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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from October 30, 1994 to January 28, 1995
Commission File Number 0-15542
-----------------------------
Lamonts Apparel, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware #75-2076160
(State of Incorporation) (I.R.S. Employer Identification Number)
3650 131st Avenue S.E., Bellevue, Washington 98006
(Address of Principal Executive Offices)
(206) 562-8386
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
As of April 17, 1995 there were 17,887,775 shares of the Registrant's Common
Stock, par value $.01 per share, outstanding.
Page 1
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
FORM 10-Q
JANUARY 28, 1995
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
- Consolidated Balance Sheets - January 28, 1995
and October 29, 1994 3
- Consolidated Statements of Operations and
Accumulated Deficit for the quarters ended
January 28, 1995 and January 29, 1994 4
- Consolidated Statements of Cash Flows for the
quarters ended January 28, 1995 and January 29, 1994 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 3 - Defaults Upon Senior Securities 13
Item 6 - Exhibits and Reports on Form 8-K 13
2
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 28, OCTOBER 29,
1995 1994
------------- ------------
<S> <C> <C>
Current Assets:
Cash $7,972 $2,694
Receivables, net 3,050 1,994
Inventories 29,145 61,713
Prepaid expenses and other 5,917 5,924
Restricted cash 532
------------- ------------
Total current assets 46,616 72,325
Property and equipment 51,924 54,661
Leasehold interests 5,058 5,241
Excess of cost over net assets acquired 13,639 13,730
Deferred financing costs 3,436 3,617
Restricted cash 256 1,884
Other assets 486 1,131
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Total assets $121,415 $152,589
------------- ------------
------------- ------------
Liabilities not subject to settlement under
reorganization proceedings:
Current Liabilities:
Borrowings under working capital facility $15,838 $24,593
Accounts payable 1,754 16,151
Accrued payroll and related costs 2,913 4,979
Accrued taxes 455 1,699
Accrued interest 336 1,249
Accrued store closure costs 2,951 3,557
Other accrued expenses 5,198 8,047
Current maturities of obligations under capital leases 1,316
Current maturities of long term debt 796
------------- ------------
Total current liabilities 29,445 62,387
Long term debt to related party 66,026
Obligations under capital leases 14,616
Other 2,000
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Total liabilities not subject to settlement
under reorganization proceedings 29,445 145,029
------------- ------------
Liabilities subject to settlement under
reorganization proceedings: 108,333
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Stockholders' Equity (Deficit):
Common stock, $.01 par value; 40,000,000 shares 179 179
authorized, 17,887,775 and 17,875,230 shares
issued and outstanding, respectively
Additional paid in capital 62,843 62,777
Accumulated deficit (79,385) (55,396)
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Total stockholders' equity (deficit) (16,363) 7,560
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Total liabilities and stockholders' equity (deficit) $121,415 $152,589
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</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------
JANUARY 28, JANUARY 29,
1995 1994
-------------- -------------
<S> <C> <C>
Revenues $71,014 $77,737
Cost of merchandise sold 59,841 48,954
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Gross profit 11,173 28,783
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Operating and administrative expenses 22,000 23,112
Depreciation and amortization 2,666 2,753
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Operating costs 24,666 25,865
-------------- -------------
Earnings (loss) before other income (expense)
and reorganization expenses (13,493) 2,918
Other income (expense):
Interest expense (contractual interest of $3,581 in 1995)
Cash (1,356) (2,787)
Non-cash (1,670)
Other 29 (367)
-------------- -------------
Loss before reorganization expenses (16,490) (236)
Reorganization expenses 7,499
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Net loss (23,989) (236)
Accumulated deficit, beginning of period (55,396) (10,871)
-------------- -------------
Accumulated deficit, end of period ($79,385) ($11,107)
-------------- -------------
-------------- -------------
Net loss per common share ($1.34) ($0.03)
-------------- -------------
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</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------
JANUARY 28, JANUARY 29,
1995 1994
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($23,989) ($236)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 2,666 2,753
Store closure costs (970)
Non-cash interest 1,670
Write-off of deferred financing costs 369
Reorganization expenses 7,499
Decrease in inventories 31,654 19,089
Decrease in prepaid expenses and other 592 1,396
Decrease in accounts payable (3,245) (11,943)
Decrease in accrued interest (666) (2,637)
Other 1,791 253
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Cash provided by operating activities
before reorganization items 17,002 9,044
Operating cash flows used by reorganization items:
Payments for professional fees and other expenses related
to the Chapter 11 proceedings (1,872)
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Cash provided by operating activities 15,130 9,044
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Cash flows from investing activities:
Capital expenditures (694) (985)
Other (3) 146
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Cash used in investing activities (697) (839)
-------------- -------------
Cash flows from financing activities:
Proceeds from sale of preferred stock 13,399
Payment of long-term debt (13,000)
Pre-petition borrowings under working capital facility 26,667 18,778
Pre-petition payments under working capital facility (35,422) (26,100)
Payments on obligations under capital leases (373) (360)
Payment of financing costs (417)
Other (27) (319)
-------------- -------------
Cash used by financing activities (9,155) (8,019)
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Net increase in cash 5,278 186
Cash, beginning of period 2,694 2,925
-------------- -------------
Cash, end of period $7,972 $3,111
-------------- -------------
-------------- -------------
Supplemental cash flow information:
Cash interest paid $1,401 $5,454
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
NOTE 1 - PETITION FOR RELIEF UNDER CHAPTER 11
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the "Company")
filed a voluntary petition for relief (the "Filing") under chapter 11 ("Chapter
11") of title 11 of the United States Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the Western District of Washington at Seattle (the
"Bankruptcy Court"), seeking to reorganize under Chapter 11. In Chapter 11, the
Company will continue to manage its affairs and operate its business as a
debtor-in-possession while it develops a reorganization plan that will
restructure the Company and allow its emergence from Chapter 11. As a debtor-
in-possession in Chapter 11, the Company may not engage in transactions outside
of the ordinary course of business without approval, after notice and hearing,
of the Bankruptcy Court.
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are stayed while the Company continues its business
operations as a debtor-in-possession. These liabilities are included in the
January 28, 1995 balance sheet as "liabilities subject to settlement under
reorganization proceedings."
As a result of the Filing, the Company is currently in default under the
indentures (the "Indentures") governing the Company's 10-1/4% Subordinated Notes
due November 1999 (the "10-1/4% Notes") and 13-1/2% Senior Subordinated Notes
due February 1995 (the "13-1/2% Notes"). As a result, all unpaid principal of,
and accrued pre-petition interest on, such debt became immediately due and
payable. The payment of such debt and accrued but unpaid interest thereon is
prohibited during the pendency of the Company's Chapter 11 case, and these
liabilities have been included in the January 28, 1995 balance sheet as
"liabilities subject to settlement under reorganization proceedings."
In accordance with the Bankruptcy Code, the Company can seek court approval for
the rejection of pre-petition executory contracts, including real property
leases. Any such rejection may give rise to a prepetition claim for breach of
contract. In connection with the Company's Chapter 11 proceedings, nine real
property leases and certain executory contracts have been rejected with
Bankruptcy Court approval.
In connection with the Company's Chapter 11 case, the United States Trustee has
appointed committees for the Company's (i) bondholders, (ii) other general
unsecured creditors and (iii) equityholders.
As a result of the reorganization proceedings, the Company may sell or otherwise
realize assets and liquidate or settle liabilities for amounts other than those
reflected in the financial statements. Further, a plan of reorganization could
materially change the amounts currently recorded in the financial statements,
including amounts recorded for the excess of cost over net assets acquired.
Except as discussed in Note 6, the financial statements do not give effect to
any adjustments to the carrying value of assets, or amounts and classification
of liabilities that might be necessary as a consequence of these matters.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries. On
March 9, 1995, the Company elected to change its fiscal year end from the
Saturday closest to October 31 to the Saturday closest to January 31 in order to
enhance comparability of the Company's results of operations with other apparel
retailers. Accordingly, the accompanying financial statements include the
results of operations of the Company for the transitional quarter ended January
28, 1995 and for the comparable prior year period, and should be read in
conjunction with the audited, annual financial statements for the year ended
October 29, 1994, included in the Company's Annual Report on Form 10-K.
The accompanying consolidated financial statements have been prepared 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. The financial statements have been prepared on a going concern
basis of accounting and do not reflect any adjustments that might result should
the Company be unable to continue as a going concern. Although the Company's
recurring losses from operations have raised substantial doubt about its ability
to continue as a going concern, the Chapter 11 filing has afforded the Company
the opportunity to improve its operating performance and restructure its balance
sheet. The appropriateness of using the going concern basis is dependent upon,
among other things, (i) the ability to comply with its debtor-in-possession
financing agreement, (ii) confirmation of a plan of
6
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reorganization under the Bankruptcy Code, (iii) the ability to achieve
profitable operations after such confirmation and (iv) the ability to generate
sufficient cash from operations to meet its obligations.
The financial statements presented herein reflect all adjustments that are, in
the opinion of management, necessary to present fairly the operating results for
the quarterly periods reported. Except as discussed in Notes 3 and 6, all such
adjustments are normal and recurring in nature. The results of operations for
the quarterly periods are not necessarily indicative of results for the entire
year.
NOTE 3 - INVENTORIES
Inventories are valued at the lower of cost (using the retail last-in, first-out
("LIFO") method) or net realizable value. At October 30, 1992, as a result of a
comprehensive recapitalization, the purchase price allocated to inventories was
computed based on the estimated selling prices of such merchandise less the
costs of disposal and a profit for the selling effort. As a result of purchase
accounting and the use of the LIFO method, the Company has recorded a carrying
value in excess of the weighted average cost of inventories (the "Step-up").
Accordingly, the carrying value of the Company's inventories at January 28, 1995
and October 29, 1994, exceeded the weighted average cost of inventories by $2.6
million and $5.5 million, respectively.
The decrease in the Step-up is primarily attributable to the Company's election
to change its fiscal year end. As inventory quantities at the end of January
are typically lower than inventory quantities at the end of October, the use of
the LIFO method resulted in a liquidation of a portion of the remaining Step-up.
The effect of this liquidation was to decrease the Company's gross profit by
$2.9 million during the quarter ended January 28, 1995.
NOTE 4 - LOAN AND SECURITY AGREEMENT
On January 12, 1995, the Bankruptcy Court approved an interim working capital
facility (the "Interim Facility") between the Company and Foothill Capital
Corporation ("Foothill"). Interest on borrowings under the Interim Facility
accrued at the rate of 3% per annum in excess of the Reference Rate (as defined
therein).
On February 17, 1995, the Company replaced the Interim Facility with a Loan and
Security Agreement (the "DIP Facility") with Foothill. The DIP Facility, as
approved by the Bankruptcy Court, provides a borrowing capacity of up to $32.0
million in revolving loans and letters of credit, subject to borrowing base
limitations based upon, among other things, the value of inventory and certain
real property. Letters of credit issuable under the facility are limited to
$15.0 million.
The DIP Facility provides that interest upon advances made pursuant thereto will
accrue at the rate of 3% per annum in excess of the Reference Rate (as defined
therein), payable monthly in arrears. The DIP Facility also provides that in the
event of a default in the payment of any amount due thereunder, the interest
rate on such defaulted amount shall be 4.5% per annum in excess of the Reference
Rate, payable on demand.
The obligations of the Company under the DIP Facility are collateralized by,
among other things, inventory and certain real property. The DIP Facility
imposes limitations on the Company with respect to, among other things, (i) the
creation or incurrence of liens, (ii) consolidations, mergers and sales of
assets, (iii) the incurrence of guarantees or other contingent obligations, (iv)
capital expenditures in excess of specified levels, (v) the creation or
incurrence of any indebtedness for borrowed money or the payment of principal of
or interest on any prepetition indebtedness, (vi) the prepayment of certain
indebtedness and (vii) transactions with affiliates. Additionally, the Company
must maintain a minimum Net Worth (as defined in the DIP Facility to exclude,
among other items, reorganization expenses, certain liabilities incurred prior
to the Filing, write-offs of goodwill, store closure reserves and non-cash
interest) of $10.0 million. The Company is currently in compliance in all
material respects with the terms contained in the DIP Facility.
The DIP Facility expires on the earlier of (i) May 17, 1996, with provisions for
three quarterly renewals, and (ii) the effective date of the Company's plan of
reorganization in the Chapter 11 case.
The Company paid Foothill $80,000 upon the closing of the DIP Facility. Future
fees payable under the DIP Facility consist primarily of (i) remaining closing
fees totalling $240,000 to be paid during the year ending January 31, 1996, plus
certain other expenses, (ii) monthly payments equal to 1/2% of the average
unused borrowing capacity and (iii) quarterly payments equal to 1/4% of the
borrowing capacity for each quarterly renewal period.
7
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NOTE 5 - LIABILITIES SUBJECT TO SETTLEMENT UNDER REORGANIZATION PROCEEDINGS
Liabilities subject to settlement under reorganization proceedings include the
following as of January 28, 1995 (dollars in thousands):
<TABLE>
<S> <C>
Accounts payable and accrued liabilities $23,714
Capital Lease Obligations 15,560
10-1/4% Notes (including pre-petition accrued interest) 67,576
13-1/2% Notes (including pre-petition accrued interest) 838
Notes Payable 645
-----------
$108,333
-----------
-----------
</TABLE>
As a result of the Filing, payment of principal and interest under the
Indentures has been stayed while the Company continues with its business
operations as a debtor-in-possession. The Company discontinued accruing
interest on these obligations as of the date of the Filing. Contractual
interest on these obligations, which is $0.6 million in excess of reported
interest expense, amounted to $2.2 million for the quarter ended January 29,
1995.
NOTE 6 - REORGANIZATION EXPENSES
Reorganization expenses represent costs directly related to the Company's
Chapter 11 case and include (i) estimated costs associated with the rejection of
real property leases, (ii) estimated costs for the court-approved closure of six
underperforming stores and (iii) professional fees and other expenditures.
Closure of the six stores is estimated to result in a reduction of future
minimum rental commitments of approximately $19.0 million for periods reported
after the Petition Date.
