - Second Amendment to Loan and Security Agreement
between the Company and Foothill Capital Corporation dated May
16, 1995.
10-15 - Stipulation Regarding Post-Petition Financing and
Use of Cash Collateral dated as of May 16, 1995.
10-16 - Agency Agreement between the Company and Garcel,
Inc. d/b/a Great American Asset Management dated May 3, 1995.
* Indicates a management contract or compensatory plan or
arrangement required to be filed as an exhibit pursuant to Item
14(a)(3).
** Not deemed filed for purposes of Section 11 of the Securities
Act of 1933, Section 18 of the Securities Exchange Act of 1934
and Section 323 of the Trust Indenture Act of 1939, or otherwise
subject to the liabilities of such sections and not deemed part
of any registration statement to which such exhibit relates.
(b) Reports on Form 8-K.
During the 13 weeks ended January 28, 1995, the following
report was filed on Form 8-K:
On December 5, 1994, the Company filed a current report on
Form 8-K dated November 23, 1994 with the Securities and
Exchange Commission, which stated that the Company had entered
into an Agency Agreement with Gordon Brothers Partners, Inc. in
connection with the sale of certain inventory from the Company's
Biddeford, Maine and Barre, Vermont stores.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STUARTS DEPARTMENT
STORES, INC.
June 28, 1995 By /s/ David S. Ferguson
David S. Ferguson
President and Chief
Operating Officer
Pursuant to the requirements of the Securities and Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Capacity Date
/s/David S. Ferguson President, Chief Operating June 28, 1995
David S. Ferguson Officer and Director
/s/Antone F. Moreira Executive Vice President and June 28, 1995
Antone F. Moreira Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/S. Joseph Hoffman Chairman of the Board June 28, 1995
S. Joseph Hoffman and Director
/s/Margaret Coughlin Director June 28, 1995
Margaret Coughlin
/s/Ronald C. Curhan Director June 28, 1995
Ronald C. Curhan
/s/Joshua R. Goldberg Director June 28, 1995
Joshua R. Goldberg
/s/Joseph Lategano Director June 28, 1995
Joseph Lategano
/s/Morton H. Sigel Director June 28, 1995
Morton H. Sigel
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Location
2-1 Joint Plan of Reorganization Incorporated by reference from
under Chapter 11 of the Exhibit 2-1 to the Company's
Bankruptcy Code filed in Cases Current Report on Form 8-K
No. 90-42184-JFQ through 90- dated October 23, 1992
42185-JFQ in District of
Massachusetts (Western Division)
dated July 22, 1992, confirmed
on October 13, 1992
3-1 Restated Certificate of Incorporated by reference from
Incorporation of the Company Exhibit 3-1 to the Company's
dated October 13, 1992 Registration Statement on Form
S-1 File No. 33-58342
("Registration Statement No.
33-58342")
3-2 By-laws of the Company, as Incorporated by reference from
amended Exhibit 3-2 to the Company's
Annual Report on Form 10-K
for the fiscal year ended January
29, 1994, File No. 0-13184 (the
"1994 Form 10-K")
4-1 Specimen Common Stock Incorporated by reference from
Certificate Exhibit 4-1 to Registration
Statement No. 33-58342
4-2 Articles Fourth and Fifth of Included in Exhibit 3-1
the Restated Certificate of
Incorporation of the Company
dated October 13, 1992
4-3 Article 1 of the Amended Included in Exhibit 3-2
By-laws of the Company
10-1 Retirement Savings Plan Incorporated by reference from
(401(k) Plan) of the Company Exhibit 10-9 to the Company's
Annual Report on Form 10-K for
the fiscal year ended January
28, 1989
10-2 Agreement dated October 1, Incorporated by reference from
1992 between Gibson Greetings, Exhibit 10-6 to the Company's
Inc. and the Company Quarterly Report on Form 10-Q
for the 13 weeks ended October
31, 1992, File No. 0-13184
10-3 Letter Agreement between the Incorporated by reference from
Company and S. Joseph Hoffman Exhibit 10-12 to Amendment No.
dated as of June 1, 1993 2 to Registration Statement No.
33-58342
<PAGE>
Exhibit
Number Exhibit Location
10-4 Loan and Security Agreement Incorporated by reference from
between the Company and Exhibit 10-1 to the Company's
Foothill Capital Corporation Current Report on Form 8-K
dated as of December 16, 1993 dated December 29, 1993, File No.
0-13184
10-5 Depository Account Agreement Incorporated by reference from
among the Company, Foothill Exhibit 10-10 to the 1994 Form
Capital Corporation and 10-K
Worcester County Institution
for Savings dated January 26,
1994
10-6 Agency Agreement between the Incorporated by reference from
Company and Gordon Brothers Exhibit 10-1 of the Company's
Partners, Inc. dated as of Current Report on Form 8-K
November 3, 1994 dated December 2, 1994, File
No. 0-13184
10-7 Agency Agreement between the Incorporated by reference from
Company and Garcel, Inc. dated Exhibit 10-1 to the Company's
February 24, 1995 Current Report on Form 8-K
dated March 15,1995, File No.
0-13184
10-8 1992 Employee Stock Option Sequentially numbered pages
Plan, as amended
10-9 1994 Directors Stock Option Sequentially numbered pages
Plan
10-10 1994 Cash Bonus Plan Sequentially numbered pages
10-11 Employment Agreement between Sequentially numbered pages
the Company and David S.
Ferguson dated as of August
5, 1995
10-12 Employment Agreement between Sequentially numbered pages
the Company and Antone F.
Moreira dated as of August
8, 1995
10-13 Amendment No. One to the Loan Sequentially numbered pages
and Security Agreement between
the Company and Foothill
Capital Corporation dated
March 20,
<PAGE>
Exhibit
Number Exhibit Location
10-14 Second Amendment to the Loan Sequentially numbered pages
and Security Agreement between
the Company and Foothill
Capital Corporation dated
May 16, 1995
10-15 Stipulation Regarding Post- Sequentially numbered pages
Petition Financing and Use of
Cash Collateral dated as of
May 16, 1995
10-16 Agency Agreement between the Sequentially numbered pages
Company and Garcel, Inc. d/b/a
Great American Asset Management
dated May 3, 1995
<PAGE>
1992 EMPLOYEE STOCK OPTION PLAN, AS AMENDED
1. PURPOSE
The purpose of this Employee Stock Option Plan (the "Plan") is
to enable Stuarts Department Stores, Inc. (the "Company") to
attract and retain key employees and provide them with an
incentive to maintain and enhance the Company's long-term
performance record. It is intended that this purpose will best
be achieved by granting eligible key employees incentive stock
options ("ISOs") and/or non-qualified stock options ("NQSOs")
under this Plan pursuant to the rules set forth in Sections 83
and 422 of the Internal Revenue Code, as amended from time to
time.
2. ADMINISTRATION
The Plan shall be administered by a committee consisting of
three or more members of the Company's Board of Directors (the
"Committee") none of whom during the twelve months prior to
commencement of service on the Committee, or during such
service, has been granted or awarded any equity security or
derivative security of the Company pursuant to the Plan or,
except as permitted by Rule 16b-3(c)(2)(i) pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), any other plan of the Company. Subject to the provisions
of the Plan, the Committee shall possess the authority, in its
discretion, (a) to determine the key employees of the Company to
whom, and the time or times at which, ISOs and/or NQSOs
(collectively referred to as "options") shall be granted and the
number of shares to be subject to each option; (b) to determine
at the time of grant whether an option will be an ISO or a NQSO;
(c) to prescribe the form of the option agreements and any
appropriate terms and conditions applicable to the options; (d)
to interpret the Plan; (e) to make and amend rules and
regulations relating to the Plan; and (f) to make all other
determinations necessary or advisable for the administration of
the Plan. The Committee's determinations shall be conclusive
and binding. No member of the Committee shall be liable for any
action taken or decision made in good faith relating to the Plan
or any option granted hereunder.
3. ELIGIBLE KEY EMPLOYEES
Options may be granted under the Plan only to key employees of
the Company and its wholly-owned subsidiary, S.D.S., Inc. who
have the capability of making a substantial contribution to the
success of the Company.
4. SHARES AVAILABLE
An aggregate of 2,000,000 shares of the Common Stock (par value
$.01 per share) of the Company (subject to adjustment or
substitution as provided in Section 8 hereof) shall be available
for the grant of options under the Plan. Such shares may be
authorized and unissued shares. If an option expires,
terminates or is cancelled without being exercised, new options
may thereafter be granted covering such shares. Annual awards
are limited to options for the purchase of no more than 150,000
shares of Common Stock (subject to adjustment or substitution as
provided in Section 8 hereof). No option may be granted more
than ten years after the effective date of the Plan.
<PAGE>
5. TERMS AND CONDITIONS OF ISOs
Each ISO granted under the Plan shall be evidenced by an ISO
option agreement in such form as the Committee shall approve
from time to time, which agreement shall conform with this Plan
and contain the following terms and conditions:
(a) Exercise Price. The exercise price per share of stock
under each option shall be equal to the greater of $.75 and the
fair market value of the Common Stock at the time such option is
granted, as determined by the Committee. If an ISO is granted
to an employee who at the time of such grant owns stock
possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or a subsidiary (a
"10% Shareholder"), the purchase price per share of stock under
such option shall be equal to the greater of $.75 and 110
percent of the fair market value of such stock on the date such
option is granted.
(b) Duration of Option. Each option by its terms shall not
be exercisable after the expiration of ten years from the date
such option is granted provided that, in the case of an ISO
granted to a 10% Shareholder, such option shall not be
exercisable more than five years from the date such option is
granted.
(c) Options Nontransferable. Each option by its terms shall
not be transferable by the optionee otherwise than by will or
the laws of descent and distribution, and shall be exercisable,
during the optionee's lifetime, only by the optionee, the
optionee's guardian or the optionee's legal representative.
(d) Exercise Terms. Each option granted under the Plan may
be exercised at such time and in such manner as specified by the
Committee which may, among other things, provide that options
may become subject to exercise in installments.
(e) Maximum Value of ISO Shares. No ISO shall be granted to
an employee under this Plan or any other ISO plan of the Company
or its subsidiaries to purchase shares as to which the aggregate
fair market value (determined as of the date of grant) of the
Common Stock which first become exercisable by the employee in
any calendar year exceeds $100,000.
(f) Payment of Exercise Price. An option shall be exercised
upon written notice to the Company accompanied by payment in
full for the shares being acquired. The payment shall be made
in cash, by check or, if the option agreement so permits, by
delivery of shares of Common Stock of the Company registered in
the name of the optionee, duly assigned to the Company with the
assignment guaranteed by a bank, trust company or member firm of
the New York Stock Exchange, or by a combination of the
foregoing. Any such shares so delivered shall be deemed to have
a value per share equal to the fair market value of the shares
on such date.
(g) General Restriction. The Company shall not be required
to deliver any certificate upon the exercise of an option until
it has been furnished with such opinion, representation or other
document as it may reasonably deem necessary to insure
compliance with any law or regulation of the Securities and
Exchange Commission or any other governmental authority having
jurisdiction under this Plan. Certificates delivered upon such
exercise may bear a legend restricting transfer absent such
compliance. Each option shall be subject to the requirement
that, if at any time the Committee shall determine, in its
discretion, that the listing, registration or qualification of
the shares subject to such option upon any securities exchange
or under any state or federal law, or the consent or approval of
any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such option
or the issue or purchase of shares thereunder, such option may
not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to
the Committee of Directors in the exercise of its reasonable
judgment.
<PAGE>
6. TERMS AND CONDITIONS FOR NQSOs
Each NQSO granted under the Plan shall be evidenced by a NQSO
option agreement in such form as the Committee shall approve
from time to time, which agreement shall conform to this Plan
and contain the same terms and conditions as the ISO option
agreements except that the 10% Shareholder rules of Sections 5
(a) and (b) and the maximum value of share rules of Section 5(e)
shall not apply to NQSO grants. To the extent an option
initially designated as an ISO exceeds the value limit of
Section 5(e), it shall be deemed a NQSO and shall otherwise
remain in full force and effect.
7. TERMINATION OF EMPLOYMENT
If the employment of an optionee terminates by reason of death
or disability (as determined by the Committee), any option may
be exercised by the optionee or, in the event of the optionee's
death, by the optionee's personal representative at any time
prior to the earlier of the expiration date of the option or the
expiration of one year after the date of termination, but only
if, and to the extent that, the optionee was entitled to
exercise the option at the date of such termination. Upon
termination of the optionee's employment for any reason other
than death or disability, any vested option that was exercisable
immediately preceding termination may be exercised at any time
prior to the earlier of the expiration date of the option or the
expiration of three months after the date of such termination.
In the event of retirement, the three month period specified in
the preceding sentence shall be extended to one year in the case
of NQSOs. Notwithstanding the foregoing, an option may not be
exercised after termination of employment if the Committee
reasonably determines that the termination of employment of such
optionee resulted from willful acts, or failure to act, by the
optionee detrimental to the Company or any of its subsidiaries.
Unless otherwise determined by the Committee, an authorized
leave of absence shall not constitute a termination of
employment for purposes of this Plan. For purposes of this
Section, retirement means that an optionee terminates employment
at or after the date on which the optionee reaches any normal
retirement age specified in any policy adopted by the Board or,
in the absence of such policy, age 65.
8. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the Company
by reason of any stock dividend, stock split, recapitalization,
reorganization, merger, consolidation, split-up, combination, or
exchange of shares, or rights offering to purchase Common Stock
at a price substantially below fair market value, or of any
similar change affecting the Common Stock, the number and kind
of shares which thereafter may be subject to an option under the
Plan and the number and kind of shares set forth in options
under outstanding agreements and the price per share shall be
appropriately adjusted consistent with such change in such
manner as the Committee may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or
available for, participants in the Plan.
9. WITHHOLDING TAXES
Whenever the Company proposes or is required to issue or
transfer shares of Common Stock under the Plan, the Company
shall have the right to require the optionee to remit to the
Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery
of any certificate or certificates for such shares. Whenever
under the Plan payments are to be made in cash, such payments
shall be net of an amount sufficient to satisfy any federal,
state and/or local withholding tax requirements.
<PAGE>
10. NO EMPLOYMENT RIGHTS
The Plan and any options granted under the Plan shall not
confer upon any optionee any right with respect to continuance
as an employee of the Company or any subsidiary, nor shall they
interfere in any way with the right of the Company or any
subsidiary to terminate the optionee's position as an employee
at any time.
11. RIGHTS AS A SHAREHOLDER
The recipient of any option under the Plan shall have no rights
as a shareholder with respect thereto unless and until
certificates for shares of Common Stock are issued to the
recipient.
12. CHANGE IN CONTROL
Upon acquisition (other than pursuant to that certain Joint
Plan of Reorganization of the Company dated July 22, 1992, as
confirmed by the United States Bankruptcy Court for the District
of Massachusetts, Western Division, on October 13, 1992 (the
"Joint Plan of Reorganization")) of thirty percent or more of
the Company's outstanding shares of stock having general voting
rights by an unaffiliated person (other than by any person(s)
acquiring any such shares directly from Shawmut within two years
from the date of acquisition of such shares by Shawmut pursuant
to the Joint Plan of Reorganization), entity or group, the
Committee shall notify, in writing, each holder of an
outstanding option of such change in control. Notwithstanding
any other provision of this Plan or any option agreement, all
options shall become fully exercisable on receipt of such
notice. All outstanding options shall expire if not exercised
within 30 days of receipt of the notice of a change of control.
13. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the
shareholders of the Company or by the Committee of Directors,
except that the Committee may not, without approval of the
shareholders, materially increase the benefits accruing to
participants under the Plan, increase the maximum number of
shares as to which options may be granted under the Plan, change
the minimum exercise price, change the class of eligible
persons, extend the period for which options may be granted or
exercised, or withdraw the authority to administer the Plan from
the Committee or a committee of the Committee consisting solely
of disinterested Committee members; provided, however, that, to
the extent permitted by law, the Committee may amend the Plan
without the approval of shareholders, to the extent it deems
necessary to cause the Plan to comply with Securities and
Exchange Commission Rule 16b-3 or any successor rule, as it may
be amended from time to time. Notwithstanding the foregoing,
during the one-year period following the consummation of the
Joint Plan of Reorganization, this Plan may be amended, modified
or terminated only in accordance with the provisions of the
Joint Plan of Reorganization requiring a two-thirds (2/3) vote
of the shareholders of the Company for any such action. Except
as required by law, no amendment, modification, or termination
of the Plan may, without the written consent of an optionee to
whom any option shall theretofore have been granted, adversely
affect the rights of such optionee under such option.
14. EFFECTIVE DATE
The effective date of the Plan shall be the date this Plan is
approved by the Company's Board of Directors provided that the
Plan is approved by the Company's shareholders within 12 months
before or after such approval by the Board.
<PAGE>
15. DEFINITIONS
Any terms or provisions used herein which are defined in
Sections 83, 421, or 422 of the Internal
Revenue Code, as amended, or the regulations thereunder or
corresponding provisions of subsequent laws and regulations in
effect at the time options are made hereunder, shall have the
meanings as therein defined.