NOTE 7 - LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss by the weighted
average number of common shares outstanding during the period. The Company's
common stock equivalents, represented by stock options, warrants and Series A
Preferred Stock (outstanding from December 1, 1993 to March 13, 1994) were not
considered in the calculation as they either have an exercise price greater than
the applicable market price, or the effect of assuming their exercise or
conversion is anti-dilutive. The weighted average number of common shares
outstanding for the quarters ended January 28, 1995 and January 29, 1994 were
17,883,135 and 8,934,428, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit originally brought as a class action in
state court in Anchorage, Alaska on September 18, 1992. Plaintiffs alleged that
store "area managers" in the State of Alaska are not exempt from overtime pay
requirements under the Alaska Wage and Hour Act (the "AWHA") and thus have
worked hours for which they have not been compensated. The complaint seeks back
wages, liquidated damages, attorneys fees and costs. The class has not yet been
certified and the case had been removed to Federal District Court in Anchorage.
In November 1993, plaintiffs amended the complaint to allege a new claim on
behalf of themselves and allegedly similarly situated employees under Section
216(b) of the Fair Labor Standards Act (the "FLSA"), in addition to the original
claim under the AWHA. However, on March 25, 1994, the plaintiffs dismissed
their new FLSA claim. In consideration of that dismissal, the parties agreed to
remand the remaining original AWHA claim back to state court and the remand was
ordered by the court on May 27, 1994. On August 8, 1994, Plaintiffs moved for
partial summary judgment declaring that they were not paid on a salary basis
required for exemption from AWHA overtime requirements and on September 30, 1994
the Company cross-moved for partial summary judgment declaring that certain of
its employment policies did not violate the salary requirement for exemption
from AWHA. On December 15, 1994 the court denied Plaintiffs' motion holding
that they had failed to show that they were not paid a salary and that factual
issues remained. The court contemporaneously denied the Company's motion
holding that there were genuine issues of material fact.
The Company is also involved in various other matters of litigation arising in
the ordinary course of business. In the opinion of management, the ultimate
outcome of all such matters should not have a material adverse effect on the
financial position of the Company, but, if decided adversely to the Company,
could have a material effect on quarterly or annual operating results during the
period such matters are resolved.
8
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
Lamonts Apparel, Inc. (the "Company") retails brand-name apparel and accessories
for the entire family through its 43 full-line apparel stores. Lamonts
currently operates in malls and regional shopping centers located in the states
of Alaska, Idaho, Montana, Oregon, Utah and Washington.
On January 6, 1995 (the "Petition Date"), the Company filed a voluntary petition
for relief (the "Filing") under chapter 11 ("Chapter 11") of title 11 of the
United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the Western District of Washington at Seattle (the "Bankruptcy Court"),
seeking to reorganize under Chapter 11. In Chapter 11, the Company will
continue to manage its affairs and operate its business as a debtor-in-
possession while it develops a reorganization plan that will restructure the
Company and allow its emergence from Chapter 11. As a debtor-in-possession in
Chapter 11, the Company may not engage in transactions outside of the ordinary
course of business without approval, after notice and hearing, of the Bankruptcy
Court.
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are stayed while the Company continues its business
operations as a debtor-in-possession. In a Chapter 11 reorganization plan, the
rights of the creditors may be significantly altered. Creditors may receive
substantially less than the full face amount of claims. No estimate of the
amount of adjustments, if any, from recorded amounts, to amounts to be realized
by creditors, is available at this time.
As a result of the Filing, the Company is currently in default under the
indentures (the "Indentures") governing the Company's 10-1/4% Subordinated Notes
due November 1999 (the "10-1/4% Notes") and 13-1/2% Senior Subordinated Notes
due February 1995 (the "13-1/2% Notes"). As a result, all unpaid principal of,
and accrued prepetition interest on, such debt became immediately due and
payable. The payment of such debt and accrued but unpaid interest thereon is
prohibited during the pendency of the Company's Chapter 11 case.
Since January 29, 1994, the Company has closed 15 stores, six of which, with the
approval of the Bankruptcy Court, were closed subsequent to January 28, 1995.
Of the 15 stores closed, one was closed due to the expiration of its lease and
14 were closed due to poor performance. Management is continually evaluating
store locations and operations to determine whether to close, downsize or
relocate stores that do not meet performance objectives. In March 1995, the
Company opened a store in Issaquah, Washington.
On October 18, 1994, the holders of all outstanding 10-1/4% Notes (i) granted
the Company the option, subject to certain conditions, to exchange the 10-1/4%
Notes held by them for shares of common stock, par value $0.01 per share (the
"Common Stock"), representing approximately 70% of the Common Stock of the
Company outstanding immediately following the exchange and $50.0 million
aggregate liquidation preference of a new series of preferred stock of the
Company and (ii) released the collateral securing the 10-1/4% Notes and
generally subordinated the Company's obligations under the 10-1/4% Notes so that
they are junior to trade payables and certain other liabilities, subject to
certain exceptions. On March 27, 1995, the Company received an extension from
the holders of the 10-1/4% Notes to extend, indefinitely, the time in which the
Company may exercise its option to require the holders to exchange their 10-1/4%
Notes, provided, however, that a majority of the holders of the 10-1/4% Notes
may terminate such extension upon 60 days notice to the Company.
On March 9, 1995, the Company elected to change its fiscal year end from the
Saturday closest to October 31 to the Saturday closest to January 31 in order to
enhance comparability of the Company's results of operations with other apparel
retailers. Accordingly, the following discussion encompasses the results of
operations of the Company for the transitional quarter ended January 28, 1995
and for the comparable prior year period, and should be read in conjunction with
the audited, annual financial statements for the year ended October 29, 1994,
included in the Company's Annual Report on Form 10-K.
9
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RESULTS OF OPERATIONS
QUARTER ENDED JANUARY 28, 1995 COMPARED TO
QUARTER ENDED JANUARY 29, 1994
REVENUES. Revenues of $71.0 million for the quarter ended January 28, 1995
decreased 8.6% on a total store basis from $77.7 million for the quarter ended
January 29, 1994. Comparable store revenues decreased 6.4% for the quarter
ended January 28, 1995 as compared to the same period for the prior year. Store
closures contributed $2.4 million to the total store revenue decline.
Management believes that revenues have been and will continue to be adversely
affected, in part, by (i) a weak retail environment for apparel, (ii) the
adverse publicity associated with the Filing and (iii) the interruption in the
receipt of merchandise due to a reduction in available credit since the Filing.
GROSS PROFIT. Gross profit, as a percentage of revenues (excluding the effects
of non-cash charges of $3.9 million during the quarter ended January 28, 1995
and $0.3 million during the quarter ended January 29, 1994), decreased
approximately 16.3% for the quarter ended January 28, 1995, to 21.2% as compared
to 37.5% for the quarter ended January 29, 1994. The decrease in gross profit,
excluding non-cash items, is primarily attributable to the significant markdowns
taken during the quarter ended January 28, 1995 in order to clear aged and slow-
moving merchandise from the Company's inventory. Non-cash charges, primarily
resulting from the Company's usage of the last-in, first-out method for valuing
inventories, increased during the quarter ended January 28, 1995 due to the
liquidation of a step-up layer included in inventory (see Note 3 of the Notes to
the Consolidated Financial Statements contained elsewhere in this document).
The Company's new management has developed and commenced the implementation of
new merchandising strategies, which are intended to (i) improve the quality of
merchandise offered while maintaining price points geared to the Company's
customer base, (ii) reduce or eliminate low-margin items and departments and add
higher margin goods and (iii) reduce inventory levels and increase inventory
turns. The Company has also initiated a policy to mark-down and clear out slow-
moving and seasonal merchandise in a timely manner.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses of
$22.0 million for the quarter ended January 28, 1995 were $1.1 million lower
than the $23.1 million incurred for the quarter ended January 29, 1994. The
closure of nine stores subsequent to January 29, 1994 resulted in a decrease of
$1.8 million in operating and administrative expenses offset, in part, by a
slight increase in comparable store operating and administrative expenses. As a
percentage of revenues, operating and administrative expenses increased to 31.0%
for the quarter ended January 28, 1995 compared to the 29.7% for the same period
of the prior year due to lower revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $2.7
million for the quarter ended January 28, 1995 remained relatively unchanged
from $2.8 million recorded for the quarter ended January 29, 1994. Increased
depreciation and amortization associated with newly acquired assets offset
reductions associated with assets retired as a result of store closures and
assets becoming fully depreciated or amortized.
INTEREST EXPENSE. Interest expense of $3.0 million ($1.3 million cash and $1.7
million non-cash) for the quarter ended January 28, 1995 increased $0.2 million
from $2.8 million (all cash) in the prior year period primarily due to (i) the
accrual of payment-in-kind interest on the 10-1/4% Notes at the rate of 13%
through the date of the Filing as compared to a cash interest rate of 10-1/4% in
effect for the majority of the prior year period and (ii) higher borrowing
levels and higher interest rates under the Company's working capital facilities,
offset by (i) the termination of interest accruals on the 10-1/4% Notes and on
the 13-1/2% Notes as of the date of the Filing and (ii) the December 1993
repurchase of $13.0 million aggregate principal amount of the 10-1/4% Notes.
OTHER. Other expense of $0.4 million for the quarter ended January 29, 1994
reflects the write-off of the pro-rata portion of deferred financing costs
attributable to the $13.0 million aggregate principal amount of 10-1/4% Notes
repurchased in December 1993.
REORGANIZATION EXPENSES. Reorganization expenses represent costs directly
related to the Company's Chapter 11 case and include (i) estimated costs
associated with the rejection of real property leases, (ii) estimated cost of
closing six underperforming stores and (iii) professional fees and other
expenditures.
NET LOSS. The Company reported a net loss of $24.0 million for the quarter
ended January 28, 1995 as compared to a net loss of $0.2 million for the quarter
ended January 29, 1994. The decrease in net earnings of $23.8 million is
primarily attributable to decreased gross profit dollars and the recognition of
reorganization expenses attributable to the Chapter 11 proceedings offset, in
part, by lower operating and administrative expenses.
10
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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company generated $17.0 million of cash from operating activities before
reorganization items for the quarter ended January 28, 1995, an increase of $8.0
million as compared to $9.0 million for the quarter ended January 29, 1994. The
increase is primarily due to (i) a $12.3 million decrease in inventory
purchases, (ii) an $8.7 million reduction in payments on vendor accounts payable
as a result of the Filing, (iii) the Company's election to pay its November 1,
1994 interest payment in additional 10-1/4% Notes as compared to $4.4 million of
interest paid in cash during the prior year period and (iv) a $1.1 million
decrease in operating and administrative expenses. These amounts were partially
offset by a $17.6 million decrease in gross profit and the payment of $1.0
million of store closure costs.
The Company used $0.7 million of cash in investing activities in the quarter
ended January 28, 1995 as compared to $0.8 million in the quarter ended January
29, 1994, primarily for capital expenditures.
The $1.1 million increase in cash used by financing activities is primarily due
to higher payments (net) under the Company's working capital facilities during
the quarter ended January 28, 1995 as compared to the quarter ended January 29,
1994, offset by payments of financing costs in the prior year period.
WORKING CAPITAL
As of January 28, 1995, the Company had $8.0 million of cash and an additional
$0.5 million of current restricted cash, representing the funding of payroll and
taxes in connection with the Filing. The Company's current assets exceeded
current liabilities not subject to settlement under reorganization proceedings
by $17.2 million and $9.9 million at January 28, 1995 and October 29, 1994,
respectively. A substantial portion of the increase in the Company's working
capital resulted from the reclassification of certain current liabilities
existing on the date of the Filing into the portion of the Company's balance
sheet entitled "liabilities subject to settlement under reorganization
proceedings."
CAPITAL RESOURCES
On February 17, 1995, the Company replaced its interim working capital facility
with a Loan and Security Agreement (the "DIP Facility") with Foothill Capital
Corporation ("Foothill"). The DIP Facility, as approved by the Bankruptcy
Court, provides a borrowing capacity of up to $32.0 million in revolving loans
and letters of credit, subject to borrowing base limitations based upon, among
other things, the value of inventory and certain real property. Letters of
credit issuable under the facility are limited to $15.0 million.
The DIP Facility provides that interest upon advances made pursuant thereto will
accrue at the rate of 3% per annum in excess of the Reference Rate (as defined
in the DIP Facility), payable monthly in arrears. The DIP Facility also provides
that in the event of a default in the payment of any amount due thereunder, the
interest rate on such defaulted amount shall be 4.5% per annum in excess of the
Reference Rate, payable on demand.
The obligations of the Company under the DIP Facility are collateralized by,
among other things, inventory and certain real property. The DIP Facility
imposes limitations on the Company with respect to, among other things, (i) the
creation or incurrence of liens, (ii) consolidations, mergers, and sales of
assets, (iii) the incurrence of guarantees or other contingent obligations, (iv)
capital expenditures in excess of specified levels, (v) the creation or
incurrence of any indebtedness for borrowed money or the payment of principal of
or interest on any prepetition indebtedness, (vi) the prepayment of certain
indebtedness and (vii) transactions with affiliates. Additionally, the Company
must maintain a minimum Net Worth (as defined in the DIP Facility to exclude,
among other items, reorganization expenses, certain liabilities incurred prior
to the Filing, write-off of goodwill, store closure reserves and non-cash
interest) of $10.0 million. The Company is currently in compliance in all
material respects with the terms contained in the DIP Facility.
The DIP Facility expires on the earlier of (i) May 17, 1996, with provisions for
three quarterly renewals, and (ii) the effective date of the Company's plan of
Reorganization in the Chapter 11 case.
Under the terms of the DIP Facility, the Company's borrowing base is limited to
a specified percentage of eligible inventory and real property (as defined
therein). At April 10, 1995, the Company had $11.5 million of borrowings and no
letters of credit outstanding under the DIP Facility, with additional borrowing
capacity of $8.0 million.
The Company's primary cash requirement is the procurement of inventory which is
currently funded through (i) borrowings under the DIP Facility (ii) trade credit
and (iii) cash generated from operations. Like other apparel retailers, the
Company is dependent upon its ability to obtain trade credit, which is generally
extended by its vendors and a small
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number of factoring institutions that continually monitor the Company's credit
lines. If the Company is able to obtain its expected trade credit terms and the
inclusion in the borrowing base of certain real property in accordance with the
terms of the DIP Facility, the Company believes that borrowings under the DIP
Facility and cash generated from operations will provide the cash necessary to
fund the Company's cash requirements.
CAPITAL EXPENDITURES
In March 1995, the Company opened a new 36,000 square foot full-line store in a
465,000 square foot shopping center in Issaquah, Washington. Initial fixed
costs approximated $1.0 million, $0.7 million of which the lessor is required,
pursuant to the terms of the lease, to reimburse the Company. The Company
intends to seek an order from the Bankruptcy Court compelling the lessor to make
such reimbursement. Management does not anticipate additional expansion during
the next fiscal year.
OTHER
The Company has never declared or paid cash dividends on its Common Stock or any
other equity security, and does not anticipate paying cash dividends on the
Common Stock, or any other equity security, in the foreseeable future. Any
future determination as to the payment of dividends will depend upon certain
debt instrument limitations, future earnings, results of operations, capital
requirements, the financial condition of the Company, the terms and conditions
specified in the plan of reorganization and such other factors as the Company's
Board of Directors may consider. The ability of the Company to pay dividends is
directly and indirectly restricted under the terms of the DIP facility. Such
restrictions prohibit the payment of dividends for the foreseeable future. In
addition, the Bankruptcy Code prohibits the Company's payment of cash dividends.
SEASONALITY
The Company's revenues are seasonal, with the Christmas season (included in the
quarter ending the Saturday closest to January 31) generally its strongest
period.
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PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Except as set forth below, no material change has occurred in the litigation
described in "Item 3 - Legal Proceedings" on page 7 of the Company's Annual
Report on Form 10-K for the year ended October 29, 1994, which is incorporated
herein by reference.
On February 17, 1995, the Company obtained the approval of the Bankruptcy Court
for the DIP Facility. See Note 4 to the Company's financial statements for the
quarter ended January 28, 1995, included elsewhere herein, for a description of
terms of the DIP Facility.
In addition to committees for the Company's bondholders and other general
unsecured creditors, on March 21, 1995 the United States Trustee appointed an
equityholders' committee.
In connection with the Company's Chapter 11 proceedings, nine real property
leases and certain executory contracts have been rejected with Bankruptcy Court
approval.
On April 13, 1995, the Bankruptcy Court approved new employment agreements for
each of Messrs. Schlesinger and Rothschild.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
As a result of the Filing, the Company is currently in default under the
indentures governing the 10-1/4% Notes ($67.6 million in principal and accrued
interest as of January 28, 1995) and 13-1/2% Notes ($0.8 million in principal
and accrued interest as of January 28, 1995).
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description of Exhibit
10.1 - Loan and Security Agreement by and between Lamonts
Apparel, Inc., Debtor-in-Possession and Foothill
Capital Corporation, dated February 17, 1995.
10.2 - Amendment Number One to Loan and Security Agreement,
dated March 6, 1995, between Foothill Capital
Corporation and Lamonts Apparel, Inc.
10.3 - Extension Agreement dated March 27, 1995, between
Lamonts Apparel, Inc. and the holders of the Company's
10-1/4% Subordinated Notes due 1999.
10.4 - Waiver and Settlement Agreement, dated February 27,
1995 between Earle J. Spokane and Lamonts Apparel,
Inc.
10.5 - Employment Agreement dated April 18, 1995, between the
Registrant and Alan Schlesinger.
10.6 - Employment Agreement dated April 18, 1995, between the
Registrant and Loren Rothschild.
11.1 - Computation of per share loss.
27.1 - Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K, dated January 6,
1995, to report the filing by the Company of a voluntary petition
for reorganization relief under Chapter 11 of title 11 of the United
States Code in the United States Bankruptcy Court for the Western
District of Washington at Seattle.
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SIGNATURE
Pursuant to the requirements 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.
Registrant: Lamonts Apparel, Inc.,
Date: April 19, 1995 By: /s/ Loren Rothschild
------------------------------------
Loren Rothschild
Vice Chairman of the Board
and Chief Financial Officer
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
LAMONTS APPAREL, INC., DEBTOR-IN-POSSESSION
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF FEBRUARY 17, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.5 Schedules and Exhibits.. . . . . . . . . . . . . . . . . . . . . . 10
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 10
2.1 Revolving Advances.. . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Letters of Credit and Letter of Credit Guarantees. . . . . . . . . 11
2.3 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.4 Interest: Rates, Payments, and Calculations . . . . . . . . . . . 13
2.5 Crediting Payments; Application of Collections . . . . . . . . . . 14
2.6 Statements of Obligations. . . . . . . . . . . . . . . . . . . . . 14
2.7 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . 16
3.1 Conditions Precedent to Initial Advance, L/C, or L/C Guaranty. . . 16
3.2 Conditions Precedent to All Advances, L/Cs, or L/C Guarantees. . . 17
3.3 Term; Automatic Renewal. . . . . . . . . . . . . . . . . . . . . . 17
3.4 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . 17
3.5 Early Termination by Borrower. . . . . . . . . . . . . . . . . . . 18
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . 18
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . 18
4.2 Negotiable Collateral. . . . . . . . . . . . . . . . . . . . . . . 18
4.3 Collection of Accounts, General Intangibles,
Negotiable Collateral . . . . . . . . . . . . . . . . . . . . . 18
4.4 Delivery of Additional Documentation Required. . . . . . . . . . . 18
4.5 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . 19
4.6 Right to Inspect . . . . . . . . . . . . . . . . . . . . . . . . . 19
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 19
5.1 No Prior Encumbrances. . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Eligible Inventory . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3 Location of Inventory. . . . . . . . . . . . . . . . . . . . . . . 20
5.4 Inventory Records. . . . . . . . . . . . . . . . . . . . . . . . . 20
5.5 Location of Chief Executive Office; FEIN . . . . . . . . . . . . . 20
5.6 Due Organization and Qualification . . . . . . . . . . . . . . . . 20
5.7 Due Authorization; No Conflict . . . . . . . . . . . . . . . . . . 20
5.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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5.9 No Material Adverse Change in Financial Condition. . . . . . . . . 20
5.10 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . 21
5.11 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 21
5.12 Environmental Condition. . . . . . . . . . . . . . . . . . . . . . 21
5.13 Reliance by Foothill; Cumulative . . . . . . . . . . . . . . . . . 22
6. AFFIRMATIVE COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . . 22
6.1 Accounting System. . . . . . . . . . . . . . . . . . . . . . . . . 22
6.2 Monthly Reports. . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.3 Financial Statements, Reports, Certificates. . . . . . . . . . . . 22
6.4 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Designation of Inventory . . . . . . . . . . . . . . . . . . . . . 24
6.6 Store Openings and Closings. . . . . . . . . . . . . . . . . . . . 24
6.7 Inventory Audits . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.8 Real Property Leases . . . . . . . . . . . . . . . . . . . . . . . 24
6.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.10 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.11 Change Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.12 No Setoffs or Counterclaims. . . . . . . . . . . . . . . . . . . . 25
6.13 Location of Inventory. . . . . . . . . . . . . . . . . . . . . . . 25
6.14 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 26
6.15 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 26
7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.3 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.4 Restrictions on Fundamental Changes. . . . . . . . . . . . . . . . 28
7.5 Maintenance of Net Worth . . . . . . . . . . . . . . . . . . . . . 28
7.6 Extraordinary Transactions and Disposal of Assets. . . . . . . . . 28
7.7 Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.8 Restructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.9 Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.10 Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . 29
7.11 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . 29
7.12 Accounting Methods . . . . . . . . . . . . . . . . . . . . . . . . 29
7.13 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.14 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . 29
7.15 Suspension . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.16 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 30
8. EVENTS OF DEFAULT.. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9. FOOTHILL'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . 32
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9.1 Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . 32
9.2 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . 34
10. TAXES AND EXPENSES REGARDING THE COLLATERAL . . . . . . . . . . . . . . . 34
11. WAIVERS; INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 34
11.1 Demand; Protest; etc.. . . . . . . . . . . . . . . . . . . . . . . 34
11.2 Foothill's Liability for Collateral. . . . . . . . . . . . . . . . 35
11.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 35
12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . . . 36
14. DESTRUCTION OF BORROWER'S DOCUMENTS . . . . . . . . . . . . . . . . . . . 37
15. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.1 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 37
15.3 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.5 Severability of Provisions . . . . . . . . . . . . . . . . . . . . 37
15.6 Amendments in Writing. . . . . . . . . . . . . . . . . . . . . . . 37
15.7 Counterparts; Telefacsimile Execution. . . . . . . . . . . . . . . 37
15.8 Revival and Reinstatement of Obligations . . . . . . . . . . . . . 38
15.9 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.10 Credit Card Agreements . . . . . . . . . . . . . . . . . . . . . . 38
15.11 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.12 Plan of Reorganization . . . . . . . . . . . . . . . . . . . . . . 38
SCHEDULES
Schedule P-1 Permitted Liens
Schedule R-1 Real Property
Schedule 2.2(a) L/C Guarantees
Schedule 5.8 Litigation
Schedule 5.12 Environmental Conditions
Schedule 6.13 Inventory Locations
Schedule 7.13 Investments
Schedule 7.14 Affiliate Transactions
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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT, is entered into as of February ___, 1995,
between 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, and LAMONTS APPAREL, INC., a Delaware
corporation operating as debtor-in-possession ("Borrower"), with its chief
executive office located at 3650 131st Street S.E., Bellevue, Washington 98006.
RECITALS
A. Borrower and Foothill have previously entered into that certain
Loan and Security Agreement, dated as of January 13, 1994 (as amended prior to
the date hereof, the "Original Loan Agreement"); and
B. Borrower filed a case under Chapter 11 of the Bankruptcy Code
on January 6, 1995, with the United States Bankruptcy Court for the Western
District of Washington;
C. Foothill has provided Borrower with a short term debtor-in-
possession credit facility in an amount not to exceed Five Million Dollars
($5,000,000) pursuant to a Loan And Security Agreement dated as of January 12,
1995. It is contemplated that this Agreement would replace the short term
credit facility; and
D. Borrower has requested Foothill to provide longer term debtor-
in-possession financing to Borrower, and Foothill has agreed to provide such
financing on the terms and conditions set forth herein.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"ACCOUNT DEBTOR" means any Person who is or who may become obligated
under, with respect to, or on account of an Account.
"ACCOUNTS" means all currently existing and hereafter arising
accounts, contract rights, book debts and right to payment for Inventory sold by
Borrower which is not evidenced by an Instrument or Chattel Paper and all other
forms of obligations owing to Borrower and all monies due or to become due to
Borrower, in each case arising from
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Accounts or out of the sale of Inventory or Accounts, irrespective of whether
earned by performance, and any and all credit insurance, guaranties, or security
therefor.
"ACCRUED INVENTORY" means that Inventory which is: located in
Borrower's distribution center and included in the distribution center's
inventory reports, but has not yet been recorded in Borrower's RIM Inventory
Report.
"ADDITIONAL AVAILABILITY" has the meaning set forth in SECTION 2.1(B).
"AFFILIATE" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition, "control" as applied to any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract, or otherwise.
"AGREEMENT" means this Loan and Security Agreement and any extensions,
riders, supplements, notes, amendments, or modifications to or in connection
with this Loan and Security Agreement.
"AUTHORIZED OFFICER" means Borrower's Chairman, Vice Chairman, Chief
Executive Officer, Chief Financial Officer or Secretary.
"AVERAGE UNUSED PORTION OF MAXIMUM AMOUNT" on any date means: (a) the
Maximum Amount on such date; LESS (b) (i) the average Daily Balance of advances
made by Foothill under SECTION 2.1 that were outstanding during the immediately
preceding month; PLUS (ii) the average Daily Balance of the undrawn L/Cs and L/C
Guarantees issued by Foothill under SECTION 2.2 that were outstanding during the
immediately preceding month.
"BANKRUPTCY CASE" means Borrower's Chapter 11 case (No. 95-001000) in
the Bankruptcy Court.
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11 U.S.C.
Section 101 ET SEQ.), as amended, and any successor statute.
"BANKRUPTCY COURT" means the United States Bankruptcy Court for the
Western District of Washington in which the Bankruptcy Case is pending.
"BANKRUPTCY COURT ORDER" means an order entered by the judge of the
Bankruptcy Court approving Borrower's motion to borrow from Foothill, which
order must be in form and substance satisfactory to Foothill.
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"BLOCKED ACCOUNT AGREEMENT" means that certain Depository Account
Agreement among Borrower, Foothill, and the Blocked Account Bank.
"BLOCKED ACCOUNT BANK" means Seattle-First National Bank.
"BORROWER" has the meaning set forth in the preamble to this
Agreement.
"BORROWER'S BOOKS" means all of Borrower's books, ledgers and records
indicating, summarizing, or evidencing any of the Collateral and all computer
programs, disc or tape files, printouts, runs, or other computer prepared
information, and the equipment containing such information relating to any of
the Collateral.
"BORROWING BASE" has the meaning set forth in SECTION 2.1.
"BUSINESS DAY" means any day which is not a Saturday, Sunday, or other
day on which national banks are authorized or required to close.
"CHATTEL PAPER" means any "chattel paper" as such term is defined in
the Code, now owned or hereafter acquired by Borrower and arising from Accounts
or Inventory or Accounts sold by the Borrower.
"CHANGE OF CONTROL" means the acquisition after the Closing Date, in
one or more transactions, of beneficial ownership (within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934) by: (i) any Person (other than
any Permitted Holder); or (ii) any group of Persons (excluding any Permitted
Holders) who constitute a group (within the meaning of section 13(d)(3) of the
Securities Exchange Act of 1934), in either case, of any securities of Borrower
such that, as a result of such acquisition, such Person or group either (A)
beneficially owns (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934) forty percent (40%) or more of the collective voting power
of Borrower's then outstanding voting securities entitled to vote on a regular
basis for a majority of the Board of Directors of Borrower, or (B) has the legal
ability to elect a majority of the members of the Borrower's Board of Directors
(other than by reason of the Stockholders' Voting Agreement).