16. GOVERNING LAW
To the extent not inconsistent with the provisions of the
Internal Revenue Code that relate to incentive stock options and
non-qualified stock options, this Plan and any option agreement
adopted pursuant to it shall be construed under the laws of the
State of Delaware.
<PAGE>
STUARTS DEPARTMENT STORES, INC.
1994 DIRECTORS STOCK OPTION PLAN
1. PURPOSE
The purpose of this Directors Stock Option Plan (the "Plan")
is to enable the Company to attract and retain outside directors
and provide them with an incentive to maintain and enhance the
Company's long-term performance record by creating a long-term
mutuality of interests between the outside directors and the
shareholders of the Company. It is intended that this purpose
will best be achieved by granting eligible directors
non-qualified stock options ("options") under this Plan pursuant
to the rules set forth in Section 83 of the Internal Revenue
Code, as amended from time to time.
2. ADMINISTRATION
The Plan shall be administered by a committee (the
"Committee") consisting of three or more members of the
Company's Board of Directors (the "Board"). Subject to the
provisions of the Plan, the Committee shall possess the
authority, in its discretion, (a) to prescribe the form of the
option agreements; (b) to interpret the Plan; (c) to make and
amend rules and regulations relating to the Plan; and (d) to
make all other determinations necessary or advisable for the
administration of the Plan. The Committee's determinations
shall be conclusive and binding. No member of the Committee
shall be liable for any action taken or decision made in good
faith relating to the Plan or any option granted hereunder.
Notwithstanding the above, the selection of the directors to
whom stock options are to be granted, the timing of such grants,
the number of shares subject to any stock option, the exercise
price of any stock option, the periods during which any stock
option may be exercised and the term of any stock option shall
be as hereinafter provided, and the Committee shall have no
discretion as to such matters.
3. ELIGIBLE DIRECTORS
Options shall be granted under the Plan only to members of the
Board who are not also full-time employees of the Company or its
subsidiary. Beneficial owners of more than five percent of the
Common Stock of the Company are not eligible to receive any
options under the Plan.
4. SHARES AVAILABLE
An aggregate of 1,000,000 shares of the Common Stock (par
value $0.01 per share) of the Company (subject to substitution
or adjustment as provided in Section 7 hereof) shall be
available for the grant of options under the Plan. Such shares
may be authorized and unissued shares. If an option expires,
terminates or is cancelled without being exercised, new options
may thereafter be granted covering such shares. Annual awards
are limited to options for the purchase of no more than 150,000
shares of Common Stock (subject to substitution or adjustment as
provided in Section 7 hereof). No option may be granted more
than ten years after the effective date of the Plan.
5. TERMS AND CONDITIONS OF OPTIONS
Each option granted under the Plan shall be evidenced by an
option agreement in such form as the Committee shall approve
from time to time, which agreement shall conform with this Plan
and contain the following terms and conditions:
(a) Number of Shares. Each person who is an eligible
director on the Plan's effective date shall receive initial
options to purchase 20,000 shares of the Company's Common Stock
for each prior year or
<PAGE>
partial year consisting of six months or more of service as a
non-full-time employee director of the Company .
On each of September 1, December 1, March 1 and June 1 of
each year after the effective date, each eligible director who
is then serving on the Board shall receive options to purchase
5,000 shares of the Company's Common Stock for the preceding
year or, in the case of grants to be made on September 1 of the
first year following the effective date, for the period from the
effective date until such date.
For purposes of this Section 5(a), any fractional shares
shall be rounded up to the next highest whole number of shares.
(b) Exercise Price. The exercise price under each option
shall be equal to the greater of $.75 and the fair market value
of the Common Stock at the time the option is granted. For this
purpose, fair market value shall equal the closing price of the
Company's Common Stock as quoted on the National Association of
Securities Dealers Automated Quotation System or any successor
system then in use ("NASDAQ") on the business day immediately
preceding the date an option is granted, or, if there was no
trading in such stock on such date, the closing price as quoted
on NASDAQ on the last preceding day on which there was such
trading.
(c) Duration of Option. Each option by its terms shall not
be exercisable after the expiration of ten years from the date
such option is granted.
(d) Options Nontransferable. Each option by its terms shall
not be transferable by the optionee otherwise than by will or
the laws of descent and distribution, and shall be exercisable,
during the optionee's lifetime, only by the optionee, the
optionee's guardian or the optionee's legal representative.
(e) Exercise Terms. Each option granted under the Plan shall
become exercisable with respect to 33-1/3 percent of the shares
subject thereto on the first anniversary of the date of grant
and with respect to an additional 33-1/3 percent of such shares
on each of the second and third anniversaries of such date of
grant. Options may be partially exercised from time to time
during the period extending from the time they first become
exercisable until the tenth anniversary of the date of grant.
(f) Payment of Exercise Price. An option shall be exercised
upon written notice to the Company accompanied by payment in
full for the shares being acquired. The payment shall be made
in cash, by check or, if the option agreement so permits, by
delivery of shares of Common Stock of the Company registered in
the name of the optionee, duly assigned to the Company with the
assignment guaranteed by a bank, trust company or member firm of
the New York Stock Exchange, or by a combination of the
foregoing. Any such shares so delivered shall be deemed to have
a value per share equal to the fair market value of the shares
on such date. For this purpose, fair market value shall equal
the closing price of the Company's Common Stock as quoted on
NASDAQ on the date the option is exercised, or, if there was no
trading in such stock on the date of such exercise, the closing
price as quoted on NASDAQ on the last preceding day on which
there was such trading.
(g) General Restriction. The Company shall not be required
to deliver any certificate upon the exercise of an option until
it has been furnished with such opinion, representation or other
document as it may reasonably deem necessary to insure
compliance with any law or regulation of the Securities and
Exchange Commission or any other governmental authority having
jurisdiction under this Plan. Certificates delivered upon such
exercise may bear a legend restricting transfer absent such
compliance. Each option shall be subject to the requirement
that, if at any time the Board shall determine, in its
discretion, that the listing, registration or qualification of
the shares subject to such option upon any securities exchange
or under any state or federal law, or the consent or approval of
any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such option
<PAGE>
or the issue or purchase of shares thereunder, such option may
not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to
the Committee in the exercise of its reasonable judgment.
6. TERMINATION OF DIRECTORSHIP
If the optionee's service as a director terminates for any
reason, any option may be exercised by the optionee or, in the
event of the optionee's death, by the optionee's personal
representative at any time prior to the earlier of the
expiration date of the option or the expiration of three years
after the date of termination, but only if, and to the extent
that, the optionee was entitled to exercise the option at the
date of such termination.
7. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the Company
by reason of any stock dividend, stock split, stock combination,
recapitalization, reorganization, merger, consolidation,
split-up, or exchange of shares, or rights offering to purchase
Common Stock at a price substantially below fair market value,
or of any similar change affecting the Common Stock, the number
and kind of shares which thereafter may be subject to an option
under the Plan and the number and kind of shares set forth in
options under outstanding agreements and the price per share
shall be appropriately adjusted consistent with such change in
such manner as the Committee may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or
available for, participants in the Plan.
8. NO EFFECT ON RIGHTS OF THE COMPANY
Neither the Plan, any options granted under the Plan nor any
option agreement shall confer upon any optionee any right with
respect to continuance as a director of the Company, nor shall
they interfere in any way with any right the shareholders of the
Company or the Board may have to terminate the optionee's
position as a director at any time.
9. RIGHTS AS A SHAREHOLDER
The recipient of any option under the Plan shall have no
rights as a shareholder with respect thereto unless and until
certificates for shares of Common Stock are issued to the
recipient.
10. CHANGE IN CONTROL
(a) Notwithstanding other provisions of the Plan, in the event
of a change in control of the Company (as defined in subsection
(c) below), all of an optionee's options shall become
immediately exercisable, unless directed otherwise by a
resolution of the Board adopted prior to and specifically
relating to the occurrence of such change in control.
(b) In the event of a change in control, each optionee (i)
shall have the right at any time thereafter during the term of
such option to exercise the option in full notwithstanding any
limitation or restriction in any option agreement or in the
Plan, and (ii) may, subject to Board approval and after written
notice to the Company within 60 days after the change in
control, or during the period ending the twelfth business day
following the first release for publication by the Company after
such change of control of a quarterly or annual summary
statement of earnings, which release occurs at least six months
following grant of the option, whichever period is longer,
receive, in exchange for the surrender of the option or any
portion thereof to the extent the option is then exercisable in
accordance with clause (i), an amount of cash equal to the
difference between the fair market value (as determined pursuant
to Section 5(b) hereof) on the date of surrender of the Common
Stock covered by the option or portion thereof which is so
surrendered and the exercise price of such Common Stock under
the option.
<PAGE>
(c) For purposes of this Section 10, a "change in control"
means the occurrence, at any time after the effective date of
the Plan, of any one or more of the following: (i) the
acquisition by any entity, person or group (other than the
Company, a subsidiary of the Company or any employee benefit
plan (including, without limitation, an employee stock ownership
plan) of the Company) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act of
1934, as amended (the "Exchange Act")) of 20 percent or more of
the outstanding voting stock of the Company; (ii) the occurrence
of a transaction requiring stockholder approval for the
acquisition of the Company through purchase of stock or assets,
by merger, or otherwise; or (iii) the election during any period
of 24 months or less of 20 percent or more of the members of the
Board without the approval, prior to or after the effective date
of the Plan, of the nomination of such members by a majority of
the Board consisting of members who were serving at the
beginning of the period. As used in this subsection (c),
"group" shall mean persons who act as described in Section
13(d)(3) of the Exchange Act and the regulations promulgated
thereunder.
11. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the
shareholders of the Company or by the Board, provided that Plan
provisions relating to the amount, price and timing of awards
may not be amended more than once every six months other than to
comport with changes in the Internal Revenue Code or the
regulations thereunder and provided further that the Board may
not, without approval of the shareholders, materially increase
the benefits accruing to participants under the Plan, increase
the maximum number of shares as to which options may be granted
under the Plan, change the timing of such grants, change the
exercise price, change the class of eligible persons, extend the
period for which options may be granted or exercised, or
otherwise amend the Plan in any manner that would cause options
under the Plan not to comply with Securities and Exchange
Commission Rule 16b-3 or any successor rule. Notwithstanding
the foregoing, to the extent permitted by law, the Board may
amend the Plan without the approval of shareholders, to the
extent it deems necessary to cause the Plan to comply with
Securities and Exchange Commission Rule 16b-3 or any successor
rule. Except as required by law, no amendment, modification or
termination of the Plan may, without the written consent of an
optionee to whom any option shall theretofore have been granted,
adversely affect the rights of such optionee under such option.
12. EFFECTIVE DATE
The effective date of the Plan shall be the date this Plan is
approved by the affirmative vote of the holders of a majority of
the Common Stock of the Company. If such approval is obtained
at the Annual Meeting of Shareholders in 1994, the Plan shall be
effective on the date of such meeting.
13. DEFINITIONS
Any terms or provisions used herein which are defined in
Sections 83 or 421 of the Internal Revenue Code, as amended, or
the regulations thereunder or corresponding provisions of
subsequent laws and regulations in effect at the time options
are made hereunder, shall have the meanings as therein defined.
<PAGE>
14. GOVERNING LAW
To the extent not inconsistent with the provisions of the
Internal Revenue Code that relate to non-qualified stock
options, this Plan and any option agreement adopted pursuant to
it shall be construed under the laws of the State of Delaware.
Dated: May __, 1994 STUARTS DEPARTMENT STORES, INC.
By:
Name: Denis T. Lemire
Title: President
<PAGE>
STUARTS DEPARTMENT STORES, INC.
1994 MANAGEMENT CASH BONUS PLAN
<PAGE>
STUARTS DEPARTMENT STORES, INC.
TABLE OF CONTENTS
Section
Number
I. Purpose of Plan
II. Eligibility
III. Plan Year
IV. Setting of Target Bonus Percentages and Target Bonuses
V. Authorization Form
VI. Notification of Employees
VII. Basis for Bonus Payments
VIII. Setting of Goals
IX. Calculating the Bonus
X. Adjustments for Personal Performance
XI. Timing of Bonus Payments
XII. Other
<PAGE>
STUARTS DEPARTMENT STORES, INC.
1994 Management Cash Bonus Plan
I. Purpose of Plan
The "Management Cash Bonus Plan" is designed to provide
meaningful incentives for members of the senior management of
Stuarts Department Stores, Inc. ("Stuarts" or the "Company") to
increase profitability while efficiently managing the Company's
assets. It is anticipated that a plan will be put in place
annually for senior management.
II. Eligibility
A "Participant" shall mean each of the Company's president and
its executive vice president and chief financial officer as well
as any other senior executive designated by the Compensation
Committee of the Board of Directors of the Company (the
"Compensation Committee") from time to time.
Participants who retire during the plan year and are aged 62
or older on the date of retirement and estates of Participants
who die during the plan year will be paid bonuses (if earned) at
the same time that all other Participants receive their bonuses
after the end of the plan year.
III. Plan Year
The plan year shall mean the fiscal year of the Company which,
as of the effective date of this plan, is the twelve-month
period ending on the Saturday in January or February of a
calendar year which falls closest to January 31 of such calendar
year.
IV. Setting of Target Bonus Percentages and Target Bonuses
The "Target Bonus" for each Participant shall mean the bonus
calculated by multiplying the Participant's aggregate
base-salary received during the year by a "Target Bonus
Percentage" set at the beginning of the plan year for all
Participants by the Compensation Committee. The maximum Target
Bonus Percentage will be set at 50% and may be revised downward
by the Compensation Committee in respect of any plan year.
A Participant's Target Bonus always will be based on the
aggregate base-salary received during the year, not on the
base-salary level at any particular point during the year (i.e.,
when calculating bonuses for Participants who
<PAGE>
received salary increases during the year, for Participants who
are hired during the year or for Participants who retire or die
during the year).
V. Authorization Form
Attached hereto as Exhibit A is the "Authorization Form" which
shall be used by the Compensation Committee at the beginning of
each plan year when designating Participants, Target Bonus
Percentages and Pre-Bonus Operating Profit Targets (defined in
Section VIII below).
VI. Notification of Employees
Attached hereto as Exhibit B is the form of memorandum which
shall be used at the beginning of each plan year to inform
employees of their participation in the Plan and their Target
Bonus Percentages and Target Bonuses.
VII. Basis for Bonus Payments
After the end of the plan year, when financial results for the
year are available, a calculation will be made to determine the
percentage of the Target Bonus that will be paid to each
Participant.
The percentage of the Target Bonus earned by each Participant
will depend on the following:
(1) how well the Company performed relative to the Pre-Bonus
Operating Profit Target; and
(2) if 100% of the Target Bonus would not be payable based
upon the Company's performance, the Participant's Personal
Performance.
All bonuses will be subject to the review and approval of the
Board of Directors of the Company.
VIII. Setting of Goals
The "Pre-Bonus Operating Profit Target" will be set at the
beginning of the plan year and will equal the Company's budgeted
consolidated earnings before interest, income taxes,
depreciation and amortization, as approved by the Board of
Directors of the Company.
The Pre-Bonus Operating Profit Target will not be revised
during the plan year, except in cases where an acquisition or
divestiture of a business completed during the plan year
materially affects reported operating results during the plan
year (including, without limitation, the closing or opening of
one or more stores) or there shall have occurred another
transaction, which in the opinion of the Board of Directors of
the Company, fundamentally affects the business of the Company
during the plan year.
<PAGE>
IX. Calculating the Bonus
For each Participant, the percentage of the Target Bonus
earned, before giving effect to adjustments for Personal
Performance, will be calculated by multiplying the Target Bonus
by the percentage in the column on the right below, opposite the
percentage of the Pre-Bonus Operating Profit Target which was
attained by the Company.
Percentage Percentage of Target
of Pre-Bonus Bonus Earned
Operating Profit (Before Adjusting for
Target Attained Personal Performance)
less than 75.00% None
75.00 - 84.99% 11.11%
85.00 - 94.99% 22.22%
95.00 - 104.99% 33.33%
105.00 - 114.99% 40.00%
115.00 - 124.99% 46.67%
125.00 - 134.99% 53.33%
135.00 - 144.99% 60.00%
145.00 - 154.99% 66.67%
155.00 - 164.99% 73.33%
165.00 - 174.99% 80.00%
175.00 - 184.99% 86.67%
185.00 - 194.99% 93.33%
195.00% or more 100.00% (maximum)
The percentage of Target Bonus earned, before giving effect to
adjustments for Personal Performance, must be in the increments
shown on the above chart. For example, if the Company attained
103% of the Pre-Bonus Operating Profit Target, the percentage
used for each Participant would be 33.33% (not 30% or 35%). The
percentages of the Target Bonus earned are "stepped," not
linear. No bonuses will be earned by any Participants if less
than 75% of the Pre-Bonus Operating Profit Target is attained.