"CLOSING DATE" means the date of the initial advance or the date of
the initial issuance of an L/C or an L/C Guaranty, whichever occurs first.
"CODE" means the California Uniform Commercial Code as in effect from
time to time.
"COLLATERAL" means each of the following: the Accounts; Borrower's
Books; the Chattel Paper and Documents; the General Intangibles; the Inventory;
the Equipment; the Instruments; any money, or other assets of Borrower which now
or hereafter come into the possession, custody, or control of Foothill and
arising from Accounts or the sale of
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Inventory or Accounts; 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, General
Intangibles, Inventory, Instruments, Chattel Paper and Documents, 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.
"DAILY BALANCE" means the amount of an Obligation owed at the end of a
given day.
"DOCUMENTS" means "documents" as such term is defined in the Code, now
owned or hereafter acquired by Borrower, and arising from Accounts or Inventory
or Accounts sold by Borrower.
"ELIGIBLE INVENTORY" means Inventory consisting of first quality
finished goods held for sale in the ordinary course of Borrower's business that
are located at Borrower's premises identified on SCHEDULE 6.13, are acceptable
to Foothill in all respects in its reasonable credit judgment, and comply with
all of Borrower's representations and warranties to Foothill. Eligible
Inventory shall include Accrued Inventory so long as Borrower's reporting of
such Inventory is reasonably satisfactory to Foothill. Eligible Inventory shall
not include restrictive or custom items, seasonal items (including "Christmas,"
Department No. 29), packaging and shipping materials, supplies used or consumed
in Borrower's business, Inventory at any location other than those set forth on
SCHEDULE 6.13, Inventory subject to a security interest or lien (other than
Permitted Liens) in favor of any third Person, bill and hold goods, Inventory
that is not subject to Foothill's perfected security interests, returned or
defective goods, "seconds," and Inventory acquired on consignment.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
equipment, furniture, furnishings, and fixtures, wherever located, and any
interest of Borrower in any of the foregoing, and all accessions, replacements,
substitutions, additions, to any of the foregoing, wherever located; PROVIDED,
HOWEVER, that Equipment shall not include any of the foregoing which is subject
to a Lien that arose at or about the time such item was acquired by Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any predecessor, successor, or superseding laws of
the United States of America, together with all regulations promulgated
thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which, within the meaning of Section 414 of the IRC, is treated,
together with Borrower, as a single employer.
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"ERISA EVENT" shall mean any one or more of the following: (i) a
Reportable Event with respect to a Qualified Plan or a Multiemployer Plan;
(ii) a Prohibited Transaction with respect to any Plan; (iii) a complete or
partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan;
(iv) the complete or partial withdrawal of Borrower or an ERISA Affiliate from a
Qualified Plan during a plan year in which it was, or was treated as, a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; (v) a failure
to make full payment when due of all amounts which, under the provisions of any
Plan or applicable law, Borrower or any ERISA Affiliate is required to make;
(vi) the filing of a notice of intent to terminate, or the treatment of a plan
amendment as a termination, under Sections 4041 or 4041A of ERISA; (vii) an
event or condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Qualified Plan or Multiemployer Plan; (viii) the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA
Affiliate; and (ix) a violation of the applicable requirements of Sections 404
or 405 of ERISA, or the exclusive benefit rule under Section 403(c) of ERISA, by
any fiduciary or disqualified person with respect to any Plan for which Borrower
or any ERISA Affiliate may be directly or indirectly liable.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"FEIN" means Federal Employer Identification Number.
"FOOTHILL" has the meaning set forth in the preamble to this
Agreement.
"FOOTHILL ACCOUNT" shall have the meaning provided in the Blocked
Account Agreement.
"FOOTHILL EXPENSES" means all reasonable: costs or expenses
(including taxes, photocopying, notarization, telecommunication and insurance
premiums) required to be paid by Borrower under any of the Loan Documents that
are paid or advanced by Foothill; documentation, filing, recording, publication,
appraisal (including periodic Collateral appraisals), and search fees assessed,
paid, or incurred by Foothill in connection with Foothill's transactions with
Borrower; costs and expenses incurred by Foothill in the disbursement of funds
to Borrower (by wire transfer or otherwise); charges paid or incurred by
Foothill resulting from the dishonor of checks drawn on, or endorsed by or on
behalf of, Borrower; costs and expenses paid or incurred by Foothill to correct
any default or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Collateral, or any portion
thereof, irrespective of whether a sale is consummated; costs and expenses paid
or incurred by Foothill in examining Borrower's Books; costs and expenses of
third party claims or any other suit paid or incurred by Foothill in enforcing
or defending the Loan Documents; and Foothill's reasonable attorneys fees and
expenses incurred in
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advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing, defending, or concerning the Loan Documents,
irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means any "general intangibles" as such term is
defined in the Code, now owned or hereafter acquired by Borrower and arising
from Accounts or Inventory or Accounts sold by Borrower.
"HAZARDOUS MATERIALS" means all or any of the following:
(a) substances that are regulated under any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to regulate substances by reason
of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity, or "EP toxicity"; (b) oil, petroleum, or
petroleum derived substances, natural gas, natural gas liquids, synthetic gas,
drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas, or geothermal
resources; (c) any flammable substances or explosives or any radioactive
materials; and (d) asbestos in any form or any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty parts per
million.
"INDEBTEDNESS" shall mean: (a) all obligations of Borrower for
borrowed money; (b) all monetary obligations of Borrower evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
monetary obligations of Borrower in respect of letters of credit, letter of
credit guaranties, bankers acceptances, interest rate swaps, controlled
disbursement accounts, or other similar financial products; (c) all monetary
obligations under capitalized leases; (d) all monetary obligations or
liabilities of others secured by a lien or security interest on any property or
asset of Borrower, irrespective of whether such monetary obligation or liability
is assumed; and (e) any monetary obligation of Borrower guaranteeing or intended
to guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to Borrower) any indebtedness, lease, dividend, letter of credit, or
other obligation of any other Person.
"INSTRUMENTS" means any "instrument" as such term is defined in the
Code, now owned or hereafter acquired by Borrower and arising from Accounts or
the sale of Inventory or Accounts, including, without limitation, certificated
securities, negotiable instruments and all other writings which evidence a right
to the payment of money, and which arise from Accounts or Inventory or Accounts
sold by Borrower.
"INVENTORY" means all present and future inventory in which Borrower
has any interest, including, but not limited to, apparel, fashion accessories,
cosmetics and health and beauty aids, giftware and small appliances and other
goods held for sale or lease, and
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packing and shipping materials, wherever located, and any documents of title
representing any of the above.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"L/C" has the meaning set forth in SECTION 2.2(A).
"L/C GUARANTY" has the meaning set forth in SECTION 2.2(A).
"LIEN" means a mortgage, pledge, lien, charge, encumbrance or security
interest.
"LOAN DOCUMENTS" means this Agreement, the Blocked Account Agreement,
the Mortgages, any note or notes executed by Borrower and payable to Foothill,
and any other agreement entered into in connection with this Agreement.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
business, operations, condition (financial or otherwise) or finances of Borrower
or on the value of the Collateral to Foothill.
"MAXIMUM AMOUNT" means Thirty-Two Million Dollars ($32,000,000).
"MAXIMUM FOOTHILL AMOUNT" means that portion of the Maximum Amount for
which Foothill shall be responsible, exclusive of any participations with
Participants, which amount is Eighteen Million Dollars ($18,000,000).
"MORTGAGES" means one or more first mortgages, deeds of trust, or
deeds to secure debt, executed by Borrower in favor of Foothill, the form and
substance of which shall be satisfactory to Foothill, that encumber any or all
of the Real Property and related improvements thereto.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan as defined in
Sections 3(37) or 4001(a)(3) of ERISA or Section 414 of the IRC in which
employees of Borrower or an ERISA Affiliate participate or to which Borrower or
any ERISA Affiliate contribute or are required to contribute.
"NEGOTIABLE COLLATERAL" means all of Borrower's Instruments, Chattel
Paper and Documents.
"OBLIGATIONS" means all loans, advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations owing to Foothill
under any outstanding L/Cs or L/C Guarantees, premiums, liabilities (including
all amounts charged to Borrower's loan account
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pursuant to any agreement authorizing Foothill to charge Borrower's loan
account), obligations, fees (including Early Termination Premiums), lease
payments, guaranties, covenants, and duties owing by Borrower to Foothill of any
kind and description (whether pursuant to or evidenced by the Loan Documents, by
any note or other instrument, or pursuant to any other agreement between
Foothill and Borrower relating to the Loan Documents, and irrespective of
whether for the payment of money), whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and further
including all interest not paid when due and all Foothill Expenses that Borrower
is required to pay or reimburse by the Loan Documents, by law, or otherwise.
"OVERADVANCE" has the meaning set forth in SECTION 2.3.
"PARTICIPANT" means any Person, other than Foothill, that has
committed to provide a portion of the financing contemplated herein.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
"PERMITTED HOLDER" means: (i) any holder, record or beneficial, as of
the Closing Date, of capital stock of Borrower; or (ii) any Permitted Transferee
of any of the foregoing Persons.
"PERMITTED LIENS" means: (a) liens and security interests held by
Foothill; and (b) liens and security interests set forth on SCHEDULE P-1
attached hereto.
"PERMITTED TRANSFEREE" means, with respect to any Person: (i) any
Affiliate of such Person; (ii) any investment manager, investment advisor or
partner, or any principal thereof, of such Person; and (iii) any investment
fund, investment account or investment entity whose investment manager,
investment advisor or general partner, or any principal thereof, is such Person
or a Permitted Transferee of such Person.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint ventures, trusts, land trusts,
business trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
"PLAN" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which Borrower or any ERISA Affiliate sponsors or maintains or to which
Borrower or any ERISA Affiliate makes, is making, or is obligated to make
contributions, including any Multiemployer Plan or Qualified Plan.
"PROHIBITED TRANSACTION" means any transaction described in Section
406 of ERISA which is not exempt by reason of Section 408 of ERISA, and any
transaction
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described in Section 4975(c) of the IRC which is not exempt by reason of Section
4975(c) of the IRC.
"QUALIFIED PLAN" means a pension plan (as defined in Section 3(2) of
ERISA) intended to be tax-qualified under Section 401(a) of the IRC which
Borrower or any ERISA Affiliate sponsors, maintains, or to which any such person
makes, is making, or is obligated to make, contributions, or, in the case of a
multiple-employer plan (as described in Section 4064(a) of ERISA), has made
contributions at any time during the immediately preceding period covering at
least five (5) plan years, but excluding any Multiemployer Plan.
"REAL PROPERTY" means the parcel or parcels of real property and the
related improvements thereto identified on SCHEDULE R-1.
"REFERENCE RATE" means the highest of the variable rates of interest,
per annum, most recently announced by (a) Bank of America, N.T. & S.A., (b)
Mellon Bank, N.A., and (c) Citibank, N.A., or any successor to any of the
foregoing institutions, as its "prime rate" or "reference rate," as the case may
be, irrespective of whether such announced rate is the best rate available from
such financial institution.
"RENEWAL DATE" has the meaning set forth in SECTION 3.3.
"REPORTABLE EVENT" shall mean any event described in Section 4043
(other than Subsections (b)(7) and (b)(9)) of ERISA other than any such event
with respect to which the thirty (30) day notice requirement is waived pursuant
to the regulations under such section.
"STOCKHOLDERS' VOTING AGREEMENT" means the Stockholders' Voting
Agreement, dated as of October 30, 1992, by and among Borrower and certain of
its stockholders identified on the signature page thereto.
"SYNDICATED AMOUNT" means a sub-component of the Maximum Amount equal
to the aggregate financing commitments (to the extent not breached or
terminated) of all Participants.
"TAX PAYMENT" means Borrower's obligations to the Internal Revenue
Service in the amount of Five Hundred Three Thousand Nine Hundred Thirteen
Dollars ($503,913), together with accrued interest and related penalties, fees
or obligations arising from time to time.
"UNFUNDED BENEFIT LIABILITY" means with respect to a Qualified Plan,
the excess of a Plan's benefit liabilities (as defined in Section 4001(a)(16) of
ERISA) over the current value of such Plan's assets, determined in accordance
with the assumptions used by the Plan's actuaries for funding the Plan pursuant
to Section 412 of the IRC for the applicable plan year on an ABO basis.
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"VOIDABLE TRANSFER" has the meaning set forth in SECTION 15.8.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein,
the term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement which are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. Any reference in this Agreement or in the Loan
Documents to this Agreement or any of the Loan Documents shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make revolving advances to Borrower in an amount not to
exceed the Borrowing Base. For purposes of this Agreement, "Borrowing Base"
shall mean an amount equal to the lower of: (x) sixty percent (60%) of
Borrower's cost of Eligible Inventory, net of customary reserves, and (y) thirty
percent (30%) of the retail value of Eligible Inventory, net of customary
reserves. As of the Closing Date, the reserves shall be in an amount equal to
five percent (5%) of Borrower's cost of Eligible Inventory.
(b) Subject to the terms and conditions of this Agreement,
Foothill agrees to make additional revolving advances to Borrower (the
"Additional Availability") in an amount not to exceed the lowest of: (x) sixty
percent (60%) of the appraised fair market value of the Real Property within
thirty (30) days of the Closing Date, as determined by an MAI appraiser chosen
by Foothill, and (y) the net lendable value of the Real Property
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as determined by Foothill's in house appraiser based upon a review of the MAI
appraisal referred to above, and (z) the sum of Seven Million Dollars
($7,000,000). Borrower shall only be able to use the Additional Availability
once the Mortgages have been recorded, Foothill has received an ALTA Lender's
Policy of Title Insurance insuring the Mortgages, and the MAI appraisal of the
Real Property has been completed.
(c) Foothill shall have no obligation to make advances
hereunder or issue L/Cs or L/C Guarantees to the extent they would cause the
outstanding Obligations to exceed the lesser of: (i) Thirty Two Million Dollars
($32,000,000) (the "Maximum Amount"), or (ii) the Maximum Foothill Amount plus
the Syndicated Amount. As of the date hereof the Syndicated Amount is Fourteen
Million Dollars ($14,000,000).