The maximum bonus payable cannot exceed 100% of the Target Bonus.
X. Adjustments for Personal Performance
In the event that less than 33.33% of the Target Bonus is
earned, the difference between the amount of the Target Bonus
earned, if any, and 33.33% of the Target Bonus or such portion
of such difference, if any, that the Compensation Committee
shall deem appropriate, will be available, at the sole
discretion of the Compensation Committee, to increase the amount
of the bonus payable to a Participant based upon an evaluation
of the Participant's "Personal Performance" relative to that
Participant's personal job objectives for the plan year as
determined by the Compensation Committee. In
<PAGE>
no event can this subjective portion of a Participant's bonus
cause the Participant's bonus to exceed 33.33% of the Target
Bonus.
XI. Timing of Bonus Payments
All bonus payments will be made as soon as practicable after
the end of the plan year. Before any bonus payments can be
paid, (1) necessary accounting and audit work must be completed
so that all bonus calculations can be made and (2) the bonus
must be approved by a vote of the Board of Directors of the
Company.
It is anticipated that bonuses will be paid within 90 days
after end of the plan year.
XII. Other
Bonuses will be subject to income and employment tax
withholding to the extent required by applicable law.
Bonuses and the right to receive bonuses cannot be pledged,
assigned or alienated, voluntarily or involuntarily, by any
Participant.
The Management Cash Bonus Plan and any bonuses granted under
the Management Cash Bonus Plan shall not confer on any
Participant any right with respect to the continuance of
employment by the Company, nor shall they interfere in any way
with the right of the Company to terminate a Participant's
employment at any time.
The Management Cash Bonus Plan may be revised, modified or
terminated in any way, for any reason and at any time at the
sole discretion of the Board of Directors of the Company by vote
of a majority of the Board at any regular or special meeting of
the Board; provided however, that no such revision, modification
or termination shall impair the right of any Participant to
receive bonus payments which otherwise would have been earned in
respect of the period beginning at the commencement of the plan
year and ending at the time of such revision, modification or
termination.
Effective Date: January 30, 1994 (for fiscal 1995)
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of the 5th day of
August, 1994 between STUARTS DEPARTMENT STORES, INC., a Delaware
corporation (the "Company"), and DAVID S. FERGUSON ("Employee").
In consideration of the mutual promises, benefits and covenants
herein contained, the Company and Employee hereby agree as
follows:
1. Employment. (a) The Company hereby employs Employee as
President of the Company in connection with the management of
the business and affairs of the Company. Employee hereby
accepts such employment and agrees to remain in the employ of
the Company, to perform such executive, operational and
administrative duties as the Board of Directors of the Company
(the "Board") may from time to time determine, to be under the
direction of the Board or such other officer of the Company as
the Board shall choose to designate with respect to said duties,
and to abide by the terms and conditions of this Agreement.
(b) During the term of this Agreement, Employee shall, except
during customary vacation periods, periods of illness, and other
absences beyond his control, devote his best efforts, skill and
attention, and full business time to the performance of his
duties on behalf of the Company.
2. Term of Employment. Employee shall be employed for a term
commencing on the date set forth above and ending on February 1,
1997, unless this Agreement is renewed as provided herein or is
sooner terminated pursuant to the provisions of paragraph 5
hereof.
3. Compensation.
3.1 Base Salary. During the term of his employment, Employee
shall receive a base salary at an annual rate of $200,000 (the
"base salary") payable in equal installments not less frequently
than once per month, subject to such withholding or deductions
as may be mutually agreed upon or required by law.
3.2 Bonus. During the term of his employment, Employee shall
be entitled to participate in the Management Cash Bonus Plan
approved by the Board, as amended from time to time. A copy of
the Management Cash Bonus Plan is annexed hereto as Exhibit A.
4. Fringe Benefits. During the term of his employment,
Employee shall be entitled, at the Company's expense, to the
following:
<PAGE>
4.1 Medical Benefits. Participation in the Company's health,
accident and disability insurance plans to the extent that
Employee is eligible under the terms and conditions of such
plans.
4.2 Life Insurance. Life insurance on Employee's life in an
amount equal to 3 times Employee's annual salary and which names
Employee's designated beneficiary as loss payee.
4.3 Car Allowance. The Company shall pay Employee up to $600
per month for an automobile allowance.
4.4 Vacation. Employee shall be entitled to take vacation in
accordance with Company policy as set forth in the Company's
Employment Handbook.
4.5 Stock Options. During the term of his employment, Employee
shall be entitled to participate in the Company's 1992 Employee
Stock Option Plan, as amended; provided, however, that for so
long as Employee is participating in such Employee Stock Option
Plan, Employee shall not be entitled to participate in the
Company's 1994 Directors Stock Option Plan. A copy of the
Company's 1992 Employee Stock Option Plan, as amended, is
annexed hereto as Exhibit B.
5. Termination.
5.1 Termination. Employee's employment may be terminated by
the Company or Employee at any time with or without "Cause", as
defined in paragraph 5.4 hereof. If Employee is a director of
the Company at such time, such termination shall be deemed to
constitute his resignation as a director.
5.2 Termination for Cause. In the event of termination of
Employee's employment for Cause or upon his voluntary
resignation, Employee's rights to receive any payments and
benefits pursuant to this Agreement shall, effective upon
termination of employment, terminate in all respects.
5.3 Termination Other than for Cause. (a) In the event that
during the term of this Agreement, the Company terminates
Employee's employment for reasons other than Cause, then
Employee's rights to receive any payments and benefits pursuant
to this Agreement shall terminate effective upon termination of
employment, except that, subject to Employee's compliance with
his obligations under paragraphs 6, 7 and 8 hereof, the Company
shall pay Employee such severance compensation as Employee may
be entitled to receive pursuant to subparagraph 5.3(b) hereof.
(b) Subject to the provisions of subparagraph 5.3(a) hereof,
in the event the Company terminates Employee's employment for
reasons other than Cause, the Company
<PAGE>
shall pay Employee the following severance compensation: (i) if
termination occurs prior to February 3, 1996 or, during the term
of this Agreement, is preceded by a Change-in-Control (as
defined herein) of the Company, an amount equal to Employee's
annual base salary specified in paragraph 3.1 hereof or (ii) if
termination occurs after February 3, 1996 and such termination
is not preceded by a Change-in-Control of the Company, an amount
equal to the greater of (x) the product of Employee's annual
base salary specified in paragraph 3.1 hereof multiplied by .25
or (y) the balance of the base salary otherwise payable to
Employee pursuant to paragraph 3.1 hereof if Employee's
employment had not been terminated. Severance compensation to
be paid to Employee pursuant to this subparagraph 5.3(b) shall
be made, at the discretion of the Board, in one lump sum or in
equal installments not less frequently than once a month over a
period not to exceed twelve-months following Employee's
termination. In addition, such severance compensation payments
shall be subject to such withholding or deductions as may be
mutually agreed upon or required by law. For purposes of this
Agreement, the term "Change-in-Control" shall mean the
happening, at any time after the date hereof, of any one or more
of the following: (i) (x) the acquisition in any transaction or
series of related transactions by any entity, person or group
(other than the Company, a subsidiary of the Company, any
employee benefit plan (including, without limitation, an
employee stock ownership plan) of the Company, the Employee or
any group (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of which the Employee is a member) of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act of 1934, as amended (the
"Exchange Act")) of 20 percent or more of the outstanding voting
stock of the Company which acquisition is not approved by 50% or
more of the members of the Board serving on the Board on the
date hereof or whose nomination was approved by a majority of
such members (regardless of whether such approval is otherwise
required in connection with such acquisition) or (y) the
election during any period of 12 months or less hereafter of 50
percent or more of the members of the Board who were not serving
on the Board on the date hereof; (ii) the occurrence of a
transaction requiring stockholder approval for the acquisition
of the Company through purchase of stock or assets, by merger,
or otherwise; or (iii) the election during any period of 24
months or less hereafter of 20 percent or more of the members of
the Board without the approval, prior to or after the date
hereof, of the nomination of such members by a majority of the
Board consisting of members who were serving on the Board at the
beginning of the period. As used in this subparagraph 5.3(b)
"group" shall mean persons who act as described in Sections
13(d)(3) of the Exchange Act and the regulations promulgated
thereunder.
5.4 Definition of Cause. The Company shall have Cause for
termination if Employee:
<PAGE>
(a) From the date of this Agreement, takes any employment
(full or part-time) with, acts as a consultant to or agent of,
or receives any direct or indirect remuneration for services
performed after the date hereof for, any other entity, whether
competitive or not with the Company, without the prior written
consent of the Company;
(b) Acts dishonestly, commits an act of moral turpitude,
commits an act which constitutes reckless conduct or wanton or
willful misconduct, takes any action which causes either
Employee or the Company to be brought into disrepute, or is
convicted of a criminal act;
(c) Dies;
(d) Voluntarily resigns, fails to work full time for the
Company, breaches his duty of trust to the Company, fails to
competently perform his duties under this Agreement or otherwise
breaches this Agreement, including, but not limited to, his
obligations of confidentiality under paragraph 6 hereof; or
(e) Becomes "physically or mentally disabled" as defined in
paragraph 5.5 hereof.
5.5 Definition of Physically or Mentally Disabled. For
purposes of this Agreement, Employee shall be deemed "physically
or mentally disabled" if he shall have been unable to perform
his usual duties for a period of 90 continuous days or 180 days
in the aggregate during any twelve-month period of this
Agreement by reason of any physical or mental disability.
5.6 Discussion of Continued Employment. Employee and the
Company agree that, not later than approximately six (6) months
before the end of the term of this Agreement, they will use
reasonable efforts to meet to consider and discuss the
desirability of continuing Employee's employment with the
Company beyond such expiration, but neither party shall have any
obligation to continue such employment.
6. Covenant Not To Pirate Employees or Disclose. Employee (i)
acknowledges that he has acquired, and during the term of this
Agreement shall acquire, confidential business information,
knowledge and/or data concerning the Company, the disclosure of
which would cause the Company any material loss, and (ii)
acknowledges that his experience to be obtained pursuant to this
Agreement in, and in connection with, the business of the
Company and the good will which the Company has established
would enable him to compete with the Company in such business
and that such competition would deprive the Company of any
material benefits. Therefore, Employee hereby covenants and
agrees as to the matters described in paragraphs 7 and 8 hereof.
Notwithstanding any provisions of this Agreement to the
contrary, the provisions of paragraphs 6, 7 and 8 hereof shall
<PAGE>
survive the termination of Employee's employment hereunder or
the expiration of this Agreement or any renewal term. In
addition to any other remedy available to it, the Company shall
be entitled to injunctive relief for any breach or threatened
breach of this paragraph 6 or of paragraph 7 or 8 and shall not
be required to post any bond, surety or indemnity in connection
therewith.
7. Non-Pirating of Employees.
7.1 Non-Pirating Period. For a period of two years after the
expiration of this Agreement or any renewal term or after
termination of Employee's employment pursuant hereto, Employee
shall not, without the prior written consent of the Company,
solicit for employment directly or indirectly any employee of
the Company or any affiliated entity of the Company who is
employed at the Company or any such other affiliated entity at
the time of Employee's termination of employment.
7.2 Confidentiality. Except as may be required by law,
Employee shall not, while employed by the Company, or at any
time thereafter, without the prior written consent of the
Company, use, directly or indirectly, for Employee's own account
or for the account of any person other than the Company, or
disclose to any person other than the Company, any data,
knowledge, information, written material, records or documents
relating to the Company or any affiliated entity of the Company
which are of a confidential nature, including, without
limitation, any confidential information concerning the business
or affairs of the Company (such as information concerning or
otherwise relating to any new store locations or potential
acquisitions) or of any supplier, creditor, lender, customer,
employee, agent, consultant or any affiliated entity of the
Company which was obtained by Employee during or in connection
with his employment by or association with the Company.
8. Documentation. All written materials, records and
documents, if any, made by Employee or coming into his
possession in connection with his employment by the Company and
all copies thereof concerning the business or affairs of the
Company or any of its suppliers, creditors, lenders, customers,
employees, agents, consultants or any affiliated entity of the
Company, are and shall be solely the property of the Company.
Upon ceasing to be employed by the Company or upon the request
of the Company at any time, Employee shall promptly deliver the
same to the Company or such other person as the Company may
designate.
9. Representations and Warranties. Employee hereby represents
and warrants that this Agreement constitutes his valid and
binding obligation enforceable in accordance with its terms and
that neither the execution and delivery nor the performance of
this Agreement violates or conflicts with, or will violate or
conflict with, any agreement, arrangement or restriction of any
kind to which he is a party or by which he is bound.
<PAGE>
10. Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
heirs, representatives, successors and assigns; provided,
however, Employee may not assign this Agreement or any of his
rights hereunder.
11. Sale, Consolidation or Merger. In the event of the sale,
consolidation or merger of the Company with or into another
corporation or entity, or the sale of substantially all of the
assets of the Company to another corporation, entity or
individual, the successor-in-interest shall assume in writing
all liabilities of the Company under this Agreement.
12. Notices. Any notice or other communication under this
Agreement shall be in writing and shall be deemed given when
personally delivered or mailed by registered or certified mail,
return receipt requested, postage prepaid:
(i) if to Employee, addressed to:
Mr. David S. Ferguson
9 Edge Hill Road
Hopkinton, Massachusetts 01748
(ii) if to the Company, addressed to:
Stuarts Department Stores, Inc.
16 Forge Parkway
Franklin, Massachusetts 02038
Attention: Chairman of the Board
or to such other address or addresses as either party shall have
specified in writing to the other party hereto.
13. Severability. The invalidity or unenforceability of any
one or more provisions of this Agreement shall not affect the
validity or enforceability of any other provisions of this
Agreement.
14. Governing Law; Jurisdiction and Venue. This Agreement
shall be subject to, governed by and construed in accordance
with the laws of the State of Delaware without reference to its
principles of conflicts of law. Any action, suit or proceeding
relating to this Agreement shall be brought in a federal or
state court situate in the State of Delaware, the parties hereto
hereby consenting to the jurisdiction and venue thereof.
15. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the matters
contained herein, and no modification, amendment or waiver of
any of the provisions of this Agreement shall be effective
unless in writing and signed by each of the parties hereto. This
Agreement constitutes the only agreement between the parties
<PAGE>
hereto with respect to the matters contained herein, and any and
all prior agreements and understandings, whether written or
oral, including Employee's previous employment agreement with
the Company, shall be invalid and of no further force or effect.
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first above written.
STUARTS DEPARTMENT STORES, INC.
By:____________________________
S. Joseph Hoffman
Chairman of the Board
_______________________________
David S. Ferguson
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of the 8th day of
August, 1994 between STUARTS DEPARTMENT STORES, INC., a Delaware
corporation (the "Company"), and ANTONE F. MOREIRA ("Employee").
In consideration of the mutual promises, benefits and covenants
herein contained, the Company and Employee hereby agree as
follows:
1. Employment. (a) The Company hereby employs Employee as
Executive Vice President of the Company in connection with the
management of the business and affairs of the Company. Employee
hereby accepts such employment and agrees to remain in the
employ of the Company, to perform such executive, operational
and administrative duties as the Board of Directors of the
Company (the "Board") may from time to time determine, to be
under the direction of the Board or such other officer of the
Company as the Board shall choose to designate with respect to
said duties, and to abide by the terms and conditions of this
Agreement.
(b) During the term of this Agreement, Employee shall, except
during customary vacation periods, periods of illness, and other
absences beyond his control, devote his best efforts, skill and
attention, and full business time to the performance of his
duties on behalf of the Company.
2. Term of Employment. Employee shall be employed for a term
commencing on the date set forth above and ending on February 1,
1997, unless this Agreement is renewed as provided herein or is
sooner terminated pursuant to the provisions of paragraph 5
hereof.
3. Compensation.
3.1 Base Salary. During the term of his employment, Employee
shall receive a base salary at an annual rate of $175,000 (the
"base salary") payable in equal installments not less frequently
than once per month, subject to such withholding or deductions
as may be mutually agreed upon or required by law.
3.2 Bonus. During the term of his employment, Employee shall
be entitled to participate in the Management Cash Bonus Plan
approved by the Board, as amended from time to time. A copy of
the Management Cash Bonus Plan is annexed hereto as Exhibit A.
4. Fringe Benefits. During the term of his employment,
Employee shall be entitled, at the Company's expense, to the
following:
<PAGE>
4.1 Medical Benefits. Participation in the Company's health,
accident and disability insurance plans to the extent that
Employee is eligible under the terms and conditions of such
plans.
4.2 Life Insurance. Life insurance on Employee's life in an
amount equal to 3 times Employee's annual salary and which names
Employee's designated beneficiary as loss payee.
4.3 Car Allowance. The Company shall pay Employee up to $600
per month for an automobile allowance.
4.4 Vacation. Employee shall be entitled to take vacation in
accordance with Company policy as set forth in the Company's
Employment Handbook.