2.2 LETTERS OF CREDIT AND LETTER OF CREDIT GUARANTEES.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to issue commercial or standby letters of credit for the account
of Borrower (each, an "L/C") or to issue standby letters of credit or guarantees
of payment (each such letter of credit or guaranty, an "L/C Guaranty") with
respect to commercial or standby letters of credit issued by another Person for
the account of Borrower in an aggregate face amount not to exceed the lesser of:
(i) the Borrowing Base less the amount of advances outstanding pursuant to
SECTION 2.1, and (ii) Fifteen Million Dollars ($15,000,000). Borrower expressly
understands and agrees that Foothill shall have no obligation to arrange for the
issuance by other financial institutions of L/Cs that are to be the subject of
L/C Guarantees. SCHEDULE 2.2(A) sets forth L/C Guarantees outstanding under the
Original Loan Agreement. Borrower and Foothill acknowledge and agree that such
L/C Guarantees will be deemed outstanding hereunder on the Closing Date. Each
such L/C (including those that are the subject of L/C Guarantees) shall have an
expiry date no later than sixty (60) days prior to the date on which this
Agreement is scheduled to terminate under SECTION 3.3 hereof (without regard to
any potential renewal term) and all such L/Cs and L/C Guarantees shall be in
form and substance reasonably acceptable to Foothill. Foothill shall not have
any obligation to issue L/Cs or L/C Guarantees to the extent that the face
amount of all outstanding L/Cs and L/C Guarantees, plus the amount of advances
outstanding pursuant to SECTION 2.1, would exceed the Maximum Amount. The L/Cs
and the L/C Guarantees issued under this SECTION 2.2 shall be used by Borrower,
consistent with this Agreement, for its general working capital purposes or to
support its obligations with respect to workers' compensation premiums or other
similar obligations. If Foothill is obligated to advance funds under an L/C or
L/C Guaranty, the amount so advanced immediately shall be deemed to be an
advance made by Foothill to Borrower pursuant to SECTION 2.1 and, thereafter,
shall bear interest at the rates then applicable under SECTION 2.4.
(b) Borrower hereby agrees to indemnify, save, defend, and
hold Foothill harmless from any loss, cost, reasonable expense, or liability,
including payments made by Foothill, reasonable expenses, and reasonable
attorneys fees incurred by Foothill arising out of or in connection with any
L/Cs or L/C Guarantees. Borrower agrees to be
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bound by the issuing bank's regulations and interpretations of any L/Cs
guarantied by Foothill and opened to or for Borrower's account or by Foothill's
interpretations of any L/C issued by Foothill to or for Borrower's account, even
though this interpretation may be different from Borrower's own, and Borrower
understands and agrees that Foothill shall not be liable for any error,
negligence, or mistakes, whether of omission or commission, in following
Borrower's instructions or those contained in the L/Cs or any modifications,
amendments, or supplements thereto. Borrower understands that the L/C
Guarantees may require Foothill to indemnify the issuing bank for certain costs
or liabilities arising out of claims by Borrower against such issuing bank.
Borrower hereby agrees to indemnify, save, defend, and hold Foothill harmless
with respect to any loss, cost, expense (including attorneys fees), or liability
incurred by Foothill under any L/C Guaranty as a result of Foothill's
indemnification of any such issuing bank.
(c) Borrower hereby authorizes and directs any bank that
issues an L/C guaranteed by Foothill to deliver to Foothill, at Foothill's
request, all instruments, documents, and other writings and property received by
the issuing bank pursuant to the L/C, and to accept and rely upon Foothill's
instructions and agreements with respect to all matters arising in connection
with the L/C and the related application; PROVIDED, that Foothill shall act upon
Borrower's reasonable commercial judgment as to waivers or discrepancies and
amendments with respect thereto. Borrower may or may not be the "applicant" or
"account party" with respect to such L/Cs.
(d) Any and all service charges, commissions, fees, and costs
incurred by Foothill relating to the L/Cs guaranteed by Foothill shall be
considered Foothill Expenses for purposes of this Agreement and immediately
shall be reimbursable by Borrower to Foothill. On the first day of each month,
Borrower will pay Foothill a fee equal to one and one-half percent (1.5%) per
annum times the average Daily Balance of the undrawn L/Cs and L/C Guarantees
that were outstanding during the immediately preceding month. Service charges,
commissions, fees, and costs may be charged to Borrower's loan account at the
time the service is rendered or the cost is incurred.
(e) Immediately upon the termination of this Agreement,
Borrower agrees to either: (i) provide cash collateral to be held by Foothill
in an amount equal to the maximum amount of Foothill's obligations under
outstanding L/Cs plus the maximum amount of Foothill's obligations to any Person
under outstanding L/C Guarantees, (ii) cause to be delivered to Foothill
releases of all of Foothill's obligations under its outstanding L/Cs and L/C
Guarantees, or (iii) provide Foothill with an irrevocable letter of credit or
unconditional payment guarantee that is acceptable to Foothill in all respects
and in which Foothill is the beneficiary for the maximum amount of Foothill's
obligations under outstanding L/Cs plus the maximum amount of Foothill's
obligations to any Person under outstanding L/C Guarantees. At Foothill's
discretion, any proceeds of Collateral received by Foothill after the occurrence
and during the continuation of an Event of Default may be held as the cash
collateral required by this SECTION 2.2(E).
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2.3 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to SECTIONS 2.1 AND 2.2 is
greater than either the dollar or percentage limitations set forth in SECTIONS
2.1 OR 2.2 (an "Overadvance"), Borrower immediately shall pay to Foothill, in
cash, the amount of such excess to be used by Foothill first, to repay non-
contingent Obligations and, thereafter, to be held by Foothill as cash
collateral to secure Borrower's obligation to repay Foothill for all amounts
paid pursuant to L/Cs or L/C Guarantees.
2.4 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. All Obligations, except for undrawn L/Cs
and L/C Guarantees, shall bear interest, on the average Daily Balance, at a rate
of three percentage points (3.0%) above the Reference Rate.
(b) Default Rate. All Obligations, except for undrawn L/Cs
and L/C Guarantees, shall bear interest, from and after the occurrence and
during the continuance of an Event of Default, at a rate equal to four and one-
half percentage points (4.5%) above the Reference Rate. From and after the
occurrence and during the continuance of an Event of Default, the fee provided
in SECTION 2.2(D) shall be increased to a fee equal to three percent (3%) per
annum times the average Daily Balance of the undrawn L/Cs and L/C Guarantees
that were outstanding during the immediately preceding month.
(c) Minimum Interest. In no event shall the rate of interest
chargeable hereunder be less than nine percent (9%) per annum.
(d) Payments. Interest hereunder shall be due and payable on
the first day of each month during the term hereof. Borrower hereby authorizes
Foothill, at its option, without prior notice to Borrower, to charge such
interest, all Foothill Expenses (as and when incurred), and all installments or
other payments due under any note or other Loan Document to Borrower's loan
account, which amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall, to the extent
lawful, thereafter accrue interest at the rate then applicable hereunder.
(e) Computation. The Reference Rate as of this date is nine
percent (9.0%) per annum. In the event the Reference Rate is changed from time
to time hereafter, the applicable rate of interest hereunder automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Reference Rate. The rates of interest charged hereunder shall be based upon
the average Reference Rate in effect during the month. All interest and fees
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
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(f) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and Foothill, in executing this
Agreement, intend to legally agree upon the rate or Rates of interest and manner
of payment stated within it; PROVIDED, HOWEVER, that, anything contained herein
to the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, IPSO FACTO as
of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
2.5 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt of
any wire transfer of funds, check, or other item of payment by Foothill (whether
from transfers to Foothill by the Lock Box Banks pursuant to the Lock Box
Agreements or otherwise) immediately shall be applied to provisionally reduce
the Obligations, but shall not be considered a payment on account unless such
wire transfer is of immediately available federal funds and is made to the
appropriate deposit account of Foothill or unless and until such check or other
item of payment is honored when presented for payment. From and after the
Closing Date, Foothill shall be entitled to charge Borrower for three (3)
calendar days of `clearance' at the applicable rates set forth in SECTIONS
2.4(A) and 2.4(B) (applicable to advances under SECTION 2.1) on all collections,
checks, wire transfers, or other items of payment that are received by Foothill
(regardless of whether forwarded by the Blocked Account Bank to Foothill,
whether provisionally applied to reduce the Obligations, or otherwise). This
across-the-board three (3) calendar day clearance charge on all receipts is
acknowledged by the parties to constitute an integral aspect of the pricing of
Foothill's facility to Borrower, and shall apply irrespective of the
characterization of whether receipts are owned by Borrower or Foothill, and
irrespective of the level of Borrower's Obligations to Foothill. Should any
check or item of payment not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any wire transfer, check, or other item of payment shall be
deemed received by Foothill only if it is received into Foothill's Operating
Account (as such account is identified in the Blocked Account Agreement) on or
before 11:00 a.m. Los Angeles time. If any wire transfer, check, or other item
of payment is received into Foothill's Operating Account (as such account is
identified in the Blocked Account Agreement) after 11:00 a.m. Los Angeles time
it shall be deemed to have been received by Foothill as of the opening of
business on the immediately following Business Day.
2.6 STATEMENTS OF OBLIGATIONS. Foothill shall render statements to
Borrower of the Obligations, including principal, interest, fees, and including
an itemization of all charges and expenses constituting Foothill Expenses owing,
not later than ten (10) Business Days after the end of each month, and such
statements shall be conclusively
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presumed to be correct and accurate and constitute an account stated between
Borrower and Foothill unless, within thirty (30) days after receipt thereof by
Borrower, Borrower shall deliver to Foothill by registered or certified mail at
its address specified in SECTION 12, written objection thereto describing the
error or errors contained in any such statements.
2.7 FEES. Borrower shall pay to Foothill the following fees:
(a) Closing Fee. A one time closing fee of Three Hundred
Twenty Thousand Dollars ($320,000) which is earned, in full, on the Closing Date
and is due and payable by Borrower to Foothill in connection with this Agreement
as follows: (i) an initial payment of Eighty Thousand Dollars ($80,000) payable
on the Closing Date; and (ii) additional payments of Eighty Thousand Dollars
($80,000) each payable on a quarterly basis thereafter until such closing fee is
paid in full;
(b) Unused Line Fee. On the first day of each month during
the term of this Agreement, a fee in an amount equal to one-half percent (.5%)
per annum times the Average Unused Portion of the Maximum Amount;
(c) Quarterly Facility Fee. Commencing on the anniversary of
the Closing Date and on the first day of each quarter thereafter, a fee in an
amount equal to one quarter of one percent (.25%) of the Maximum Amount;
(d) Financial Examination and Appraisal Fees. Foothill's
customary fee of Six Hundred Dollars ($600) per day per examiner, plus
reasonable out-of-pocket expenses for each financial analysis and examination of
Borrower performed by Foothill or its agents; Foothill's customary appraisal fee
of Seven Hundred Fifty Dollars ($750) per day per appraiser, plus reasonable
out-of-pocket expenses for each appraisal of the Collateral performed by
Foothill or its agents. Prior to the occurrence of an Event of Default,
Borrower shall only be obligated hereunder to pay for quarterly financial
examinations and semi-annual appraisals;
(e) Loan Servicing Fee. On the first day of each month during
the term of this Agreement, commencing March 1, 1995 and thereafter so long as
any Obligations are outstanding, a loan servicing fee in an amount equal to Four
Thousand Dollars ($4,000) per month;
(f) Annual Legal Loan Document Fee. On each anniversary of
the Closing Date, a fee in an amount equal to One Thousand Dollars ($1,000),
such fee to be fully earned on each such anniversary; and
(g) Additional Availability Fee. At the time the Borrower is
first able to utilize the Additional Availability, a fee in an amount equal to
one percent (1%) of the Additional Availability.
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3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE, L/C, OR L/C GUARANTY.
The obligation of Foothill to make the initial advance or to provide the initial
L/C or L/C Guaranty is subject to the fulfillment, to the satisfaction of
Foothill and its counsel, of each of the following conditions on or before the
Closing Date:
(a) the Closing Date shall occur on or before February 28,
1995;
(b) The Bankruptcy Court Order shall have been entered;
(c) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution and delivery of this Agreement and the other
Loan Documents to which Borrower is a party and authorizing specific officers of
Borrower to execute same;
(d) Foothill's initial advance hereunder shall be used to
fully repay Borrower's obligations under the Original Loan Agreement,
outstanding L/C Guarantees under the Original Loan Agreement shall be deemed
outstanding hereunder, and such agreement shall no longer remain in effect;
(e) Foothill shall have received a certificate of corporate
status with respect to Borrower, dated within ten (10) days of the Closing Date,
by the Secretary of State of the state of incorporation of Borrower, which
certificate shall indicate that Borrower is in good standing in such state;
(f) Foothill shall have received certificates of corporate
status with respect to Borrower, such certificates to be issued by the Secretary
of State of the states in which its failure to be duly qualified or licensed
would have a material adverse effect on the financial condition or properties
and assets of Borrower, which certificates shall indicate that Borrower is in
good standing; and
(g) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered or
executed or recorded and shall be in form and substance reasonably satisfactory
to Foothill and its counsel.
Within thirty (30) days of the Closing Date the following shall
have occurred:
(a) Foothill shall have received financing statements from
Borrower for filing in all appropriate jurisdictions; and
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(b) Foothill shall have received the Mortgages, duly executed,
and in full force and effect, which Mortgages shall have been recorded in the
appropriate recording offices, and Foothill shall have received ALTA Lender's
Policies of title insurance insuring such Mortgages, subject only to those
exceptions as are acceptable to Foothill;
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, L/CS, OR L/C GUARANTEES.
The following shall be conditions precedent to all advances, L/Cs, or L/C
Guarantees hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all material
respects on and as of the date of such advance, L/C, or L/C Guaranty, as though
made on and as of such date (except to the extent that such representations and
warranties relate to an earlier date);
(b) no Event of Default or event which with the giving of
notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date of such advance, L/C, or L/C Guaranty,
nor shall either result from the making of the advance; and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the making of such advance or
the issuance of such L/C or L/C Guaranty shall have been issued and remain in
force by any governmental authority against Borrower, Foothill, or any of their
Affiliates.