4.5 Moving Expenses. If Employee permanently relocates to
Massachusetts or Rhode Island, the Company shall pay the
standard commission incurred by Employee upon the sale of his
current home in Ridgewood, New Jersey. In addition, the Company
shall reimburse Employee for the reasonable moving costs (up to
$25,000) associated with his permanent relocation.
4.6 Stock Options. During the term of his employment, Employee
shall be entitled to participate in the Company's 1992 Employee
Stock Option Plan, as amended, a copy of which is annexed hereto
as Exhibit B.
5. Termination.
5.1 Termination. Employee's employment may be terminated by
the Company or Employee at any time with or without "Cause", as
defined in paragraph 5.4 hereof. If Employee is a director of
the Company at such time, such termination shall be deemed to
constitute his resignation as a director.
5.2 Termination for Cause. In the event of termination of
Employee's employment for Cause or upon his voluntary
resignation, Employee's rights to receive any payments and
benefits pursuant to this Agreement shall, effective upon
termination of employment, terminate in all respects.
5.3 Termination Other than for Cause. (a) In the event that
during the term of this Agreement, the Company terminates
Employee's employment for reasons other than Cause,then
Employee's rights to receive any payments and benefits pursuant
to this Agreement shall terminate effective upon termination of
employment, except that, subject to Employee's compliance with
his obligations under paragraphs 6, 7 and 8 hereof, the Company
shall pay Employee such severance compensation as Employee may
be entitled to receive pursuant to subparagraph 5.3(b) hereof.
<PAGE>
(b) Subject to the provisions of subparagraph 5.3(a) hereof,
in the event the Company terminates Employee's employment for
reasons other than Cause, the Company shall pay Employee the
following severance compensation: (i) if termination occurs
prior to February 3, 1996 or, during the term of this Agreement,
is preceded by a Change-in-Control (as defined herein) of the
Company, an amount equal to Employee's annual base salary
specified in paragraph 3.1 hereof or (ii) if termination occurs
after February 3, 1996 and such termination is not preceded by a
Change-in-Control of the Company, an amount equal to the greater
of (x) the product of Employee's annual base salary specified in
paragraph 3.1 hereof multiplied by .25 or (y) the balance of the
base salary otherwise payable to Employee pursuant to paragraph
3.1 hereof if Employee's employment had not been terminated.
Severance compensation to be paid to Employee pursuant to this
subparagraph 5.3(b) shall be made, at the discretion of the
Board, in one lump sum or in equal installments not less
frequently than once a month over a period not to exceed
twelve-months following Employee's termination. In addition,
such severance compensation payments shall be subject to such
withholding or deductions as may be mutually agreed upon or
required by law. For purposes of this Agreement, the term
"Change-in-Control" shall mean the happening, at any time after
the date hereof, of any one or more of the following: (i) (x)
the acquisition in any transaction or series of related
transactions by any entity, person or group (other than the
Company, a subsidiary of the Company, any employee benefit plan
(including, without limitation, an employee stock ownership
plan) of the Company, the Employee or any group (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
which the Employee is a member) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act of
1934, as amended (the "Exchange Act")) of 20 percent or more of
the outstanding voting stock of the Company which acquisition is
not approved by 50% or more of the members of the Board serving
on the Board on the date hereof or whose nomination was approved
by a majority of such members (regardless of whether such
approval is otherwise required in connection with such
acquisition) or (y) the election during any period of 12 months
or less hereafter of 50 percent or more of the members of the
Board who were not serving on the Board on the date hereof; (ii)
the occurrence of a transaction requiring stockholder approval
for the acquisition of the Company through purchase of stock or
assets, by merger, or otherwise; or (iii) the election during
any period of 24 months or less hereafter of 20 percent or more
of the members of the Board without the approval, prior to or
after the date hereof, of the nomination of such members by a
majority of the Board consisting of members who were serving on
the Board at the beginning of the period. As used in this
subparagraph 5.3(b) "group" shall mean persons who act as
described in Sections 13(d)(3) of the Exchange Act and the
regulations promulgated thereunder.
<PAGE>
5.4 Definition of Cause. The Company shall have Cause for
termination if Employee:
(a) From the date of this Agreement, takes any employment
(full or part-time) with, acts as a consultant to or agent of,
or receives any direct or indirect remuneration for services
performed after the date hereof for, any other entity, whether
competitive or not with the Company, without the prior written
consent of the Company;
(b) Acts dishonestly, commits an act of moral turpitude,
commits an act which constitutes reckless conduct or wanton or
willful misconduct, takes any action which causes either
Employee or the Company to be brought into disrepute, or is
convicted of a criminal act;
(c) Dies;
(d) Voluntarily resigns, fails to work full time for the
Company, breaches his duty of trust to the Company, fails to
competently perform his duties under this Agreement or otherwise
breaches this Agreement, including, but not limited to, his
obligations of confidentiality under paragraph 6 hereof; or
(e) Becomes "physically or mentally disabled" as defined in
paragraph 5.5 hereof.
5.5 Definition of Physically or Mentally Disabled. For
purposes of this Agreement, Employee shall be deemed "physically
or mentally disabled" if he shall have been unable to perform
his usual duties for a period of 90 continuous days or 180 days
in the aggregate during any twelve-month period of this
Agreement by reason of any physical or mental disability.
5.6 Discussion of Continued Employment. Employee and the
Company agree that, not later than approximately six (6) months
before the end of the term of this Agreement, they will use
reasonable efforts to meet to consider and discuss the
desirability of continuing Employee's employment with the
Company beyond such expiration, but neither party shall have any
obligation to continue such employment.
6. Covenant Not To Pirate Employees or Disclose. Employee (i)
acknowledges that he has acquired, and during the term of this
Agreement shall acquire, confidential business information,
knowledge and/or data concerning the Company, the disclosure of
which would cause the Company any material loss, and (ii)
acknowledges that his experience to be obtained pursuant to this
Agreement in, and in connection with, the business of the
Company and the good will which the Company has established
would enable him to compete with the Company in such business
and that such competition would deprive the Company of any
material benefits. Therefore, Employee hereby covenants and
agrees as to
<PAGE>
the matters described in paragraphs 7 and 8 hereof.
Notwithstanding any provisions of this Agreement to the
contrary, the provisions of paragraphs 6, 7 and 8 hereof shall
survive the termination of Employee's employment hereunder or
the expiration of this Agreement or any renewal term. In
addition to any other remedy available to it, the Company shall
be entitled to injunctive relief for any breach or threatened
breach of this paragraph 6 or of paragraph 7 or 8 and shall not
be required to post any bond, surety or indemnity in connection
therewith.
7. Non-Pirating of Employees.
7.1 Non-Pirating Period. For a period of two years after the
expiration of this Agreement or any renewal term or after
termination of Employee's employment pursuant hereto, Employee
shall not, without the prior written consent of the Company,
solicit for employment directly or indirectly any employee of
the Company or any affiliated entity of the Company who is
employed at the Company or any such other affiliated entity at
the time of Employee's termination of employment.
7.2 Confidentiality. Except as may be required by law,
Employee shall not, while employed by the Company, or at any
time thereafter, without the prior written consent of the
Company, use, directly or indirectly, for Employee's own account
or for the account of any person other than the Company, or
disclose to any person other than the Company, any data,
knowledge, information, written material, records or documents
relating to the Company or any affiliated entity of the Company
which are of a confidential nature, including, without
limitation, any confidential information concerning the business
or affairs of the Company (such as information concerning or
otherwise relating to any new store locations or potential
acquisitions) or of any supplier, creditor, lender, customer,
employee, agent, consultant or any affiliated entity of the
Company which was obtained by Employee during or in connection
with his employment by or association with the Company.
8. Documentation. All written materials, records and
documents, if any, made by Employee or coming into his
possession in connection with his employment by the Company and
all copies thereof concerning the business or affairs of the
Company or any of its suppliers, creditors, lenders, customers,
employees, agents, consultants or any affiliated entity of the
Company, are and shall be solely the property of the Company.
Upon ceasing to be employed by the Company or upon the request
of the Company at any time, Employee shall promptly deliver the
same to the Company or such other person as the Company may
designate.
9. Representations and Warranties. Employee hereby represents
and warrants that this Agreement constitutes his valid and
binding obligation enforceable in accordance with its terms and
that neither the execution and delivery nor the performance of
<PAGE>
this Agreement violates or conflicts with, or will violate or
conflict with, any agreement, arrangement or restriction of any
kind to which he is a party or by which he is bound.
10. Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
heirs, representatives, successors and assigns; provided,
however, Employee may not assign this Agreement or any of his
rights hereunder.
11. Sale, Consolidation or Merger. In the event of the sale,
consolidation or merger of the Company with or into another
corporation or entity, or the sale of substantially all of the
assets of the Company to another corporation, entity or
individual, the successor-in-interest shall assume in writing
all liabilities of the Company under this Agreement.
12. Notices. Any notice or other communication under this
Agreement shall be in writing and shall be deemed given when
personally delivered or mailed by registered or certified mail,
return receipt requested, postage prepaid:
(i) if to Employee, addressed to:
Mr. Antone F. Moreira
231 Manor Road
Ridgewood, New Jersey 07450
(ii) if to the Company, addressed to:
Stuarts Department Stores, Inc.
16 Forge Parkway
Franklin, Massachusetts 02038
Attention: Chairman of the Board
or to such other address or addresses as either party shall have
specified in writing to the other party hereto.
13. Severability. The invalidity or unenforceability of any
one or more provisions of this Agreement shall not affect the
validity or enforceability of any other provisions of this
Agreement.
14. Governing Law; Jurisdiction and Venue. This Agreement
shall be subject to, governed by and construed in accordance
with the laws of the State of Delaware without reference to its
principles of conflicts of law. Any action, suit or proceeding
relating to this Agreement shall be brought in a federal or
state court situate in the State of Delaware, the parties hereto
hereby consenting to the jurisdiction and venue thereof.
<PAGE>
15. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the matters
contained herein, and no modification, amendment or waiver of
any of the provisions of this Agreement shall be effective
unless in writing and signed by each of the parties hereto. This
Agreement constitutes the only agreement between the parties
hereto with respect to the matters contained herein, and any and
all prior agreements and understandings, whether written or
oral, including Employee's previous employment agreement with
the Company, shall be invalid and of no further force or effect.
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first above written.
STUARTS DEPARTMENT STORES, INC.
By:____________________________
S. Joseph Hoffman
Chairman of the Board
_______________________________
Antone F. Moreira
<PAGE>
AMENDMENT NO. ONE TO THE LOAN
AND SECURITY AGREEMENT
STUARTS DEPARTMENT STORES, INC.
This Amendment No. One To The Loan And Security Agreement (the "Amendment")
is entered into as of the 20th day of March, 1995, by and between
STUARTS DEPARTMENT STORES, INC., a Delaware corporation ("Borrower"),
whose chief executive office is located at 16 Forge Parkway,
Franklin, Massachusetts 02038 and FOOTHILL CAPITAL CORPORATION,
a California corporation ("Foothill"), with a place of business
located at 11111 Santa Monica Boulevard, Suite 1500,
Los Angeles, California 90025-3333, in light of the following facts:
FACTS
FACT ONE: Foothill and Borrower have previously entered into that
certain Loan And Security Agreement, dated December 16, 1993 (the "Agreement").
FACT TWO: Foothill and Borrower desire to amend the Agreement as provided
herein. Terms defined in the Agreement which are used herein shall have
the same meanings as set forth in the Agreement, unless otherwise specified.
NOW, THEREFORE, Foothill and Borrower hereby modify and amend the Agreement
as follows:
1. Effective as of fiscal year-ending January 31, 1995, Sections 6.12(a)
and 6.12(b) of the Agreement are hereby amended in their entirety to read
as follows:
<PAGE>
6.12 (a) "Tangible Net Worth. Tangible Net Worth of at least a
negative One Million Dollars (-$1,000,000), measured on a fiscal
quarter-end basis."
6.12 (b) "Working Capital. Working Capital of not less than a negative
Six Million Dollars (-$6,000,000), measured on a fiscal quarter-end basis."
2. Borrower shall pay to Foothill a facility fee in the amount of
Twenty Five Thousand ($25,000), which shall be due and payable upon
execution hereof. Said fee shall be fully earned at the time of payment
and shall be non-refundable.
3. In the event of a conflict between the terms and provisions of this
Amendment and the terms and provisions of the Agreement, the terms and
provisions of this Amendment shall govern. In all other respects, the
Agreement, as supplemented, amended and modified, shall remain in full
force and effect.
IN WITNESS WHEREOF, Borrower and Foothill have executed this Amendment as of
the day and year first written above.
FOOTHILL CAPITAL CORPORATION STUARTS DEPARTMENT STORES,INC.
By By
Lisa M. Gonzales
Its Assistant Vice Presdient Its
<PAGE>
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
WHEREAS, on December 16, 1993, Stuarts Department Stores, Inc.,
a Delaware corporation ("Borrower"), entered into a Loan and
Security Agreement ("the Loan Agreement") and other documents
evidencing the credit facility, as amended by a Amendment No.
One To The Loan And Security Agreement dated March 20, 1995 (the
Loan Agreement and the other documents are collectively referred
to as the "Pre-Petition Loan Documents") with Foothill Capital
Corporation ("Foothill"); and
WHEREAS, the principal amount outstanding which is due and
owing Foothill under the Pre-Petition Loan Documents as of this
date is $2,515,945.89 and in addition, Foothill is also owed
accrued interest and Foothill expenses under the Pre-Petition
Loan Documents (the "Pre-Petition Obligations"); and
WHEREAS, the Loan Agreement provides in Section 8.5 that the
filing of an Insolvency Proceeding by the Borrower constitutes
an Event of Default under the Loan Agreement; and
WHEREAS, Borrower has represented to Foothill that it intends
to file an Insolvency Proceeding pursuant to Chapter 11 of the
Bankruptcy Code; and
WHEREAS, Foothill has been requested to provide Borrower with
Post-Petition Debtor-In-Possession financing on a secured basis
for use in the ordinary course of its business (the
"Post-Petition Obligations"); and
WHEREAS, Foothill has agreed to extend, renew and amend the
terms and provisions of the Loan Agreement effective as of the
date stated herein upon the terms and in accordance with the
provisions of the Loan Agreement as amended by the provisions
set forth below;
NOW, THEREFORE, Borrower and Foothill hereby agree that
effective as of the date stated herein as the date of execution
by Borrower, being May 17, 1995, the Loan Agreement shall be
amended to contain the provisions set forth below and shall be
superseded to the extent necessary to give effect to the
provisions set forth below:
1. The definition of Collateral as set forth in Section 1 of
the Loan Agreement shall be deleted in its entirety and the
following inserted in lieu thereof:
"Collateral" means each of the following: the Accounts;
Borrower's Books; the Equipment; the General Intangibles; the
Inventory; the Negotiable Collateral; any money, or other assets
<PAGE>
of Borrower which now or hereafter come into the possession,
custody, or control of Foothill; and the proceeds and products,
whether tangible or intangible, of any of the foregoing
including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Borrower's Books,
Equipment, General Intangibles, Inventory, Negotiable
Collateral, money, deposit accounts, or other tangible or
intangible property resulting from the sale, exchange,
collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof,
and all leases and rights of occupancy whether oral or written
for real property occupied by Borrower including all rents,
revenues, income, royalty, sub-lease revenue and other sources
of funds in connection therewith or derived therefrom.
2. Section 2.1(c) of the Loan Agreement shall be deleted in its
entirety and the following inserted in lieu thereof:
"(c) Foothill shall have no obligation to make advances
hereunder to the extent they would cause the aggregate
outstanding Pre-Petition Obligations and Post-Petition
Obligations to exceed the lesser of (i) the from time to time
applicable Credit Line, or (ii) Six Million Dollars
($6,000,000.00) (the "Maximum Credit Line")."
3. Section 2.1(d) of the Loan Agreement shall be deleted in its
entirety.
4. Section 2.2(d) of the Loan Agreement shall be amended by
deleting the reference to "two and one-half percent (2.5%)" and
inserting in lieu thereof "four percent (4.0%)".
5. Section 2.4 of the Loan Agreement shall be deleted in its
entirety.
6. Section 2.5(a) of the Loan Agreement shall be amended by
deleting the reference to "one and three-quarters (1.75)
percentage points above the Reference Rate" and inserting in
lieu thereof "four (4.0) percentage points above the Reference
Rate ".
7. Section 2.5(c) of the Loan Agreement shall be amended by
deleting the reference to "seven and one-quarter percent
(7.25%)" and inserting in lieu thereof "nine and three-quarters
percent (9.75%)".
8. Section 2.5(e) of the Loan Agreement shall be amended by
deleting the reference to "six percent (6.0%)" and inserting in
lieu thereof "nine percent (9.0%)".
9. Section 2.8(a) of the Loan Agreement shall be deleted and
the following inserted in lieu thereof:
"(a) Closing Fee. A one time closing fee of Sixty Thousand
Dollars ($60,000.00) which is earned, in full, as of the date
stated herein, and is due and payable by Borrower to Foothill in
connection with this Agreement on the date stated herein."