3.3 TERM; AUTOMATIC RENEWAL. This Agreement shall become effective
upon the execution and delivery hereof by Borrower and Foothill and shall
continue in full force and effect for a term ending on the earlier of: (a) the
date that is fifteen (15) months from the Closing Date (the "Renewal Date") and
automatically shall be renewed for up to three (3) successive quarterly periods
thereafter, or (b) the Effective Date (as defined therein) of Borrower's Plan of
Reorganization in the Bankruptcy Case, unless sooner terminated pursuant to the
terms hereof. Either party may terminate this Agreement effective on the
Renewal Date or at the end of quarterly extension thereof by giving the other
party at least sixty (60) days prior written notice by registered or certified
mail, return receipt requested. The foregoing notwithstanding, Foothill shall
have the right to terminate its obligations under this Agreement immediately and
without notice upon the occurrence and during the continuation of an Event of
Default.
3.4 EFFECT OF TERMINATION. On the date of termination, all
Obligations (including contingent reimbursement obligations under any
outstanding L/Cs or L/C Guarantees) immediately shall become due and payable
without notice or demand. No termination of this Agreement, however, shall
relieve or discharge Borrower of Borrower's duties, Obligations, or covenants
hereunder, and Foothill's continuing security interests in
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the Collateral shall remain in effect until all Obligations have been fully and
finally discharged and Foothill's obligation to provide advances hereunder is
terminated.
3.5 EARLY TERMINATION BY BORROWER. The provisions of SECTION 3.3
notwithstanding, Borrower has the option, at any time upon sixty (60) days prior
written notice to Foothill, to terminate this Agreement by paying to Foothill,
in good funds, the Obligations (including an amount equal to the full amount of
the L/Cs or L/C Guarantees).
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to Foothill
a continuing security interest 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 or returns in the
ordinary course of business, Borrower has no authority, express or implied, to
dispose of any item or portion of the Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, immediately upon the request of Foothill, endorse and assign
such Negotiable Collateral to Foothill and deliver physical possession of such
Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE
COLLATERAL. Foothill, Borrower, and the Blocked Account Bank shall enter into
the Blocked Account Agreement pursuant to which all of Borrower's cash receipts,
checks, and other items of payment (including insurance proceeds, proceeds of
cash sales, and credit card payments) in each case that constitute Collateral
will be forwarded to Foothill 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 and proceeds of cash sales of Inventory and Accounts) in each case that
constitute Collateral that it receives and immediately will deliver said cash
receipts, checks, and other items of payment to Foothill as received by
Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, security agreements,
pledges, assignments, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other
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documents that Foothill may reasonably request, in form reasonably satisfactory
to Foothill, to perfect and continue perfected Foothill's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated hereby and under the other the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to: (a) if Borrower refuses to, or fails timely to execute and deliver
any of the documents described in SECTION 4.4, sign the name of Borrower on any
of the documents described in SECTION 4.4; (b) at any time that an Event of
Default has occurred and is continuing, sign Borrower's name on any invoice or
bill of lading relating to any Account, drafts against Account Debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
Account Debtors; (c) send requests for verification of Accounts; (d) endorse
Borrower's name on any checks, notices, acceptances, money orders, drafts, or
other item of payment or security constituting Collateral that may come into
Foothill's possession; (e) at any time that an Event of Default has occurred and
is continuing, make, settle, and adjust all claims under Borrower's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance; and (f) at any time that an Event of Default has occurred
and is continuing, settle and adjust disputes and claims respecting the Accounts
directly with Account Debtors, for amounts and upon terms which Foothill
determines to be reasonable, and Foothill may cause to be executed and delivered
any documents and releases which Foothill determines to be necessary. The
appointment of Foothill as Borrower's attorney, and each and every one of
Foothill's rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully and finally repaid and performed
and Foothill's obligation to extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter, during
normal business hours, to inspect Borrower's Books and to check, test, and
appraise the Collateral in order to verify Borrower's financial condition or the
amount, quality, value, condition of, or any other matter relating to, the
Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Foothill as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
5.2 ELIGIBLE INVENTORY. All Eligible Inventory is now and at all
times hereafter shall be of good and merchantable quality.
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5.3 LOCATION OF INVENTORY. The Inventory is not stored with a
bailee, warehouseman, or similar party (unless set forth on SCHEDULE 6.13 or
unless Borrower obtains Foothill's prior written consent) and is located only at
the locations identified on SCHEDULE 6.13 or otherwise permitted by SECTION
6.13.
5.4 INVENTORY RECORDS. Borrower now keeps, and hereafter at all
times shall keep, correct and accurate records itemizing and describing the
kind, type, quality, and quantity of the Inventory, and Borrower's cost
therefor. In the ordinary course of Borrower's business, Borrower regularly and
timely marks down the cost and retail value of its Inventory so as to accurately
reflect current values at all times.
5.5 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. On the Closing Date,
the chief executive office of Borrower is located at the address indicated in
the preamble to this Agreement and Borrower's FEIN is 75-2076160.
5.6 DUE ORGANIZATION AND QUALIFICATION. Borrower is duly organized
and existing and in good standing under the laws of the state of its
incorporation and qualified and licensed to do business in, and in good standing
in, any state where the failure to be so licensed or qualified could reasonably
be expected to have a Material Adverse Effect. Borrower uses the trade name
Lamonts and uses the trade name Lamonts for Kids for its children's apparel
division, and it does not presently use any other trade names.
5.7 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's corporate powers, have
been duly authorized, and are not in conflict with nor constitute a breach of
any provision contained in Borrower's Certificate of Incorporation, or By-laws,
nor will they constitute an event of default under any material agreement to
which Borrower is a party or by which its properties or assets may be bound.
5.8 LITIGATION. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower does not
have knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower, except for: (a) ongoing collection matters in which
Borrower is the plaintiff, (b) matters disclosed on SCHEDULE 5.8, and
(c) matters that could not reasonably be expected to have a Material Adverse
Effect immediately prior to the commencement of the Bankruptcy Case.
5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. All
historical financial statements relating to Borrower that have been delivered by
Borrower to Foothill have been prepared in accordance with GAAP, except that
interim financial statements may not conform to GAAP in all respects but will be
consistent with all financial statements prepared in accordance with GAAP, and
fairly present Borrower's financial condition as of the date thereof and
Borrower's results of operations for the period then ended.
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5.10 INTENTIONALLY OMITTED.
5.11 EMPLOYEE BENEFITS. As of the Closing Date: (i) each Plan is
in compliance in all material respects with the applicable provisions of ERISA
and the IRC; (ii) each Qualified Plan and Multiemployer Plan has been determined
by the Internal Revenue Service to qualify under Section 401 of the IRC, and the
trusts created thereunder have been determined to be exempt from tax under
Section 501 of the IRC, and, to the best knowledge of Borrower, nothing has
occurred that would cause the loss of such qualification or tax-exempt status;
(iii) there are no outstanding liabilities under Title IV of ERISA with respect
to any Plan maintained or sponsored by Borrower or any ERISA Affiliate, nor with
respect to any Plan to which Borrower or any ERISA Affiliate contributes or is
obligated to contribute which could reasonably be expected to have a material
adverse effect on the financial condition of Borrower; (iv) as of the most
recent actuarial valuation, no Plan subject to Title IV of ERISA had any
Unfunded Benefit Liability which could reasonably be expected to have a material
adverse effect on the financial condition of Borrower; (v) neither Borrower nor
any ERISA Affiliate has transferred any Unfunded Benefit Liability to a person
other than Borrower or an ERISA Affiliate or has otherwise engaged in a
transaction that could be subject to Sections 4069 or 4212(c) of ERISA which
could reasonably be expected to have a material adverse effect on the financial
condition of Borrower; (vi) neither Borrower nor any ERISA Affiliate has
incurred nor reasonably expects to incur (x) any liability (and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in such liability) under Sections 4201 or 4243 of ERISA with respect to a
Multiemployer Plan, or (y) any liability under Title IV of ERISA (other than
premiums due but not delinquent under Section 4007 of ERISA) with respect to a
Plan, which could, in either event, reasonably be expected to have a material
adverse effect on the financial condition of Borrower; (vii) no application for
a funding waiver or an extension of any amortization period pursuant to Section
412 of the IRC has been made with respect to any Plan; (viii) other than in
connection with the Bankruptcy Case no ERISA Event has occurred or is reasonably
expected to occur with respect to any Plan which could reasonably be expected to
have a material adverse effect on the financial condition of Borrower; and
(ix) Borrower and each ERISA Affiliate have complied in all material respects
with the notice and continuation coverage requirements of Section 4980B of the
IRC.
5.12 ENVIRONMENTAL CONDITION. Except as set forth on SCHEDULE 5.12,
to the best of Borrower's knowledge: (i) none of Borrower's properties has been
used by Borrower or, to the best of Borrower's knowledge, by previous owners or
operators in the disposal of, or to produce, store, handle, treat, release, or
transport, any Hazardous Materials which could reasonably be expected to have a
Material Adverse Effect; (ii) none of Borrower's properties has been designated
or identified pursuant to any environmental protection statute as a Hazardous
Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute; (iii) no lien arising under any environmental
protection statute has attached to any revenues or material property owned or
operated by Borrower; and (iv) Borrower has not received a summons, citation,
notice, or directive from
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the Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission by Borrower resulting in the releasing
or disposing of Hazardous Materials into the environment which could reasonably
be expected to have a Material Adverse Effect.
5.13 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and
representation contained in this Agreement automatically shall be deemed
repeated with each advance or issuance of an L/C or L/C Guaranty and shall be
conclusively presumed to have been relied on by Foothill regardless of any
investigation made or information possessed by Foothill. The warranties and
representations set forth herein shall be cumulative and in addition to any and
all other warranties and representations that Borrower now or hereafter shall
give, or cause to be given, to Foothill.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall do all of the
following:
6.1 ACCOUNTING SYSTEM. Borrower shall maintain a standard and
modern system of accounting in accordance with GAAP with ledger and account
cards or computer tapes, discs, printouts, and records pertaining to the
Collateral which contain information as from time to time may be reasonably
requested by Foothill. Borrower also shall keep proper books of account showing
all sales, claims, and allowances on its Inventory.
6.2 MONTHLY REPORTS. At Foothill's request, Borrower shall deliver
to Foothill: (a) no later than the tenth (10th) day of each month during the
term of this Agreement (in each case as of the last day of the preceding month),
a schedule of the Accounts, and commencing ninety (90) days after the Closing
Date, a summary by vendor, of all accounts payable and any book overdraft; and
(b) no later than the twenty fifth (25th) day of each month a reconciliation
statement. Borrower shall deliver to Foothill, as Foothill may from time to
time require, collection reports and sales journals. Absent such a request by
Foothill, copies of all such documentation shall be held by Borrower as
custodian for Foothill.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower agrees
to deliver to Foothill: (a) as soon as available, but in any event within forty
five (45) days after the end of each month during each of Borrower's fiscal
years, a company prepared balance sheet, income statement, and cash flow
statement covering Borrower's operations during such period (each without
footnotes); and (b) as soon as available, but in any event within ninety (90)
days after the end of each of Borrower's fiscal years, financial statements of
Borrower for each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Foothill and certified, without any
qualifications (other than those resulting from the Bankruptcy Case or the
circumstances underlying the same), by such
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accountants to have been prepared in accordance with GAAP, together with a
certificate of such accountants addressed to Foothill stating that such
accountants do not have knowledge of the existence of any event or condition
constituting an Event of Default, or that would, with the passage of time or the
giving of notice, constitute an Event of Default. Such audited financial
statements shall include a balance sheet, profit and loss statement, and cash
flow statement, and, if prepared, such accountants' letter to management.
Borrower shall have issued written instructions to its independent certified
public accountants authorizing them to communicate with Foothill and to release
to Foothill whatever financial information concerning Borrower that Foothill may
request as such accountants deem appropriate. Foothill will use its best
efforts to notify Borrower prior to communicating with Borrower's accountants;
PROVIDED, HOWEVER, that Foothill shall not have any liability to Borrower if it
fails to give such notice. If Borrower is a parent company of one or more
active subsidiaries, then, in addition to the financial statements referred to
above, Borrower agrees to deliver financial statements prepared on a
consolidating basis so as to present Borrower and each such related entity
separately, and on a consolidated basis.
Together with the above, Borrower also shall deliver to
Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and
Form 8-K Current Reports, and any other filings made by Borrower with the
Securities and Exchange Commission, if any, promptly after the same are filed,
or any other information that is provided by Borrower to its shareholders, and
any other report reasonably requested by Foothill relating to the Collateral and
financial condition of Borrower.
Each month, together with the financial statements provided
pursuant to SECTION 6.3(A), Borrower shall deliver to Foothill a certificate
signed by its chief financial officer to the effect that to the best of such
person's knowledge, after due inquiry: (i) all reports, statements, or computer
prepared information of any kind or nature delivered or caused to be delivered
to Foothill hereunder fairly present the information contained therein in all
material respects, and where applicable, have been prepared in accordance with
GAAP (in the case of interim financials, subject to year end adjustments); (ii)
Borrower is in timely compliance in all material respects with its covenants and
agreements hereunder; (iii) the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such certificate, as though made
on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date); and (iv) on the date of delivery
of such certificate to Foothill there does not exist any condition or event that
constitutes an Event of Default (or, in each case, to the extent of any non-
compliance, describing such non-compliance as to which he or she may have
knowledge and what action Borrower has taken, is taking, or proposes to take
with respect thereto).
Borrower shall deliver to Foothill, as such times as Foothill
requests, satisfactory evidence of the status of payment: (a) to the lessors of
its store locations of rents and all other monies payable under the leases for
such locations; and (b) to the lessees operating the shoe departments and
jewelry departments in its stores of all monies payable
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to them by Borrower. Foothill acknowledges that Borrower's rent list is
satisfactory for its store locations.
6.4 TAX RETURNS. Borrower agrees to deliver to Foothill copies of
each of Borrower's future federal income tax returns, and any amendments
thereto, within thirty (30) days of the filing thereof with the Internal Revenue
Service.