10. Sections 2.8(b) and 2.8(c) of the Loan Agreement shall be
deleted in their entirety.
<PAGE>
11. Section 3.1(i) of the Loan Agreement shall be deleted in
its entirety.
12. Section 3.3 of the Loan Agreement shall be deleted in its
entirety and the following inserted in lieu thereof:
"Term. This Agreement shall become effective upon the entry
of an order of the United States Bankruptcy Court ratifying the
Motion For Entry Of Order Approving Borrowing On Priority And
Security And Use Of Collateral And For Use Of Cash Collateral
filed by Borrower (the "Order Date") and shall continue in full
force and effect for a term ending on the date that is six
months from the Order Date. The foregoing notwithstanding, if
at any time after two months following the Order Date, Borrower
has not achieved eighty-five percent (85%) of (a) projected
revenues; (b) projected collections; or (c) projected
availability, and if Borrower's actual expenses are more than
fifteen percent (15%) greater than budgeted pursuant to
Borrower's budget, a copy of which is attached hereto as Exhibit
A, then Foothill shall at any time thereafter have the right to
cease making advances hereunder."
13. Section 3.4 of the Loan Agreement shall be deleted in its
entirety and the following inserted in lieu thereof:
"3.4 Termination. Notwithstanding the provisions of the Loan
Agreement, Foothill shall not be permitted to exercise its
rights against Borrower or the collateral until such time that
it has been granted relief from the automatic stay imposed by
Section 362 of the Bankruptcy Code. Foothill shall have the
right to apply for such relief upon not less than three days
prior notice to Borrower and such other parties as the
Bankruptcy Court may direct, and Borrower agrees not to contest
the filing of a request for relief from the automatic stay by
Foothill."
14. Sections 3.5 and 3.6 of the Loan Agreement shall be deleted
in their entirety.
15. Section 4.1 of the Loan Agreement shall be deleted in its
entirety and the following inserted in lieu thereof:
"4.1 Grant of Security Interest. Borrower conducts business
under the following tradenames: Stuarts, Stuarts Stores,
Harry's, Uncle Joe's $1, Hot Stuff. Borrower, as used in this
Section for the purpose of granting Foothill a security
interest, shall include a grant of a security interest by
Stuarts, Stuarts Stores, Harry's, Uncle Joe's $1, Hot Stuff in
all currently existing and hereafter acquired or arising
Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by
Borrower of each of its covenants and duties under the Loan
Documents. Foothill's security interests in the Collateral
shall attach to all Collateral without further act on the part
of Foothill or Borrower. Anything contained in this Agreement
or any other Loan Document to the contrary notwithstanding, and
other than sales of Inventory to buyers in the ordinary course
<PAGE>
of business, Borrower has no authority, express or implied, to
dispose of any item or portion of the Collateral, other than
obsolete items of Collateral.
16. Section 4.3 of the Loan Agreement shall be deleted in its
entirety and the following inserted in lieu thereof:
"4.3 Collection of Accounts, General Intangibles, Negotiable
Collateral. Foothill, Borrower, and the Lock Box Banks shall
enter into the Lock Box Agreements, in form and substance
satisfactory to Foothill in its sole discretion, pursuant to
which all of Borrower's cash receipts, checks, and other items
of payment (including insurance proceeds, proceeds of cash
sales, rental proceeds, and tax refunds) will be forwarded to
Foothill on a daily basis. Borrower agrees to provide Foothill
with a separate accounting for each store location of all cash
receipts, checks, and other items of payment (including
insurance proceeds, proceeds of cash sales, rental proceeds, and
tax refunds) on a daily basis. At any time, Foothill or
Foothill's designee may: (a) notify customers or Account Debtors
of Borrower that the Accounts, General Intangibles, or
Negotiable Collateral have been assigned to Foothill, or that
Foothill has a security interest therein; and (b) collect the
Accounts, General Intangibles, and Negotiable Collateral
directly and charge the collection costs and expenses to
Borrower's loan account. Borrower agrees that it will hold in
trust for Foothill, as Foothill's trustee, any cash receipts,
checks, and other items of payment (including, insurance
proceeds, proceeds of cash sales, rental proceeds, and tax
refunds) that it receives and immediately will deliver said cash
receipts, checks, and other items of payment to Foothill in
their original form as received by Borrower."
17. Section 5.4 shall be deleted in its entirety and the
following inserted in lieu thereof:
"5.4 Location of Inventory and Equipment: The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar
party (without Foothill's prior written consent) and are located
only at the locations identified on Schedule 6.14 attached
hereto."
18. Sections 5.10 and 5.11 of the Loan Agreement shall be
deleted in their entirety.
19. Section 6.4 of the Loan Agreement shall be amended and
modified by adding the following provision as a separate
paragraph after the last paragraph contained in Section 6.4:
"In addition to the Financial Statements, Reports and
Certificates required pursuant to this Section, Borrower shall
submit the following information to Foothill: (a) actual weekly
budget as compared with projected weekly budget; and (b) a new
operating budget for a period not to exceed eight weeks which is
acceptable to Foothill in its discretion at least two weeks
prior to the end of the then current term reflected in the last
supplied operating budget."
20. Section 6.12 of the Loan Agreement, as amended, shall be
deleted in its entirety.
<PAGE>
21. Section 6.14 of the Loan Agreement shall be amended and
modified by adding the following provision as a separate
sentence after the last sentence contained in Section 6.14:
"Schedule 6.14 has been amended to reflect a current list of
Inventory and Equipment at each of the locations identified on
Schedule 6.14 as of the date stated herein."
22. Section 6 of the Loan Agreement shall be amended and
modified by adding the following provision:
"6.17 Crisis Manager. Borrower agrees to continue to use the
services of the existing crisis manager, "The Recovery Group" or
a replacement therefor which is acceptable to Foothill."
23. Section 7.18 of the Loan Agreement shall be deleted in its
entirety.
24. Sections 8.4, 8.5, 8.9 and 8.10 of the Loan Agreement shall
be deleted in their entirety.
25. Section 8 of the Loan Agreement shall be amended and
modified by adding the following provision:
"8.14 At any time after two months following the Order Date, if
Borrower has not achieved eighty-five percent (85%) of (a)
projected revenues; or (b) projected collections; or (c)
projected availability, and if Borrower's actual expenses are
more than fifteen percent (15%) greater than budgeted."
26. Section 9 of the Loan Agreement shall be amended and
modified by adding the following provision:
"9.3 Notwithstanding the provisions contained in this Section,
the rights and remedies of Foothill shall be subject to a grant
to it by the Bankruptcy Court of relief from the automatic stay
imposed by Section 363 of the Bankruptcy Code. Foothill shall
have the right to apply for such relief upon not less than three
days prior notice to Borrower and such other parties as the
Bankruptcy Court may direct, and Borrower agrees not to contest
the filing of a request for relief from the automatic stay by
Foothill."
27. Section 13 of the Loan Agreement shall be amended and
modified by adding the following provision after the last
sentence contained in Section 13:
"Notwithstanding the provisions contained in this Section,
Foothill and Borrower hereby acknowledge the jurisdiction of the
Bankruptcy Court and the application for the Bankruptcy Code to
the transaction described herein."
28. Section 15 of the Loan Agreement shall be amended and
modified by adding the following provision:
<PAGE>
"15.10 Foothill has the right, from time to time, to deduct
from the Borrowing Base a reserve for any carve out mandated by
the Bankruptcy Court under Section 503 of the Bankruptcy Code,
which carve out is for professional fees and expenses,
administrative and priority claims and claims for severance pay
for certain executives of the Borrower. The initial amount of
such carve out shall be $362,500.00.
29. Section 15 of the Loan Agreement shall be amended and
modified by adding the following provision:
"15.11 Debtor consents and agrees that all advances received as
post-petition advances shall be secured by all pre-petition
Collateral and by any post-petition Collateral of the Debtor."
30. Except as herein amended, all of the terms and provisions
of the Loan Agreement as amended shall remain in full force and
effect.
31. Borrower and Foothill agree that this Second Amendment To
Loan And Security Agreement has been prepared by the mutual
effort of both parties and that in the event of a conflict or
interpretive question with respect to any term, provision or
section contained in either this Second Amendment To Loan And
Security Agreement, and the Amendment No. One To The Loan And
Security Agreement dated March 20, 1995 and the Loan and
Security Agreement dated December 16, 1993 shall not be
construed more strictly against any one party than any other
party; it being agreed that both Borrower and Foothill have
equally negotiated the terms hereof and thereof.
STUARTS DEPARTMENT STORES, INC.
By
Its
Duly Authorized
FOOTHILL CAPITAL CORPORATION
By
Its
Duly Authorized
<PAGE>
UNITED STATES BANKRUPTCY COURT DISTRICT OF MASSACHUSETTS WESTERN
DIVISION
In re:
) Chapter 11
STUARTS DEPARTMENT STORES, INC., ) Case
No.:95-42199-JFQ
Debtor )
STIPULATION REGARDING POST-PETITION FINANCING AND USE OF CASH
COLLATERAL
Stuarts Department Stores, Inc., Debtor-in-Possession (the
"Debtor"), and Foothill Capital Corporation, a California
corporation (the "Lender"), hereby stipulate and agree as
follows:
1. On May 16, 1995 the ("Petition Date"), Debtor filed a
Voluntary Petition (the "Petition") under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code"), in this
Court (the "Bankruptcy Court").
2. The Debtor is engaged in the business of the retail sale of
merchandise in twelve (12) department stores located in
Massachusetts, Rhode Island and New Hampshire.
3. The term "Pre-Petition Lending Documents" shall mean any
and all documents, agreements, instruments, and financing
statements executed between Debtor and Lender prior to the
Petition Date in this matter including without limitation, a
Loan and Security Agreement dated as of December 16, 1993, as
amended by Amendment No. One to Loan and Security Agreement
dated March 20, 1995, a true copy of which is annexed hereto as
Exhibit "A" (the "Loan and Security Agreement").
<PAGE>
4. Each of the Pre-Petition Lending Documents was validly and
duly executed by an authorized officer of the Debtor and the
obligations created thereby are and shall continue to be the
binding obligations of the Debtor. All of the security
interests granted in the Pre-Petition Lending Documents have
been validly, duly and properly perfected, and shall continue in
full force and effect as between Debtor and Lender.
5. (a) Debtor is indebted to Lender under the Loan and
Security Agreement in the principal amount of $2,515,945.89 plus
accrued interest thereon and certain of Lender's expenses as of
the Petition Date.
(b) the loan described in subsection (a) of this paragraph
5. is fully secured by all of the assets of Debtor upon which
Lender has a lien. Lender may collect and apply toward the
reduction of any outstanding indebtedness from Debtor to Lender
all proceeds of its pre-petition collateral without further
order of this Court.
6. Lender has a perfected, first-priority security interest in
the Debtor's Collateral as that term is defined in the Loan and
Security Agreement including accounts, inventory, general
intangibles and the proceeds and products of the foregoing,
including insurance proceeds relating to the foregoing and books
and records relating thereto, and substantially all of Debtor's
other assets (the "Pre-Petition Collateral").
7. Debtor has no unencumbered assets with which to secure
post-petition financing. Debtor cannot obtain unsecured
post-petition financing and can obtain secured post-petition
financing only from Lender.
<PAGE>
8. Debtor has requested that Lender, on and after the Petition
Date, make financing available to it for its operations
("Post-Petition Financing"), and to allow Debtor to use Lender's
cash collateral and Lender is willing to fulfill said requests
in accordance with and subject to the terms, covenants and
conditions of this Stipulation, and the Second Amendment to Loan
and Security Agreement attached as Exhibit "B" hereto.
9. To provide adequate protection to Lender and in order to
secure the indebtedness incurred by the Post-Petition Financing
and as may be authorized by order of the Bankruptcy Court,
Lender is hereby granted a security interest and lien pursuant
to e364(c)(2) and e364(c)(3) of the Bankruptcy Code (the
"Post-Petition Security Interest") upon all of Debtor's
Collateral, as defined in the Second Amendment to the Loan and
Security Agreement as set forth in Exhibit "B" hereto, now owned
and hereafter acquired personal property including, without
limitation, all of the following of Debtor's property:
the Accounts; Borrower's Books; the Equipment; the General
Intangibles; the Inventory; the Negotiable Collateral; any
money, or other assets of Borrower which now or hereafter come
into the possession, custody, or control of Foothill; and the
proceeds and products, whether tangible or intangible, of any of
the foregoing including proceeds of insurance covering any or
all of the Collateral, and any and
<PAGE>
all Accounts, Borrower's Books, Equipment, General Intangibles,
Inventory, Negotiable Collateral, money, deposit accounts, or
other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of any of the
foregoing, or any portion thereof or interest therein, and the
proceeds thereof, and all leases and rights of occupancy whether
oral or written for real property occupied by Borrower including
all rents, revenues, income, royalty, sub-lease revenue and
other sources of funds in connection therewith or derived
therefrom (the "Post-Petition Collateral").
10. The Post-Petition Security Interest:
(a) is and shall be in addition to all other security
interests and liens existing in favor of Lender on the date of
Debtor's petition.
(b) shall secure the diminution of the value of Lender's
Pre-Petition Collateral, and any and all indebtedness and
liability of Debtor to Lender arising after the Petition Date in
this matter, including but not limited to any Post-Petition
Financing authorized by this Stipulation and granted to Debtor
by Lender;
(c) shall remain superior in right to any other lien or
security interest hereinafter created or arising unless Lender
consents in writing;
(d) shall be deemed valid and perfected without the execution
of any further agreements or the filing of any further financing
statements (although Lender, at its sole option, may require
Debtor to execute such additional agreements and financing
statements if it so chooses.)
<PAGE>
11. To the extent that Lender provides post-petition financing
to Debtor, such post-petition financing, in addition to the
other security and benefits conferred under this Stipulation,
shall enjoy the benefit of e364(c)(1) of the Bankruptcy Code.
12. The provisions of this Stipulation and any action taken
pursuant hereto shall survive the entry of any Order confirming
a Plan of Reorganization, dismissing Debtor's Chapter 11 case,
or converting Debtor's Chapter 11 case to a Chapter 7 case under
the Bankruptcy Code. The terms and conditions of this
Stipulation, as well as the lien and security interest granted
to Lender pursuant hereto, shall continue in full force and
effect in those or any other superseding proceeding under the
Bankruptcy Code affecting the Debtor and such liens and security
interest shall retain their priorities as provided in this
Stipulation unless satisfied or discharged. Upon request from
Lender, Debtor is authorized and directed to execute and deliver
any supplemental note, security agreement, receipt,
acknowledgement, financing statement or other document
evidencing this Post-Petition Security Interest, and any
Post-Petition Financing extended by Lender thereunder and/or any
other right or benefit granted to Lender hereunder.
13. Lender agrees to provide Debtor with Post-Petition
Financing on a secured basis for its use in the ordinary course
of its business under the terms of the Pre-Petition Lending
Documents except that the terms of the Loan and Security
Agreement are amended by the Second Amendment to the Loan and
Security Agreement, a copy of which is annexed hereto as Exhibit
"B".
14. All Post-Petition Financing shall be made in accordance
with the terms, conditions and covenants contained in the
Pre-Petition Lending Documents as the same are modified or
<PAGE>
amended by Exhibit "B" including, without limitation, payment
terms, which terms and conditions Debtor expressly assumes.
15. Lender shall have the right to inspect any and all of its
collateral and to inspect and copy during the normal working
hours of Debtor, any books or records of Debtor with respect to
any transaction relating to the sale, transfer, or other
disposition of its collateral for any period through the
continuation of Debtor's Chapter 11 case, and any books and
records relating to receipts and disbursements covering that
same period; and Debtor, its officers, employees, and agents
shall maintain all of the books and records of Debtor at the
Debtor's principal place of business for the same period. Upon
request from Lender, Debtor shall furnish to Lender accounts
receivable and accounts payable schedules and agings, inventory
reports, check and disbursement registers, bank statements as
received, payroll records, profit and loss statements, and
current balance sheets in the manner and with the frequency it
has heretofore provided such information to Lender or as Lender
may otherwise, from time to time, request.
16. Debtor shall provide the Lender detailed weekly operating
reports in addition to any other operating reports required
under the Loan and Security Agreement.
17. Debtor shall provide directly to Lender and its counsel,
immediately upon filing, copies of all reports made to the U.S.
Trustee.
18. If Debtor breaches any term or condition of this
Stipulation or the Loan and Security Agreement as amended
through this date then Lender shall have all rights and remedies
granted to it under the Loan and Security Agreement as amended
of even date.
19. This Stipulation shall become effective upon entry as an
Order by the Bankruptcy Court specifically approving the terms
and provisions hereof. This Stipulation shall be of no force
<PAGE>
and effect unless an Order is entered by the Bankruptcy Court on
an interim basis within fourteen (14) business days from the
Petition Date approving this Stipulation and shall be terminated
at Lender's option if an Order is not entered by the Court
granting a final approval of this Stipulation with thirty (30)
days of the Petition Date. Lender may, in its sole discretion,
extend such time periods, but any such extension shall only take
effect if in writing and signed by the Lender.