6.5 DESIGNATION OF INVENTORY. Borrower shall now and from time to
time hereafter, but not less frequently than weekly, execute and deliver to
Foothill a designation of Inventory specifying Borrower's cost and the retail
value of Borrower's Inventory, and further specifying such other information as
Foothill may reasonably request.
6.6 STORE OPENINGS AND CLOSINGS. Borrower shall give Foothill
reasonable prior notice of new store openings and closing of its stores.
6.7 INVENTORY AUDITS. Borrower shall continue to engage such firms
as are acceptable to Foothill conduct regular, independent, third party physical
counts of Inventory (and for this purpose Rainier Inventory Service and
Washington Inventory Service are acceptable to Foothill). Borrower hereby
irrevocably authorizes and directs its inventory counting firms to deliver to
Foothill, at its request and at Borrower's expense, its inventory reports.
Inventory in each of Borrower's stores must be physically counted at least once
in each year.
6.8 REAL PROPERTY LEASES. Borrower shall make timely payment of
all rents falling due after the commencement of the Bankruptcy Case on real
property leases where Borrower is lessee and continues to operate, unless such
payments are contested in good faith by Borrower and the failure to pay such
monies could not reasonably be expected to have a Material Adverse Effect.
Borrower shall also make timely payments with respect to merchandise sold after
the commencement of the Bankruptcy Case to each of the lessees operating the
shoe departments and jewelry departments in its stores, unless such payments are
contested in good faith by Borrower and the failure to pay such monies could not
reasonably be expected to have a Material Adverse Effect, and in the event that
Borrower does not make such payments, Foothill may, in its discretion establish
reasonable reserves for delinquent payments.
6.9 TAXES. Except for taxes owed prior to the date hereof, all
assessments and taxes, whether real, personal, or otherwise, due or payable by,
or imposed, levied, or assessed against Borrower or any of its property have
been paid, and shall hereafter be paid in full, before delinquency or before the
expiration of any extension period unless such assessments or taxes are being
contested in good faith by Borrower and the failure to make such payments could
not reasonably be expected to have a Material Adverse Effect. Except for taxes
owed prior to the date hereof, Borrower shall make due and timely payment or
deposit of all federal, state, and local taxes, assessments, or contributions
required of it by law, and will execute and deliver to Foothill, on demand,
appropriate certificates attesting
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to the payment thereof or deposit with respect thereto. Except for taxes owed
prior to the date hereof, Borrower will make timely payment or deposit of all
tax payments and withholding taxes required of it by applicable laws, including
those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state,
and federal income taxes, and will, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that Borrower has made such payments or
deposits.
6.10 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as are ordinarily insured against
by other owners in similar businesses. Borrower also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to Borrower's ownership and use of the Collateral, as well as insurance
against larceny, embezzlement, and criminal misappropriation consistent with
past practice.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All such policies of insurance (except those of public liability and
property damage) shall contain a 438BFU lender's loss payable endorsement, or an
equivalent endorsement in a form satisfactory to Foothill, showing Foothill as
loss payee thereof as it relates to the Collateral, and shall contain a waiver
of warranties, and shall specify that the insurer must give at least ten (10)
days prior written notice to Foothill before canceling its policy for any
reason. Borrower shall deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor. All proceeds
payable under any such policy as it relates to the Collateral, shall be payable
to Foothill to be applied on account of the Obligations.
6.11 CHANGE NAME. Borrower shall provide Foothill with not less
than thirty (30) days prior written notice before it changes its name, FEIN,
business structure or identity, or adds any new fictitious names.
6.12 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and under
the other Loan Documents made by or on behalf of Borrower shall be made without
setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, or local taxes.
6.13 LOCATION OF INVENTORY. Borrower shall keep the Inventory
(other than Inventory in transit) only at the locations identified on SCHEDULE
6.13; PROVIDED, HOWEVER, that Borrower may amend SCHEDULE 6.13 so long as such
amendment occurs by written notice to Foothill not less than thirty (30) days
prior to the date on which the Inventory is moved to such new location, so long
as such new location is within the United States, and so long as, at the time of
such written notification, Borrower provides any financing
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<PAGE>
statements necessary to perfect and continue perfected Foothill's security
interests in such assets. Borrower shall use its best efforts to provide to
Foothill a landlord's waiver in form and substance reasonably satisfactory to
Foothill for each new location.
6.14 COMPLIANCE WITH LAWS. Other than with respect to the Tax
Payment, Borrower shall comply with the requirements of all applicable laws,
rules, regulations, and orders of any governmental authority, including the Fair
Labor Standards Act and the Americans With Disabilities Act, other than laws,
rules, regulations, and orders the non-compliance with which, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
6.14 EMPLOYEE BENEFITS.
(a) Borrower shall deliver to Foothill a written statement by
the chief financial officer of Borrower specifying the nature of any of the
following events and the actions which Borrower proposes to take with respect
thereto promptly, and in any event within ten (10) days of becoming aware of any
of them, and when known, any action taken or threatened by the Internal Revenue
Service, PBGC, Department of Labor, or other party with respect thereto: (i) an
ERISA Event with respect to any Plan; (ii) the incurrence of an obligation to
pay additional premium to the PBGC under Section 4006(a)(3)(E) of ERISA with
respect to any Plan; and (iii) any lien on the assets of Borrower arising in
connection with any Plan.
(b) Borrower shall also promptly furnish to Foothill copies
prepared or received by Borrower or an ERISA Affiliate of: (i) at the request
of Foothill, each annual report (Internal Revenue Service Form 5500 series) and
all accompanying schedules, actuarial reports, financial information concerning
the financial status of each Plan, and schedules showing the amounts contributed
to each Plan by or on behalf of Borrower or its ERISA Affiliates for the most
recent three (3) plan years; (ii) all notices of intent to terminate or to have
a trustee appointed to administer any Plan; (iii) all written demands by the
PBGC under Subtitle D of Title IV of ERISA; (iv) all notices required to be sent
to employees or to the PBGC under Section 302 of ERISA or Section 412 of the
IRC; (v) all written notices received with respect to a Multiemployer Plan
concerning (x) the imposition or amount of withdrawal liability pursuant to
Section 4202 of ERISA, (y) a termination described in Section 4041A of ERISA, or
(z) a reorganization or insolvency described in Subtitle E of Title IV of ERISA;
(vi) the adoption of any new Plan that is subject to Title IV of ERISA or
Section 412 of the IRC by Borrower or any ERISA Affiliate; (vii) the adoption of
any amendment to any Plan that is subject to Title IV of ERISA or Section 412 of
the IRC, if such amendment results in a material increase in benefits or
Unfunded Benefit Liability; or (viii) the commencement of contributions by
Borrower or any ERISA Affiliate to any Plan that is subject to Title IV of ERISA
or Section 412 of the IRC.
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<PAGE>
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, Borrower
will not do any of the following without Foothill's prior written consent:
7.1 DISTRIBUTIONS. Make any distribution or declare or pay any
cash dividends on, or purchase, acquire, redeem, or retire any of Borrower's
capital stock, of any class, whether now or hereafter outstanding.
7.2 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement and the other
Loan Documents;
(b) Indebtedness incurred prior to the commencement of the
Bankruptcy Case;
(c) Indebtedness secured by Permitted Liens;
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c), (e) and (f) of this SECTION 7.1 (and
continuance or renewal of any Permitted Liens associated therewith) so long as:
(i) the terms and conditions of such refinancings, renewals, or extensions do
not materially impair the prospects of repayment of the Obligations by Borrower,
(ii) the net cash proceeds of such refinancings, renewals, or extensions do not
exceed the sum of (A) the aggregate principal amount of the Indebtedness so
refinanced, renewed, or extended and (B) any accrued but unpaid interest
thereon, (iii) such refinancings, renewals, refundings, or extensions do not
result in a shortening of the average weighted maturity of the Indebtedness so
refinanced, renewed, or extended, and (iv) to the extent that Indebtedness that
is refinanced was subordinated in right of payment to the Obligations, then the
subordination terms and conditions of the refinancing Indebtedness must be at
least as favorable to Foothill as those applicable to the refinanced
Indebtedness;
(e) Capital leases and purchase money Indebtedness incurred in
the acquisition of equipment or other assets;
(f) Other Indebtedness relating to capital expenditures
permitted under SECTION 7.11;
(g) Indebtedness relating to insurance premium financing;
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<PAGE>
(h) Indebtedness relating to trade accounts payable or
Borrower's controlled disbursement account;
(i) Borrower's guaranty of the lease of Borrower's
distribution center in Kent, Washington; and
(j) Indebtedness incurred during the Bankruptcy Case that
would be an expense of administration and is unsecured.
7.3 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
SECTION 7.1(D) and so long as the replacement liens secure only those assets or
property that secured the original Indebtedness).
7.4 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation, reorganization, or recapitalization unless Borrower is the
surviving entity, or liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, assign, lease, transfer, or
otherwise dispose of, in one transaction or a series of related transactions,
all or any substantial part of its business, property, or assets, whether now
owned or hereafter acquired.
7.5 MAINTENANCE OF NET WORTH. Borrower shall not allow its Net
Worth to be less than Fourteen Million Dollars ($14,000,000) at the end of any
fiscal quarter. "Net Worth" at the end of any fiscal quarter means stockholders
equity as presented on the financial statements of Borrower for such quarter, as
filed with the SEC (determined in accordance with GAAP), adjusted to exclude,
without duplication (i) writeoffs of unamortized financing fees, goodwill and
other intangible assets; (ii) reserves recorded in accordance with GAAP in
connection with the closing of stores; (iii) from and after October 29, 1994,
reductions resulting from (x) non-cash charges (including, without limitation,
charges associated with LIFO/RIM adjustments, depreciation and amortization,
straight line rent, deferred financing fees and non-cash interest) or (y) costs
associated with the Bankruptcy Case and Borrower's efforts to implement a plan
of reorganization thereunder; (iv) the effect of any adoption or change in GAAP,
whether elected by Borrower or imposed upon Borrower to be in compliance with
GAAP; and (v) reductions resulting from non-cash interest on Borrower's
outstanding Indebtedness.
7.6 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter into
any transaction not in the ordinary course of Borrower's business.
7.7 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except for Borrower's
guarantee of the lease of its distribution center located in Kent, Washington,
and except by endorsement of
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<PAGE>
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill.
7.8 RESTRUCTURE. Make any change in Borrower's financial structure
that could reasonably be expected to have a Material Adverse Effect, or change
the principal nature of Borrower's business operations, or the date of its
fiscal year.
7.9 PREPAYMENTS. Prepay any Indebtedness owing to any third
Person.
7.10 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.11 CAPITAL EXPENDITURES. Make any capital expenditure where the
aggregate amount of such capital expenditures (net of any landlord
reimbursements) in any fiscal year of Borrower is in excess of the following
amounts for the following fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ending
------------------
Amount on or About October 31
---------- ----------------------
<S> <C>
$2,000,000 1995
$3,000,000 1996
</TABLE>
7.12 ACCOUNTING METHODS. Modify or change its method of accounting
(other than the change from "LIFO" to "FIFO method of inventory accounting) or
enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Foothill information
regarding the Collateral or Borrower's financial condition.
7.13 INVESTMENTS. Except as set forth on SCHEDULE 7.13, directly or
indirectly make or acquire any beneficial interest in (including stock,
partnership interest, or other securities of), or make any loan, advance, or
capital contribution to, any Person.
7.14 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 7.14, directly or indirectly enter into or permit to exist any material
transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower's business, upon fair and reasonable terms, that
are fully disclosed to Foothill, and that are no less favorable to Borrower than
would be obtained in arm's length transaction with a non-Affiliate.
7.15 SUSPENSION. Except for contemplated store closings disclosed
in advance to Foothill by Borrower, staff reductions and related changes,
suspend or go out of a substantial portion of its business.
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<PAGE>
7.16 USE OF PROCEEDS. Use the proceeds of the advances made
hereunder for any purpose other than: (a) on the Closing Date, to repay in full
the outstanding principal, accrued interest, and accrued fees and expenses owing
to Foothill under the Original Loan Agreement; (b) to pay transactional fees,
costs and expenses incurred in connection with this Agreement; and (c)
thereafter, consistent with the terms and conditions hereof, for its lawful and
permitted corporate purposes.
7.17 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY WITH
BAILEES. Borrower covenants and agrees that it will not, without thirty (30)
days prior written notification to Foothill, relocate its chief executive office
to a new location and so long as, at the time of such written notification,
Borrower provides any financing statements necessary to perfect and continue
perfected Foothill's security interests and also uses its best efforts to
provide to Foothill a landlord's waiver in form and substance reasonably
satisfactory to Foothill. Except for Inventory in Borrower's distribution
center in Kent, Washington, the Inventory shall not at any time now or hereafter
be stored with a bailee, warehouseman, or similar party.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared
due and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2 If Borrower fails or neglects to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in this Agreement,
or any material term, provision, condition, covenant or agreement in any of the
other Loan Documents or in any other present or future agreement between
Borrower and Foothill relating to the subject matter of this Agreement;
PROVIDED, that if such failure or neglect arises under SECTIONS 6.2, 6.3 or 6.4
and such failure or neglect is not cured within five (5) Business Days of its
occurrence;
8.3 If there is a material impairment of the value or priority of
Foothill's security interests in the Collateral;
8.4 If any material portion of Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person;
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<PAGE>
8.5 If the Bankruptcy Case is converted to a case under Chapter 7
of the Bankruptcy Code;
8.6 If a trustee is appointed for Borrower in the Bankruptcy Case;
8.7 If Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs for more than ten (10) days; PROVIDED, HOWEVER, that during the pendency
of such period, Foothill shall be relieved of its obligation to make additional
advances or issue additional L/Cs or L/C Guarantees hereunder;
8.8 Except for possible liens in respect of the Tax Payment which
are junior to Foothill's security interests, if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower's properties or
assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency, or if any taxes or debts owing at any time hereafter to any one or more
of such entities becomes a lien, whether choate or otherwise, upon any of
Borrower's properties or assets and the same is not paid on the payment date
thereof;
8.9 Except for possible liens in respect of the Tax Payment which
are junior to Foothill's security interests, if a judgment or other claim
becomes a lien or encumbrance upon any material portion of Borrower's properties
or assets;
8.10 If there is a default in any material agreement to which
Borrower is a party with one or more third Persons, and if such Persons have
obtained relief from the automatic stay under Section 362 of the Bankruptcy Code
which might have a material adverse effect on the Collateral or Borrower's
business;
8.11 If Borrower makes any payment on account of Indebtedness that
has been contractually subordinated in right of payment to the payment of the
Obligations, except for payments in Borrower's capital stock, or to the extent
such payment is permitted by the terms of the subordination provisions
applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Foothill
by any Authorized Officer of Borrower, or if any such warranty or representation
is withdrawn;
8.13 (a) With respect to any Plan, the occurrence of any of the
following which could reasonably be expected to have a material adverse effect
on the financial condition of Borrower: (i) the violation of any of the
provisions of ERISA; (ii) the loss by a Plan intended to be a Qualified Plan of
its qualification under Section 401(a) of the IRC; (iii) the incurrence of
liability under Title IV of ERISA; (iv) the filing of a notice of intent to
terminate a Plan under Sections 4041 or 4041A of ERISA; (v) a complete or
partial withdrawal of Borrower or an ERISA Affiliate from any Multiemployer
Plan; (vi)
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<PAGE>
the receipt of a notice by the plan administrator of a Plan that the PBGC has
instituted proceedings to terminate such Plan or appoint a trustee to administer
such Plan; (vii) a commencement or increase of contributions to, or the adoption
of or the amendment of, a Plan; and (viii) the assessment against Borrower or
any ERISA Affiliate of a tax under Section 4980B of the IRC.