20. The Post-Petition Collateral shall be subject to claims
allowed in the Debtor's Chapter 11 Case (and any subsequent
Chapter 7 case) under e503 of the Bankruptcy Code and with
respect to amounts payable to the President and Executive Vice
President of the Debtor on account of severance payments, but
only to the extent of Three Hundred Sixty-Two Thousand Five
Hundred and 00/100 Dollars ($362,500.00) in the aggregate, and
only to the extent allowed by the Bankruptcy Court.
21. As of the date hereof, there are no claims, setoffs, or
defenses to the payment by Debtor to Lender of Debtor's
liabilities and indebtedness to Lender. Debtor is authorized
and directed to, and hereby does, waive and affirmatively agree
not to allege or otherwise pursue any defenses, affirmative
defenses, counterclaims, claims, causes of action, setoffs, or
other rights that it may have, as of the date hereof against
Lender for any reason whatsoever including, without limitation:
(i) Lender's enforcement of its rights under the Pre-Petition
Lending Documents and this Stipulation, (ii) any events of
default under the Pre-Petition Lending Documents, whether or not
declared by Lender; (iii) any provisions of the Pre-Petition
Lending Documents of this Stipulation; (iv) the right of Lender
to all rents, issues, profits, and proceeds from any
Pre-Petition Collateral and/or Post-Petition Collateral; (v) the
security interest or liens of Lender in any property (whether
real or personal, tangible or intangible), right, or other
<PAGE>
interest, now or hereafter arising; or (vi) the conduct of
Lender in administering credit lines, financing accommodations
and loans to the Debtor, in exercising any and all rights under
the Pre-Petition Lending Documents, or otherwise. Provided,
however, that the waivers of Debtor provided for herein shall be
subject to an action being commenced in the Debtor's case by
Debtor to the official Creditors' Committee to be appointed
herein within forty-five (45) days of the entry of a final Order
approving this Stipulation or within sixty (60) days, whichever
is earlier. All defenses and claims of every kind or nature,
whether existing by virtue of state, federal, bankruptcy, or
nonbankruptcy federal law, by agreement or otherwise, against
Lender and its respective consultants, successors, assigns,
directors, officers, agents, employees, and attorneys, whether
known or unknown, whether in dispute or not, whether liquidated
or contingent, foreseen or unforeseen, whether in contract,
tort, equity, or otherwise, whether heretofore or now existing,
arising out of or related to any transactions or dealings
between Lender on the one hand and Debtor on the other, or
otherwise, are hereby forever waived, relinquished, and
released, including without limitation, any affirmative
defenses, counterclaims, setoffs, deductions or recoupments, by
Debtor.
Dated as of the 16th day of May, 1995.
STUARTS DEPARTMENT STORES, INC.
BY:_______________________________
J. Robert Seder
Its attorney
Seder & Chandler
339 Main Street
Worcester, MA 01608
(508) 757-7721
FOOTHILL CAPITAL CORPORATION
<PAGE>
BY: ____________________________
Richard B. Polivy
Its attorney
DeGregorio & Polivy
Six central Row
Hartford,CT 06103
<PAGE>
AGENCY AGREEMENT
This Agency Agreement together with all schedules, exhibits
and attachments hereto dated May 3, 1995 (the "Agreement") is
made by and between a joint venture comprising Garcel, Inc.
d/b/a Great American Asset Management, a California corporation
with its principal offices at 2812 Santa Monica Boulevard, Suite
204, Santa Monica, CA 90404 and Hilco Trading Company, Inc., an
Illinois corporation with its principal offices at 5 Revere
Drive, Suite 206, Northbrook, IL 60062 (collectively, "Agent")
and Stuarts Department Stores, Inc., a Delaware corporation with
its principal offices at 16 Forge Parkway, Franklin, MA 02038
("Merchant") for the express purpose of Merchant engaging Agent
as its sole and exclusive agent to assist Merchant in conducting
a store closing sale with respect to Merchant's Retail Inventory
(as hereinafter defined) in four (4) of Merchant's Stuarts
stores as set forth on Schedule A attached hereto and made a
part hereof (the "Stores").
WITNESSETH:
WHEREAS, Merchant currently operates twelve (12) Stuarts stores
throughout the Northeastern United States, in four (4) of which
Merchant wishes Agent to conduct the Sale (as hereinafter
defined).
WHEREAS, Merchant desires to engage Agent to provide certain
disposition services and to serve as Merchant's sole and
exclusive agent as provided above for the purposes of conducting
a store closing sale (the "Sale") whereby Agent assists Merchant
in selling its entire Retail Inventory located in the Stores
upon the terms and conditions and in the manner set forth in
this Agreement; and,
WHEREAS, Agent is willing to provide certain disposition
services to Merchant and serve as Merchant's sole and exclusive
agent for purposes of conducting the Sale upon the terms and
conditions and in the manner set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth hereinafter, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS
For purposes of this Agreement, the terms listed below shall
have the meanings indicated:
"Assumption Motion" shall mean that motion filed in the
Bankruptcy Court seeking the assumption and approval of this
Agency Agreement, pursuant to Section 365 of the Bankruptcy
Code, and the approval of all payments and obligations of the
Merchant to be made and fulfilled herein.
"Augmentation Fee" shall mean a fee equal to five percent (5%)
of the Sale Proceeds realized from the sale of the Augmented
Merchandise during the Sale Term.
"Augmented Merchandise" shall mean those items of merchandise
that Agent adds to the Sale for sale to the public during the
Sale Term which merchandise is in addition to the Retail
Inventory and for which Agent shall pay Merchant an additional
fee.
<PAGE>
"Bankruptcy Court" shall mean that court of the United States
Bankruptcy Court having jurisdiction over the prospective
voluntary or involuntary petition for Chapter 7 or Chapter 11
relief to be filed by, on or behalf of, or against the Merchant.
"Bonuses" shall mean all discretionary incentive bonuses paid
by Agent to the key Sale Employees.
"Damaged Merchandise" shall mean merchandise that is damaged,
dented, ripped, soiled, scratched, faded, torn, stained, worn,
broken, mismatched, mechanically defective, or, in the case of
perishable items, because the manufacturer's sale expiration
date has expired or will expire within thirty (30) days, or
otherwise unsaleable as goods with the quality ordinarily sold
by Merchant in the ordinary course of Merchant's business.
"Display Merchandise" shall mean merchandise which Merchant
utilizes in the Stores for display purposes (e.g., small
appliances, hardware, sporting goods, electronics, furniture,
etc.) and shall be valued as set forth in Section 3.4.
"Foothill" shall mean Foothill Capital Corporation, a California
corporation with its principal offices at 11111 Santa Monica
Boulevard, Santa Monica, CA.
"Guaranteed Payment" shall mean an amount in U.S. dollars equal
to forty-nine percent (49%) of the Retail Inventory Value the
total of which Agent shall deliver in accordance with the terms
of Section 4.1 hereof.
"Independent Third Party" shall have the meaning set forth in
Section 7 herein.
"Inventory Service" shall mean RGIS or a similar independent
professional inventory taking service who shall be employed by
Agent.
"Lease Departments" shall mean the J. Baker shoe departments
contained within the Stores in which Merchant maintains a lease
arrangement with J. Baker whereby J. Baker supplies the shoe
inventory and staffs and operates this department for which
Merchant receives a fee equal to a percentage of the net shoe
department sales.
"Material" shall mean any dispute where the amount in question
exceeds ten thousand dollars ($10,000), or any equivalent
thereof.
"Merchant" shall mean as defined herein and shall include any
successors or assigns including an Assignee or Trustee in
Bankruptcy.
"Net Proceeds" shall mean difference between the Sale Proceeds
collected and the expenses, including Sale Expenses paid or
arising to Merchant, incurred during the period between the Sale
Commencement Date and the Date of Termination of this Agency
Agreement pursuant to Section 5.7 hereof.
"Payroll Expenses" shall mean all direct and indirect employee
costs of the Sale Employees, temporary employees hired by Agent
in the Stores to assist with the Sale and the Supervisors
consisting of basic wages, salaries and benefits [including
employer contributions for taxes, workers' compensation,
insurance premiums, unemployment taxes, statutory disability,
fringe benefits, group life insurance, pension or similar
benefits, sick pay, holiday pay and vacation pay] that are
actually earned by Merchant's employee and actually accrued by
Merchant during the Sale Term (collectively, "Benefits") which
Benefits shall be limited to 18% of base payroll.
<PAGE>
"Retail Inventory" shall mean all of Merchant's saleable
merchandise as determined pursuant to the Store Inventory
contained in the Stores or any offsite warehouses or storage
areas which Merchant and Agent agree shall be delivered to the
Stores prior to the Store Inventory and all Seasonal
Merchandise, Display Merchandise and Damaged Merchandise to
which Merchant and Agent assign an agreed upon value. Retail
Inventory shall specifically exclude all items of Damaged
Merchandise, Display Merchandise or Seasonal Merchandise for
which Merchant and Agent cannot assign an agreed upon value, all
consignment merchandise, merchandise retained by Merchant as
bailee, FF&E, all merchandise subject to 'special orders',
merchandise owned by any concessionaires or lessees, merchandise
held for layaway or those held by Merchant for repair.
"Retail Inventory Value" shall mean the value of the Retail
Inventory determined by the procedures set forth in Section 3
herein.
"Retail Price" shall mean the lowest ticketed price for each
item of Retail Inventory from April 28, 1995 until the Store
Inventory date for each Store, except Damaged Merchandise,
Display Merchandise and Seasonal Merchandise not already reduced
which items shall be separately valued pursuant to Schedule B
and the provisions of Sections 3.4 herein. All items of Retail
Inventory bearing either a red and/or green price ticket and all
fine jewelry shall be valued at fifty percent (50%) of the
regular retail price for each such item of merchandise.
"Sale" shall mean the sale of Merchant's Retail Inventory
located at the Stores as provided for in this Agreement.
"Sale Commencement Date" shall mean the date mutually agreed
upon by Merchant and Agent, but in any event no later than May
5, 1995 for each Store upon the completion of the Store
Inventory in each such Store.
"Sale Employees" shall mean those employees of Merchant as
selected from time to time by Agent and any temporary employees
engaged by Merchant and/or Agent who shall work in the Stores
during the Sale Term to assist Agent in conducting the Sale.
"Sale Expenses" shall mean only direct expenses incurred during
the Sale Term in connection with the Sale, which expenses shall
be limited to Payroll Expenses and Bonuses, occupancy costs
(including rent, real estate taxes, percentage rent, CAM, HVAC
and utilities) which costs shall be prorated during the actual
Sale Term, cost of additional Supplies, security costs, all
advertising, signage and promotional expenses, Store cleaning,
trash removal, telephone charges and other direct costs of the
Sale which costs and expenses shall be prorated daily during the
Sale Term. All other costs and expenses incurred by Merchant or
Agent on behalf of Merchant as a result of the Sale, including
without limitation, major repairs, Merchant's association dues,
all central or head office and administration charges and
expenses of any kind, lease payments for personal property and
machinery or equipment, use taxes, and building and property
insurance maintained by Merchant relating to the Stores shall
remain Merchant's sole responsibility and not the responsibility
of Agent.
"Sale Proceeds" shall mean all collections, receipts or
payments realized during the Sale Term upon the sale or other
disposition of the Retail Inventory as well as the fee income
generated by the Lease Departments less applicable sales taxes
including, but not limited to, any insurance proceeds realized
thereon.
"Sale Term" shall mean the period of time beginning with the
Sale Commencement Date and ending on the Sale Termination Date
which Sale Term shall be approximately eight to ten (8-10) weeks
but in any event shall be no later than July 29, 1995.
<PAGE>
"Sale Termination Date" the last day the Sale is conducted in
any Store which shall be no later than July 29, 1995.
"Seasonal Merchandise" means (i) Retail Inventory intended to
be sold during special holidays not occurring during the
Agreement Period (such as Halloween, Thanksgiving, Christmas,
Valentine's Day, Easter, Passover or any other similar holiday)
(i) Fall, Winter and Clearance merchandise and (iii) those items
of Retail Inventory set forth on Schedule B attached hereto and
made a part hereof. For purposes of the Sale, Seasonal
Merchandise shall be included in Retail Inventory at the values
set forth on Schedule B or if not addressed on Schedule B, at a
price mutually agreed upon by Merchant and Agent.
"Stores" shall mean any one Stuarts Store listed on Schedule A
and "Stores" shall mean all of the Stuarts Stores listed on
Schedule A including all Uncle Joe's $1 stores located at the
Stuarts Stores listed on Schedule A.
"Store Closing Date" shall mean the last day the Sale is
conducted in a Store which shall be no later than July 29, 1995.
"Store Inventory" shall mean the counting of the Retail
Inventory by the Inventory Service as provided for in Section 3
hereof.
"Supervisors" shall mean such individuals as Agent may engage
to assist Agent in conducting the Sale on behalf of Merchant.
"Supplies" shall mean all supplies located at the Stores
including, but not limited to, signs, bags, boxes, ribbons,
hangers, twine, tape, paper and similar sale materials.
2. AGENT'S RIGHTS AND OBLIGATIONS
2.1 Merchant hereby retains Agent, and Agent agrees to serve,
as Merchant's agent in connection with the sale of Retail
Inventory located in the Stores upon the terms and conditions
hereinafter set forth, commencing as of the date of this
Agreement. Agent shall provide Merchant with the following
services:
* supervising, scheduling and staffing all Sale Employees
necessary to conduct the Sale which employees shall be employees
of Merchant and not of Agent;
* managing the Sale, including the discounting/pricing of the
Retail Inventory and determining all intra-store and inter-store
transfers and consolidations of the Retail Inventory and whether
merchandise should be accepted for inclusion in the Sale from
any outside vendors of Merchant;
* designing, scheduling and implementing an advertising
program for the Sale with Merchant's cooperation and approval
which approval shall not be unreasonably withheld; and
* creating and implementing all strategy with respect to the
sale of the Retail Inventory and, for purposes of the Sale, all
operational and merchandising decisions.
<PAGE>
2.2 Merchant hereby appoints Agent as Merchant's sole and
exclusive agent for purposes of conducting the Sale in the
Stores. Agent hereby accepts such exclusive appointment and
agrees to act as Merchant's agent in accordance with the terms
and conditions of this Agreement.
3. INVENTORY
3.1 Merchant and Agent shall cause the Inventory Service to
take a physical inventory of the Retail Inventory at the Stores
commencing on May 3, 1995 in Store numbers 7 and 10 and on May
4, 1995 in Store numbers 1 and 26. The procedures to perform
the inventory taking and its verifications are set forth in
Exhibit 3.1. Merchant shall close the Stores as of the normal
closing time on May 3, 1995 for Store numbers 7 and 10 and May
4, 1995 for Store number 1 and 26 shall keep each Store closed
for inventory taking purposes until completion of the Store
Inventory in that Store. Upon completion of the Store Inventory
in each Store, Merchant and Agent shall reopen the Stores and
from the time of reopening onward, Agent shall be credited with
all Sale Proceeds realized in each Store. The Inventory Service
shall be instructed to tabulate the Retail Inventory Value by
aggregating the Retail Price for each item of Retail Inventory.
The Inventory Service shall be instructed to prepare and deliver
within twenty-four (24) hours of the Store Inventory to both
Merchant and Agent a copy of the report certifying the Retail
Inventory Value.
3.2 Each of the parties shall have the right to have its own
employees and representatives present at the Stores to observe
the physical counting and review the listing and tabulation of
Retail Inventory Value and verify and test the same. Each party
shall bear the cost of its employees and representatives used in
observing and verifying the taking of the Store Inventory.
3.3 The costs and expenses of the Inventory Service shall be
borne solely (100%) by Agent.
3.4 All Damaged Merchandise, Display Merchandise and Seasonal
Merchandise shall be segregated from the Retail Inventory and
not included therein unless Agent and Merchant can agree upon
the Retail Price with respect to such item of merchandise. If
Merchant and Agent cannot reach an agreement as to a mutually
acceptable Retail Price for such item(s) of merchandise, then
such item(s) of merchandise shall be excluded from the Sale
hereunder provided, however, that Agent will accept these items,
at Merchant's sole election, as 'Merchant Goods' for sale at the
Stores at prices Agent establishes solely and Agent shall be
paid a separate fee for these items as set forth in Section 8.2
below.
3.5 Merchant estimates that the beginning retail dollar value
of all of Merchant's merchandise contained in the Stores and in
any warehouses or other offsite storage areas together with any
merchandise which is on order from or is to be delivered by
outside vendors or other similar sources is approximately
$5,500,000 in the Stores as of the Sale Commencement Date.
3.6 Subject to applicable law, Agent shall have the election to
supplement the Retail Inventory with Augmented Merchandise
during the Sale Term, Agent shall maintain separate inventory
and sales records with respect to the Augmented Merchandise and
shall pay to Merchant an Augmentation Fee as part of the Final
Reconciliation.
<PAGE>
4. PAYMENT TO MERCHANT/ACCOUNTING FOR SALE PROCEEDS
4.1 Within 24 hours after the later of the execution of this
Agency Agreement and the delivery to the Agent release of all
liens held by Foothill in and to the Retail Inventory, the Agent
shall deliver to the Merchant the Guaranteed Payment in
immediately available funds. In the event the Sale is stopped
by the Merchant's action or omission, the Agent shall have the
right to enforce its rights and exercise its remedies as a
secured party in the Retail Inventory as provided in the Uniform
Commercial Code as adopted in the Commonwealth of Massachusetts
and the State of new Hampshire, subject to the obligation to
obtain relief from the automatic stay pursuant to Section 362 of
the Bankruptcy Code in the event the Merchant is subject to the
provisions of 11 U.S.C. s101 et seq. at the time the Sale is
stopped all obligations of the Agent hereunder shall immediately
and forever cease, absent an arrangement mutually acceptable to
the parties.
4.2 Agent shall retain all Sale Proceeds from the Sale and
deposit same in a segregated account(s) established by Agent at
a bank of its choosing. Merchant shall execute and deliver all
necessary documents to open and maintain all such accounts and
Agent shall have sole signatory powers over all such accounts.
All such Sale Proceeds retained and earned by Agent hereunder
shall remain Agent's sole and exclusive property which, in the
event Merchant becomes subject to a bankruptcy or other
Insolvency proceeding shall not be deemed property of the
Merchant pursuant to Section 541 of the Bankruptcy Code.
4.3 One (1) business day prior to each day that Merchant must
fund the Payroll Expenses or other Sale Expenses, Agent shall
pay to Merchant the estimated amount of such expenses. Two (2)
business days after each payment of any Sale Expense by
Merchant, Agent shall pay the amount, if any, by which the
actual Payroll and/or Sale Expense exceeded the amount
transferred and Merchant shall pay Agent the amount, if any, by
which the amount transferred exceeds the actual Payroll or Sale
Expense. During the Final Reconciliation, as set forth in
Section 7.3 herein, Merchant and Agent shall make a final
determination of the FF&E Proceeds and FF&E Fee, if any,
Merchant Goods Fee, if any, Augmentation Fees, if any, Sale
Expenses and make any necessary adjustments and reciprocate
payments, if any, within thirty (30) days after the Sale
Termination Date.
5. CONDUCT OF THE SALE
5.1 Agent shall conduct the Sale on behalf of Merchant with
respect to the Retail Inventory at the Stores on the terms and
conditions set forth in this Agreement and in compliance with
applicable law. Agent shall use its best efforts to sell all of
the Retail Inventory in conducting the Sale. Agent, with the
assistance of the Sale Employees and Merchant's employees,
agents and representatives shall vacate each Store within
forty-eight (48) hours of the Store Closing Date and shall leave
each Store in a neat and orderly condition other than the
existence of any unsold FF&E or other leased personal property
maintained by Merchant.
5.2 Merchant shall assist Agent in establishing the requisite
systems to monitor and report sales, cash collected and Sale
Proceeds on a daily basis and Sale Expenses on a weekly basis.
5.3 Agent shall collect all sales and use taxes payable on the
sale of the Retail Inventory ("Taxes") which Taxes shall be
added to the sale price of each item of Retail Inventory sold
during the Sale and shall be paid by the customer at the time
such item of merchandise is purchased. Agent shall promptly
pay over to Merchant all such Taxes. Merchant shall remit on a
timely basis all such Taxes together with all required returns,
reports, documents and statements in respect thereof to the
appropriate taxing authorities. Merchant hereby agrees to
indemnify and hold Agent harmless from and against any and all
damages, fines, penalties, losses, claims or expenses
(including, without limitation, attorneys' fees) that Agent may
incur or sustain arising out of Merchant's failure to pay over
to the appropriate taxing authority any Taxes paid over to
Merchant by Agent generated by and collected from the Sale.
5.4 Agent shall directly retain and engage the Supervisors who
shall be independent contractors of Agent. The Supervisors are
not employees or agents of Merchant in any manner whatsoever nor
do the Supervisors have any relationship with Merchant by virtue
of this Agreement or otherwise which creates any liability or
responsibility on behalf of Merchant for such Supervisors other
than for liability directly caused by the willful or illegal
acts or wanton misconduct of Merchant and/or its employees,
representatives, agents or principals (other than Agent,
Supervisors or any person acting under the direction of Agent or
any Supervisor).
5.5 Agent, as Merchant's exclusive agent, shall have the right,
subject to applicable law, to:
a. Conduct the Sale in the name of "Stuarts Stores","Uncle
Joe's $1" and/or "Stuarts" and during the Sale Term, for the
purposes of the Sale, Agent shall have the license and right to
use all operating assets of the Merchant and the Stores,
including, but not limited to, trade names, logos, customer
lists, supplies, credit card facilities, tax identification
numbers, computer hardware and software, and FF&E.
b. Create and arrange all advertising and promotion for the
Sale, provided that Merchant shall have the right to approve all
advertising, which consent shall not be unreasonably withheld;
and that all advertising and promotion shall be submitted to Mr.
Dave Ferguson, via Facsimile (508) 520-4557, and, unless
objected to within twenty-four (24) hours of submission, shall
be deemed accepted provided that all advertising shall indicate
that none of Merchant's other stores are closing;
c. Select and schedule the number and type of Sale Employees
required by Agent to conduct the Sale;
d. Subject to the requirements of applicable law, determine
the discount from the Retail Price at which the Retail Inventory
is to be sold and consolidate the Retail Inventory among the
Stores for purposes of the Sale.
e. Merchant covenants that it shall provide Agent with the
peaceful use and occupancy of the Stores for the purpose of
conducting and advertising a store closing or similar type sale
in the Stores and take all reasonable steps necessary including
obtaining any necessary consents to maintain Agent's right to
conduct the Sale in the Stores during the Sale Term. If any
such consent(s) are required and Merchant fails to obtain them
or make alternate provisions acceptable to Agent, then this
Agreement is null and void, the Agent shall have the option to
enforce its rights and exercise its remedies as a secured party
in the Retail Inventory as provided in the Uniform Commercial
Code as adopted in the Commonwealth of Massachusetts and the
State of New Hampshire, subject to the obligation to obtain
relief from the automatic stay pursuant to Section 362 of the
Bankruptcy Code in the event the Merchant is subject to the
provisions of 11 U.S.C. s101 et seq.
<PAGE>
f. All Sales of Retail Inventory pursuant to the Sale shall be
final. The purchase price of all Retail Inventory sold pursuant
to the Sale shall be paid by cash or by major, third-party
credit card;
g. Agent shall have the right to use all Supplies in the
course of the Sale without cost or expense and shall have the
right to reasonably obtain or order from Merchant or its
supplier additional supplies at Merchant's cost;
h. Agent, its employees, Agents and representatives have the
right to be physically present on the premises to conduct the
Sale in each of the Stores and take all affirmative steps
necessary to maintain such right uninterrupted throughout the
Sale Term;
i. With prior written consent of Merchant, Agent shall have
the right to extend the Sale in any Store beyond the Sale
Termination Date;
j. Except as otherwise provided herein, to make all
merchandising, payroll, employment, advertising and other
related operational decisions with respect to the Sale;
In addition, the following rights and covenants shall be
observed, granted and provided, subject to applicable law, as to
the Stores;
k. Agent shall have the uninterrupted right to use, or receive
the services of, as the case may be the Store premises, all
utilities and all trade fixtures, equipment, furniture and
appurtenances therein including, without limitations, cash
registers and/or point of sale systems, Store keys, case keys,
security codes, safe and lock combinations to gain access to and
operate the Stores and any applicable storage areas and any
security systems. Merchant shall take all reasonable steps
necessary to maintain such rights;
l. Agent shall accept during the Sale Term gift certificates,
store credits for the Sale Stores only, returns, promotional
give-aways or any other related discounts or allowances issued
prior to the Sale Commencement Date for which Merchant shall
reimburse Agent for the face amount of all such accepted items;
m. Agent shall separately account for all returns and
allowances on merchandise sold prior to the Sale Commencement
Date, for which Merchant shall reimburse Agent and which returns
and allowances shall not be included for purposes of calculating
the Sale Proceeds realized during the Sale Term, except in
accordance with Section 5.5 (n) herein;
n. All merchandise received by Merchant as a result of a
return for sales made prior to the Sale Commencement Date
("Return Item") shall be added to the Retail Inventory Value at
the Retail Price for that item less the prevailing discount in
that Stores if the Return Item is not Damaged Merchandise. For
Damaged Merchandise that is a Return Item, Merchant and Agent
shall agree upon the appropriate value for each such Return Item
as an express condition to such item being included as part of
the Retail Inventory; and
o. Agent shall have the absolute right, subject to entering
into an appropriate arrangement with J. Baker, to retain all fee
income generated by the Lease Departments which sum shall be
included in the Sale Proceeds.
5.6 Agent shall have the right and authority to transfer Retail
Inventory between the Stores, the cost of which shall be
included in the Sale Expenses. In addition, Agent shall have
the right and authority, at its sole discretion, to close any
<PAGE>
Store during the course of the Sale. Except as otherwise
expressly provided herein Agent shall not be entitled to sell or
otherwise dispose of any inventory or assets other than those of
Merchant at the Stores.
5.7 In the event the Merchant commits a breach of any
obligation under this Agency Agreement, including but not
limited to the performance of the obligations set forth in
Section 5.5, 7.1, 9.7 or 9.8 of this Agency Agreement and the
covenants set forth in Section 10.10 of this Agency Agreement,
or in the event the conditions or deadlines for action or
determination as provided Section 9.7 and 9.8 of this Agency
Agreement are not met, the Agent shall have the right to
terminate this Agency Agreement and to enforce its rights and
exercise its remedies as a secured party in the Retail Inventory
as provided in the Uniform Commercial Code as adopted in the
Commonwealth of Massachusetts and the State of New Hampshire,
subject to the obligation to obtain relief from the automatic
stay pursuant to Section 362 of the Bankruptcy Code in the event
the Merchant is then subject to the provisions of 11 U.S.C. s101
et seq. In the event the Agent so terminates this Agency
Agreement for the reasons set forth in this subsection the Agent
shall have a claim entitled to administrative priority under
Section 507(a)(1) of the Bankruptcy Code equal to the difference
between Guaranteed Payment and the total of the Net Sale
Proceeds and the net return on the Retail Inventory realized by
the Agent through the exercise of its rights and remedies as a
secured party..
5.8 At the conclusion of the Sale and the clean-up at each
Stores, Agent shall forward to Mr. Art Landay, Director of
Construction and Store Planning, via facsimile (508) 520-4556,
written notice of the turnover of each Stores to Merchant on a
form similar to that attached hereto as Schedule 5.8.
5.9 Agent shall provide Merchant with daily and weekly reports
of sales in a form and manner mutually agreeable between the
parties.
5.10 As consideration, in part, for the services provided by
Agent, all Retail Inventory that remains unsold after the Sale
Termination Date shall become the sole and exclusive property of
the Agent, free and clear of all liens, claims, charges and
encumbrances of any kind or nature whatsoever and, in the event
Merchant obtains bankruptcy relief or involuntarily enters into
such relief, such unsold Retail Inventory shall not be deemed
property of the estate for purposes of Section 541 of the
Bankruptcy Code. Should Agent exercise such right at the
conclusion of the Sale, Agent shall remove such unsold Retail
Inventory, at its sole cost and expense, within forty-eight (48)
hours of each Store Closing Date.
6. EMPLOYEES
6.1 Agent with Merchant's reasonable approval shall have the
right to select the Sale Employees to be retained for the
purposes of completing the Sale. Agent may cease using any Sale
Employee at any time during the Sale Term, however, at least
seven (7) days prior thereto, Agent will notify Merchant of any
Sale Employee who Agent will no longer require for the purposes
of completing the Sale, unless such decision was made 'for
cause' such as dishonesty, fraud, breach of employee duties, and
Agent shall not be responsible for incurring any further Payroll
Expenses of such Sale Employees for the purposes of the Sale.
Agent shall notify Merchant immediately of any Sale Employee
dismissed for cause, which notice shall state among other
things, the basis for such termination.
6.2 Merchant shall make available to Agent all reasonably
necessary personnel to conduct the Sale and process and handle
requisite office tasks and paperwork that Agent reasonably
requires in conducting the Sale.
<PAGE>
6.3 All Sale Employees shall for all purposes remain the sole
responsibility of Merchant, and Agent, subject to Section 7.1
herein, shall have no liability whatsoever to and for the Sale
Employees including, without limitation, liability to any of
Merchant's former employees with respect to severance pay,
termination pay, vacation pay, pay in lieu of reasonable notice
of termination, or any other liability arising from Merchant's
employment of such Sale Employees prior to, during and
subsequent to the Sale other than for liability directly caused
by the willful or illegal acts or wanton misconduct of Agent
and/or its employees, representatives, agents or principals.
6.4 During the Sale Term, Merchant shall process the base
payroll for all Sale Employees who were employed by Merchant and
retained by Agent as of the Sale Commencement Date.
6.5 Agent, at its sole discretion, may provide Bonuses to
certain key Sale Employees who work in the Stores during the
Sale Term and do not voluntarily leave employment or are not
terminated 'for cause'. The allocation of such Bonuses shall be
in Agent's sole discretion and Merchant agrees to process any
such Bonuses as if they were part of Merchant's payroll.
7. EXPENSES
7.1 Agent shall be responsible for and assume all Sale
Expenses. Merchant further agrees that, subject to the Sale
Expenses, Agent shall not incur or be responsible in any way for
any other cost or expense associated with the Sale including,
without limitation, all severance costs, employee termination
costs, shutdown expenses and any other related costs.
7.2 Merchant shall provide to Agent, on a weekly basis, a
statement of the Sale Expenses (which statement shall be
furnished with invoices or such other documentation
substantiating such actual Sale Expenses) for the prior week
including all weekly payroll reports.
7.3 Within thirty (30) days after the Sale Termination Date,
Merchant and Agent shall reconcile (a) the actual Sale Expenses
to the estimated Sale Expenses Agent has previously paid and (b)
the FF&E Proceeds, FF&E Fee, Augmentation Fee and Merchant Goods
Fee to determine any and all amounts due and owing each party as
a result of the Sale (the "Final Reconciliation"). As part of
the Final Reconciliation, Agent shall provide Merchant and
Merchant shall provide Agent with all information maintained by
each party during the Sale Term relating to the foregoing items
including Merchant providing Agent with all invoices as well as
any and all documentation, including Merchant's weekly payroll
reports, substantiating each item of actual Sale Expenses. If
Merchant and Agent are unable to resolve any dispute which
arises as a result of the Final Reconciliation or which may
arise under this Section 7 or any other Section of this
Agreement relating to the Sale Expenses within thirty (30) days,
Merchant and Agent further agree to immediately submit any such
unresolvable Material dispute to an Independent Third Party to
be mutually agreed upon by Agent and Merchant whose decision as
to any such dispute(s) shall be binding upon by both parties.
8. AGENT'S FEES
8.1 In consideration for its services as agent hereunder,
Agent shall be entitled to retain for its sole benefit and as
its exclusive property all Sale Proceeds.
<PAGE>
8.2 In the event Merchant elects to supply Agent with Merchant
Goods for sale at the Stores, Agent shall receive a separate and
additional fee equal to twenty-five percent (25%) of the sale
receipts generated by Agent's sale of the Merchant Goods
("Merchant Goods Fee"). Agent shall retain all such sales
receipts in a segregated account at the Bank and shall deliver
to Merchant on each Wednesday seventy-five percent (75%) of such
sales receipts generated for the previous week (Sunday through
Saturday).
9. AFFIRMATIVE DUTIES OF MERCHANT
9.1 Merchant shall cooperate with and, upon Agent's reasonable
request, assist Agent in obtaining all necessary Sale permits
and/or licenses required in by applicable federal, provincial,
local or other governmental authorities for Merchant to conduct
the Sale in the Stores.
9.2 Merchant shall provide Agent, at Merchant's sole cost,
sufficient space, telephones, fax machine and copier access and
support services to the extent available within Merchant's
corporate/head offices which Agent requires and reasonably
requests Merchant to provide throughout the Sale Term. Agent
estimates that during the Sale Term, it will need one office,
two telephone lines and copier and facsimile access to properly
supervise and conduct Sale.
9.3 Merchant shall maintain in working order the cash
registers, heating and air systems, Store alarm systems and all
other key mechanical devices used in the ordinary course of
operations of the Stores and ensure continuous essential utility
services are provided to the Stores (the "Essential Systems")
without interruption during the Sale Term. Any such costs
incurred with respect to ordinary maintenance and repairs to the
Essential Systems shall be included in Sale Expenses, however,
any extraordinary and/or major repairs to any of the Essential
Systems shall be borne solely by the Merchant and shall not be
included in Sale Expenses. To the best of Merchant's knowledge,
none of the abovereferenced items are in need of major repair.
Agent shall bear no cost or responsibility in connection
therewith.
9.4 Merchant shall remain solely responsible for all contracts,
agreements or other obligations relating to all items of Damaged
Merchandise, Display Merchandise or Seasonal Merchandise for
which Merchant and Agent cannot assign an agreed upon value, all
consignment merchandise, merchandise retained by Merchant as
bailee, FF&E, all merchandise subject to 'special orders',
merchandise owned by any concessionaires, merchandise held for
layaway or those held by Merchant for repair as well as
processing, handling and, as of each Store Closing Date,
removing from the Stores all such .
9.5 Merchant shall not ship, transfer, direct or redirect any
merchandise or Supplies between or among the Stores or
Merchant's other retail locations or storage facilities from
April 28, 1995 onward so as to materially alter the mix or
quantities of the merchandise or Supplies of the Stores that
existing in the Stores on April 28, 1995 provided that Merchant
(a) may ship or transfer to or from any Stores merchandise
excluded from the Sale hereunder, (b) may make shipments to or
from the Stores or other locations of Merchant in the ordinary
course of business and consistent with Merchant's past practices
and the terms of this Agreement, and (c) may redirect to
Merchant's other stores any merchandise on order from vendors
that Merchant and Agent agree shall be excluded from the Sale.
9.6 Merchant agrees that during the Sale Term it shall not
aggressively discount the merchandise in its non-Sale stores
located within the same local advertising market of any Store
<PAGE>
such that a substantial portion of any such store's merchandise
is at a discount and/or selling price equal to or lower than
that in any Sale Store.
9.7 Merchant shall file the Assumption Motion in the same form
attached hereto as Exhibit 9.7 hereof as well as a motion for
expedited determination thereof and an emergency hearing
thereon, the same day that an order of the Bankruptcy Court for
relief is entered pursuant to Section 301, 302 or 303 of the
Bankruptcy Code or upon the same day that a voluntary petition
for relief pursuant to Chapter 7 or 11 of the Bankruptcy Code is
filed, the Assumption Motion. In the event assumption of this
Agency Agreement is not approved by the Bankruptcy Court,
Merchant hereby stipulates to a grant of relief from the
automatic stay pursuant to s362(d) of the Bankrupcty Code for
the purpose of allowing Agent to exercise its rights as a
secured party in the Retail Inventory, subject to the Bankruptcy
Court's approval. The Assumption Motion shall seek, in the
event that the assumption of this Agency Agreement is denied,
the Bankruptcy Court's allowance of relief from the automatic
stay, immediately upon the date of the order so denying
assumption and without the need for further action of the
Bankruptcy Court, in favor of the Agent for the purpose of
permitting the Agent to exercise its rights and remedies as a
secured party in the Retail Inventory, provided however, that
the Agent shall have a reasonable period thereafter in which to
maintain the Retail Inventory in the Stores and to have access
to the Stores for the purpose of securing and collecting the
Retail Inventory.
9.8 After the filing of a petition under 11 U.S.C. '101 et seq.
for the Merchant, the Merchant shall take all steps necessary to
retain and preserve the Merchant's and the Agent's rights to
occupy and conduct the Sale in the Stores during the Sale Term
and the Merchant shall oppose any effort by interested parties
to enjoin or interfere with the Sale in the Stores.
9.9 In the event the Merchant properly files the Assumption
Motion, the motion for expedited determination/emergency hearing
thereon, and all necessary, related pleadings in accordance with
the terms of Section 9.7 hereof, and the Bankruptcy Court denies
thereafter despite the best reasonable efforts of the Merchant
to obtain such approval the claim of the Agent arising, pursuant
to Section 502(a) of the Bankruptcy Code, from the rejection of
this Agency Agreement shall be equal to the difference between
the Guaranteed Payment and the total of the net Sale Proceeds
and the net return on the Retail Inventory realized by the Agent
through the exercise of its rights and remedies as a secured
party.
10. REPRESENTATIONS AND WARRANTIES OF MERCHANT
Merchant represents and warrants as follows:
10.1. Merchant has taken all necessary action and possesses the
right, power and authority required to execute, perform fully
its obligations hereunder and deliver this Agreement and to
consummate the transactions contemplated hereby. No additional
Board of Directors' or other corporate approval is necessary to
effectuate this Agreement nor is any court order or decree of
any federal, provincial or local government authority or
regulatory body is in effect that would prevent or impair
consummation of the transactions contemplated by this Agreement
and any and all required consents have been obtained from third
parties.
10.2 The Retail Inventory may be sold by Agent through the
Sale, subject to the terms hereof, free and clear of all liens
mortgages, pledges, charges, encumbrances or claims of whatever
nature other than those created by or with respect to Agent.
<PAGE>
10.3 Merchant has not raised any of the Retail Prices marked
on any of the Inventory since April 28, 1995 and has not raised
any of the Retail Prices in anticipation of this Agreement.
Merchant shall conduct business at the Stores in the ordinary
course between the date hereof and the Sale Commencement Date,
and there have not been, and there shall be no, promotions,
advertised sales or other discounting of inventory at the Stores
outside the ordinary course pending the Sale Commencement Date.
Store operations, profile and business will remain consistent
with historic operations, profile and business customary to the
Stores pending the Sale Commencement Date. Since February 1,
1995, Merchant has maintained its pricing files of goods in the
ordinary course and all costs listed for the goods purchased by
Merchant represent the actual costs of each item of merchandise
listed and that the prices charged to the public for goods
(whether in-store, by advertisement or otherwise) are true and
accurate.
10.4 This Agreement is the valid and binding obligation of
Merchant and is enforceable in accordance with its term.
10.5 Within the past 5 years, Merchant has not used any
business or trade names other than the name "Stuarts Stores",
"Uncle Joe's $1" or "Stuarts" at the Stores.
10.6 Merchant is not aware of any items of Retail Inventory not
being in compliance with all applicable consumer product safety
standards or rules. Merchant shall defend, indemnify and hold
Agent harmless from and against any liens, mortgages, pledges,
charges, encumbrances, equities or claims against the Retail
Inventory or any liability of Agent resulting therefrom or from
Merchant's breach of the representations and warranties in this
Section 10.6.
10.7 Merchant knows that Agent is relying upon the truth and
accuracy of all financial and other information provided to
Agent in writing prior to the date hereof and in connection with
this Agreement, and to the extent any such information becomes
inaccurate, outdated or no longer true, Merchant shall notify
Agent of same as promptly as practicable. Any information
provided to Agent by Merchant in connection with the Sale and
the services of Agent hereunder shall remain subject to
verification by Agent until Merchant fulfills all obligations
hereunder.
10.8 No broker, finder, agent or similar intermediary has acted
for or on behalf of Merchant in connection with the Sale or this
Agreement, and no broker, finder, agent or similar intermediary
is entitled to any broker's, finder's or similar fee or other
commission in connection with the Sale or this Agreement.
10.9 No legal action or proceeding has been instituted against
Merchant or, to its knowledge, threatened which would affect the
consummation of this transaction. In addition, Merchant has no
knowledge of nor has it received any notice of any involuntary
bankruptcy filing or threat of such filing by any of Merchant's
creditors.
10.10 During the Sale Term, the Merchant shall not take any
action that seeks to or would have the effect of altering,
terminating or rejecting any lease, license or other agreement
relating to the Stores, their operations, administration or the
Retail Inventory of other merchandise as well as the Stores'
equipment, machinery, inventory, goods, or accounts, as such
terms are defined under the Uniform Commercial Code as in effect
in the Commonwealth of Massachusetts. In connection herewith,
the Merchant covenants that during the Sale Term it shall not
file any motion, application or other pleading with the
Bankruptcy Court seeking, pursuant to the Section 365 of the
Bankruptcy Code, to reject, alter, amend and/or terminate the
Store Leases or any other lease, license or other agreement
relating to the Stores' equipment, machinery, inventory, goods,
or accounts, as such terms are defined under the Uniform
<PAGE>
Commercial Code as in effect in the Commonwealth of
Massachusetts and that it shall, within fifteen (15) days of
entry of an order for relief under the Bankruptcy Code, file
such pleadings as are necessary to extend the deadlines provided
under Section 365 of the Bankruptcy Code for assumption of all
such leases, licenses or other agreements relating to the Stores
such that any such deadlines would extend beyond the Sale Term.
Notwithstanding the foregoing, Merchant may take any action with
respect to the Store Leases so long as the right of Agent to
occupy the Store premises for the purpose of conducting the Sale
as set forth in this Agreement shall remain unaffected during
the Sale Term, including no material change in occupancy costs
related thereto.
11. REPRESENTATIONS AND WARRANTIES OF AGENT
Agent represents and warrants as follows:
11.1 Agent has taken all necessary action required to authorize
the execution, performance and delivery of this Agreement and to
consummate the transactions contemplated hereby.
11.2 This Agreement is a valid and binding obligation of Agent
enforceable in accordance with its terms.
11.3 No legal action or proceeding has been instituted against
Agent or, to its knowledge, threatened which would affect the
consummation of this transaction.
11.4 No broker, finder, agent or similar intermediary has acted
for or on behalf of Agent in connection with the Sale or this
Agreement, and no broker, finder, agent or similar intermediary
is entitled to any broker's, finder's similar fee or other
commission in connection with the Sale or this Agreement.
12. INSURANCE
12.1 Effective as of the date of this Agreement until the
expiration of the Sale Term, Merchant shall continue in force
all worker's compensation, general liability (including product
liability and completed operations) and property coverages in
such amounts as Merchant currently has in effect. In addition,
Merchant shall add Agent as an additional insured for the
purpose of Merchant's general liability and inventory insurance
and Agent shall provide Merchant with evidence of similar
coverage.
12.2 During the Sale Term, Agent shall maintain, at its cost,
comprehensive public liability insurance for injury to persons
and for property, naming Merchant as an additional insured.
12.3 In the event of an uninsured loss to the Retail Inventory
occurring subsequent to the Store Inventory and prior to the
Sale Termination Date, the proceeds of such insurance
attributable to the Retail Inventory, but specifically excluding
any proceeds of business interruption insurance, shall be
accounted for by Merchant and such proceeds shall be deemed to
be included as part of the Sale Proceeds. Any portions of such
insurance proceeds due Agent shall be paid promptly to Agent
upon receipt thereof.
<PAGE>
13. INDEMNIFICATION
13.1 Merchant hereby agrees to indemnify, defend, protect and
hold harmless Agent and its officers, directors, shareholders,
employees, agents and representatives from and against all
demands, claims, actions, assessments, losses, damages,
liabilities costs and, arising from demands by third parties
claiming a security interest in, or lien or encumbrance against,
the Retail Inventory, or proceeds thereof, any claims with
respect to Sale Employee severance and/or termination liability,
any claims with respect to consigned merchandise, and any claims
concerning any matters with respect to which Merchant warrants,
represents and covenants herein.
13.2 Agent agrees to indemnify, defend and hold Merchant
harmless from and against any and all Claims and expenses
(including but not limited to reasonable attorneys' fees and
costs of suit), of any kind and nature whatsoever, arising out
of or in connection with the services rendered by Agent and
Supervisors pursuant to this Agreement resulting from the gross
negligence or willful misconduct of Agent or Supervisors in
performing such services, including without limitation, Agent's
breach of any term of this Agreement.
14. LIMITATION OF AGENT'S LOSS/DAMAGE
14.1 Notwithstanding anything to the contrary contained in this
Agency Agreement, any and all loss and/or damage of Agent on
account of any and all claims of Agent against Merchant arising
hereunder shall be limited, in the aggregate, to an amount equal
to the difference between: (a) the Guaranteed Payment; and (b)
the Net Sales Proceeds plus the net amount realized by Agent on
the Retail Inventory through the exercise of Agent's rights and
remedies as a secured party, having acted in a commercially
reasonable manner and in accordance with applicable law.
Agent's claim for such loss and/or damage may be asserted by
Agent against Merchant as an administrative claim with the
priority afforded to it by '507(a) (1) of the Bankruptcy Code.
15. OPERATING PROVISIONS
15.1 Each of Merchant and Agent shall from time to time, both
before and after the date of this Agreement, diligently take or
cause to be taken such action and execute and deliver or cause
to be executed and delivered to the other such documents and
further assurances as may, in the reasonable opinion of counsel
for the other, be necessary or advisable to give effect to this
Agreement.
15.2 Each party shall provide to the other such information and
copies of such records and documents as the other may reasonably
request for the purpose of confirming the calculation of any
amounts hereunder. Except as required by applicable law, Agent
shall keep all information and records relating to Merchant, the
Stores, the Sale and this Agreement in strictest confidence and
shall not disclose any such information or records to any person
or entity other than its own financial, legal and accounting
professionals for Agent's internal purposes only.
15.3 Any notice or other communication under this Agreement
shall be in writing and may be delivered personally or sent by
facsimile or by prepaid registered or certified mail, addressed
as follows:
<PAGE>
(i) in the case of Agent:
Mr. Rick Rosenbloom
Hilco Trading Company, Inc.
5 Revere Drive, Suite 206
Northbrook, IL 60062
Telephone: (708) 509-1020
Facsimile: (708) 509-1150
with a copies to:
Mr. Gary Mintz
Great American Asset Management
2812 Santa Monica Blvd., Suite 204
Santa Monica, CA 90404
Telephone:(310) 310-1515
Facsimile: (310) 315-9225
George M. Kelakos, Esq.
Cohn & Kelakos
265 Franklin Street
Boston, MA 02110
Telephone: (617) 951-2505
Facsimile: (617) 951-0679
(ii) and in the case of Merchant:
Mr. David S. Ferguson
Stuarts Department Stores, Inc.
16 Forge Parkway
Franklin, MA 02038
Telephone: (508) 520-4540, Ext. 224
Facsimile: (508) 520-4557
with a copy to:
J. Robert Seder, Esq.
Seder & Chandler
339 Main Street
Worcester, Massachusetts 01608
Telephone: (508) 757-7721
Facsimile: (508) 831-0955
15.4 Time shall be of the essence of this Agreement.
15.5 All references to currency in this Agreement shall be
references to U.S. dollars.
15.6 This Agreement is expressly subject to the following
conditions:
<PAGE>
(a) Merchant shall obtain all consents and approvals necessary
for Merchant to execute and perform this Agreement; and
(b) Merchant shall obtain all consents and approvals necessary
to prevent, cure or waive any breaches or defaults under any
agreement to which Merchant is a party whether or not occasioned
by the execution and performance of this Agreement necessary to
perform its obligations under this Agreement.
15.7 This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
15.8 This Agreement constitutes the entire agreement between
the parties with respect to the subject matter and supersedes
all prior negotiations and understandings.
15.9 This Agreement shall not be assigned by either party
without the written consent of the other and shall inure to the
benefit of, and be binding upon, the parties and their
respective successors and permitted assigns.
15.10 This Agreement may be executed in several counterparts,
each of which when so executed shall be deemed to be an original
and such counterparts, together, shall constitute one and the
same instrument. Delivery by facsimile of this agreement or an
executed counterpart hereof shall be deemed a good and valid
execution and delivery hereof.
15.11 It is expressly agreed that Agent is acting as an
independent contractor in performing its services hereunder.
Merchant shall carry no Worker's Compensation insurance or any
health or accident insurance to cover Agent nor Supervisors, or
any employees of either. Merchant shall not pay any
contribution to Social Security, unemployment insurance federal
or state withholding taxes, nor provide any other contributions
or benefits to Agent nor Supervisors, or employees of either.
15.12 Neither Agent nor Supervisors shall have or hold
themselves out as having, any right, power, or authority to
create any contract or obligation, either express or implied, on
behalf of, in the name of, or binding upon Merchant, or to
pledge Merchant's credit, or to extend credit in Merchant's name
unless Merchant shall consent thereto in advance in writing.
15.13 Agent and Supervisors shall perform their duties in
strict compliance with all, and shall not cause Merchant to be
in violation of any, applicable laws, rules and regulations of
duly constituted governmental authorities, and shall obtain all
licenses, registrations or other approvals required by law in
connection with the services to be rendered hereunder.
15.14 Nothing contained herein shall be deemed to create any
relationship between the parties other than the relationship of
Agent and Merchant. It is stipulated that the parties are not
partners, or joint venturers, or, except as expressly provided
to the contrary herein, agents of one another.
15.15 Upon the entry of an order for relief for the Merchant
pursuant to Sections 301, 302, and 303 of the Bankruptcy Code,
the Bankruptcy Court shall have exclusive jurisdiction over any
and all disputes arising out of this Agency Agreement, including
the interpretation and enforcement hereof and the performance of
the parties hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement on the day and year first written above.
Great American Asset Management
By: __________________________
Name: Gary Mintz
Position: President
Hilco Trading Company, Inc.
By:___________________________
Name: Rick Rosenbloom
Position: Vice President/General Counsel
Stuarts Department Stores, Inc.*
By:__________________________
Name: David S. Ferguson
Position: President and COO
*Dave Ferguson's signature represents the binding obligation of
Stuarts with full Board of Directors' approval.