(b) The Unfunded Benefit Liability of all of the Plans of
Borrower and its ERISA Affiliates shall, in the aggregate, exceed Three Million
Dollars ($3,000,000).
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuation of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Collateral and without
affecting the Obligations;
(d) After Foothill has declared the Obligations due and
payable pursuant to Section 9.1(a), settle or adjust disputes and claims
directly with Account Debtors for amounts and upon terms which Foothill
considers commercially reasonable, and in such cases, Foothill will credit
Borrower's loan account with only the net amounts received by Foothill in
payment of such disputed Accounts after deducting all Foothill Expenses incurred
or expended in connection therewith;
(e) Without notice to or demand upon Borrower, make such
payments and do such acts as Foothill considers necessary or reasonable to
protect its security interests in the Collateral. Borrower agrees to assemble
the Collateral if Foothill so requires, and to make the Collateral available to
Foothill as Foothill may designate. Borrower authorizes Foothill to enter the
premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien that in Foothill's determination appears to
conflict with its security interests and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned premises,
Borrower hereby grants Foothill a license to enter into possession of such
premises and to occupy the same, without
32
<PAGE>
charge, for up to one hundred twenty (120) days in order to exercise any of
Foothill's rights or remedies provided herein, at law, in equity, or otherwise;
(f) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of Borrower held
by Foothill, or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Foothill;
(g) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill which constitute Collateral, and any
amounts received in the Blocked Account, to secure the full and final repayment
of all of the Obligations;
(h) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Foothill is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and Borrower's rights under all licenses and all franchise agreements shall
inure to Foothill's benefit;
(i) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Foothill
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(j) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrower and each holder of a
security interest in the Collateral who has filed with Foothill a written
request for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a public
sale is to be made of the Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in SECTION 12, at least five (5) days
before the date fixed for the sale, or at least five (5) days before the date on
or after which the private sale or other disposition is to be made; no notice
needs to be given prior to the disposition of any portion of the Collateral that
is perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons other than Borrower
claiming an interest in the Collateral shall be sent to such addresses as they
have furnished to Foothill;
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<PAGE>
(3) If the sale is to be a public sale, Foothill also
shall give notice of the time and place by publishing a notice one time at least
five (5) days before the date of the sale in a newspaper of general circulation
in the county in which the sale is to be held;
(k) Foothill may credit bid and purchase at any public sale;
and
(l) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Borrower fails to pay any monies (whether taxes, rents,
assessments, insurance premiums, or otherwise) due to third Persons, or fails to
make any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Foothill
determines that such failure by Borrower could have a material adverse effect on
Foothill's interests in the Collateral, in its discretion and without prior
notice to Borrower, Foothill may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves in Borrower's
loan account as Foothill deems necessary to protect Foothill from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type described in SECTION 6.10, and take any action with respect to such
policies as Foothill deems prudent. Any such amounts paid by Foothill shall
constitute Foothill Expenses. Any such payments made by Foothill shall not
constitute an agreement by Foothill to make similar payments in the future or a
waiver by Foothill of any Event of Default under this Agreement. Foothill need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance, or lien and the receipt of the usual official notice for
the payment thereof shall be conclusive evidence that the same was validly due
and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Foothill on which Borrower may in any way be
liable.
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<PAGE>
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person. All risk of loss, damage, or destruction of
the Collateral shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower agrees to defend, indemnify, save,
and hold Foothill and its officers, employees, and agents (the "Indemnified
Parties") harmless against all obligations, demands, claims, and liabilities
claimed or asserted by any other Person and all losses, including reasonable
attorneys fees and disbursements incurred or paid by the Indemnified Parties, in
each case arising out of the transactions contemplated by this Agreement;
PROVIDED, HOWEVER, that Borrower shall not be liable (i) with respect to any
obligation, demand, claim, liability or loss arising from the gross negligence
or willful misconduct of any Indemnified Party, (ii) with respect to any
settlement made without its consent (which consent will not be unreasonably
withheld) or (iii) for the fees and disbursements of more than one separate firm
of attorneys at any time for all the Indemnified Parties, which firm shall be
chosen by Foothill. This provision shall survive the termination of this
Agreement.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail, postage prepaid, return
receipt requested, or by prepaid telex, TWX, telefacsimile, or telegram (with
messenger delivery specified) to Borrower or to Foothill, as the case may be, at
its address set forth below:
If to Borrower: LAMONTS APPAREL, INC., Debtor-In-Possession
3650 131st Street S.E.
Bellevue, Washington 98006
Attn.: Earle Spokane, Chief Financial Officer
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn.: Business Finance Division Manager
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<PAGE>
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this SECTION 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) days after the deposit thereof in the mail. Borrower acknowledges and
agrees that notices sent by Foothill in connection with Sections 9504 or 9505 of
the Code shall be deemed sent when deposited in the mail or transmitted by
telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF AMERICA (INCLUDING
THE BANKRUPTCY CODE, IT BEING THE INTENT OF THE PARTIES THAT FEDERAL LAW SHALL
GOVERN THE RIGHTS AND DUTIES OF THE PARTIES HERETO WITHOUT REGARD TO THE
APPLICATION OF ANY PROVISION OF STATE LAW. TO THE EXTENT THAT FEDERAL LAW WOULD
SEEK TO APPLY THE LAW OF ANY STATE AS THE FEDERAL RULE, FOR THE PURPOSES OF THIS
AGREEMENT, THE PARTIES AGREE THAT THE LAWS OF THE STATE OF CALIFORNIA (EXCLUSIVE
OF SECTION 9102(4)-(7) OF THE CODE, AND SECTIONS 580(D) AND 726 OF THE CODE OF
CIVIL PROCEDURE), SHALL BE USE TO SUPPLEMENT APPLICABLE FEDERAL LAW. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE BANKRUPTCY COURT. EACH OF
BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. BORROWER AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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14 DESTRUCTION OF BORROWER'S DOCUMENTS.
Except for Negotiable Collateral, all documents, schedules, invoices,
agings, or other papers delivered to Foothill may be destroyed or otherwise
disposed of by Foothill four (4) months after they are delivered to or received
by Foothill, unless Borrower requests, in writing, the return of said documents,
schedules, or other papers and makes arrangements, at Borrower's expense, for
their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties;
PROVIDED, HOWEVER, that Borrower may not assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement cannot be changed or
terminated orally. All prior agreements, understandings, representations,
warranties, and negotiations, if any, are merged into this Agreement.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective
37
<PAGE>
as delivery of a manually executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by telefacsimile also shall
deliver a manually executed counterpart of this Agreement but the failure to
deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or
payment of the Obligations by Borrower or the transfer by Borrower to Foothill
of any property should for any reason subsequently be declared to be void or
voidable under any state or federal law relating to creditors' rights, including
provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfer"), and if Foothill is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Foothill is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of
Foothill related thereto, the liability of Borrower automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, whether before or after the date hereof.
15.10 CREDIT CARD AGREEMENTS. Nothing in this Agreement or the other
Loan Documents shall prohibit or restrict Borrower from maintaining, continuing
or performing its obligations under, its credit card programs with Card
Establishment Services, Inc., American Express Card Services, Inc. and Discover
Card Services, Inc. National City Corporation, or under similar credit card
programs established from time to time.
15.11 CONFIDENTIALITY. Foothill shall, and shall cause each of its
representatives, each of the Participants and each representative of the
Participants to keep confidential all non-public information relating to, or
provided by or on behalf of Borrower, unless disclosure of such information is
required by law, and such Persons shall use such information only for the
purposes contemplated hereby.
15.12 PLAN OF REORGANIZATION. No provision of the Loan Documents
shall be violated by a Plan of Reorganization in the Bankruptcy Case confirmed
by the
38
<PAGE>
Bankruptcy Court pursuant to which the Obligations are required paid in full in
cash on the effective date thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Kevin M. Coyle
------------------------------------------
Title: Vice President
---------------------------------------
LAMONTS APPAREL, INC.,
a Delaware corporation, Debtor-In-Possession
By: /s/ Loren Rothschld
-----------------------------------------
Title: Vice Chairman
---------------------------------------
39
<PAGE>
Schedule P-1
Permitted Liens
(a) Liens imposed by any governmental authority for taxes, assessments or
charges not yet due or that are being contested in good faith and by appropriate
proceedings, if adequate reserves with respect thereto are maintained in
accordance with GAAP.
(b) Carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business with respect to
amounts not yet delinquent or being contested in good faith and by appropriate
proceedings, if adequate reserves with respect thereto are maintained in
accordance with GAAP.
(c) Liens to secure pledges or deposits made in the ordinary course of
business to secure nondelinquent obligations arising under statutory or
regulatory requirements, including worker's compensation, unemployment insurance
and similar legislation.
(d) Liens to secure the performance of public statutory obligations that
are not delinquent, appeal bonds, performance bonds and other obligations of a
like nature (or other than for borrowed money).
(e) Easements, rights-of-way, restrictions, minor defects or
irregularities in tide and other similar charges or encumbrances existing on the
date Borrower acquires the property to which they attach, which Liens do not (i)
secure Indebtedness or the deferred purchase price of any asset or (ii)
interfere in any material respect with the business of Borrower.
(f) Liens upon real and/or tangible personal property acquired after the
date hereof (by purchase, construction or otherwise) by Borrower securing
Indebtedness permitted by Section 7.2 of the Loan Agreement; provided that no
such Lien shall extend to or cover any property of Borrower other than the
respective property so acquired and improvements thereon.
(g) Liens on assets other than the Collateral existing on the Closing
Date.
(h) Liens on deposits or similar arrangements with vendors or factors made
in the ordinary course of business to secure the purchase price of inventory.
(i) Liens in favor of customer and revenue authorities arising as a matter
of law to secure payment of nondelinquent customs duties in connection with the
importation of goods.
<PAGE>
(j) Judgment and attachment Liens not giving rise to an Event of Default.
(k) Leases or subleases granted to others not interfering in any material
respect with the business of the Borrower.
(l) Liens created hereunder
(m) Liens securing obligations in respect of the Tax Payment.
(n) Liens contained in customary credit card arrangements on amounts
payable for goods and services purchased from Borrower and charged to credit
card accounts.
(o) Liens on Equipment existing on the Closing Date.
(p) Any expansion, renewal or replacement of the foregoing (a)-(o),
provided that the Liens permitted by this clause (o) shall not be spread to
cover any additional Indebtedness (other than Indebtedness constituting
refinancing indebtedness with respect to such Indebtedness or property [other
than a substitution of like property]).
(q) Additional Liens on assets other than Collateral securing obligations
in an aggregate amount not exceeding $250,000 at any time.
<PAGE>
Schedule R-1
Real Property
(a) Fee interest in store #540 (Alderwood Mall, 3100 184th Street SW
Lynnwood, WA)
(b) Ground leasehold interest in store #558 (Kitsap Mall, 10317 Silverdale
Way NW, Silverdale, WA), pursuant to Ground Lease dated August 7, 1984, as
amended, with Winmar of Kitsap, Inc.
(c) Ground leasehold interest in store #592 (Valley River Center, 245
Valley River Center, Eugene, OR), pursuant to Ground Lease dated September 17,
1974, as amended, with Valley River Center general partnership (as assigned and
assumed on May 23, 1988), but only for so long as the foregoing remains subject
to a Mortgage pursuant to the terms of the Loan Agreement.
"The foregoing are to be subject to the Mortgages only if and to the extent
the conditions subsequent relating thereto and contained in the Loan Agreement
are satisfied"
<PAGE>
Schedule 2.2(a)
L/C Guarantees
CIT Group/BCC, Inc. ($500,000)
BNY Financial Corp. ($350,000)
Republic Factors Corp. ($500,000)
William Connor & Associates ($12,980.85)
Ekstein Knitwear ($48,342.42)
<PAGE>
Schedule 5.8
Litigation
1. Borrower is a defendant in a lawsuit originally brought in state court
in Anchorage, Alaska. Plaintiffs alleged that store "area managers" in the
State of Alaska are not exempt from overtime pay under the Alaska Wage and Hour
Act (the "AWHA") and thus have worked hours for which they have not been
compensated. The complaint seeks back wages, liquidated damages, attorneys fees
and costs. The class action has not yet been certified and the case has
recently been removed to Federal District Court in Anchorage. In November 1993,
plaintiffs amended the complaint to allege a new claim on behalf of themselves
and allegedly similarly situated employees under Section 216(b) of the Fair
Labor Standards Act (the "FLSA"), in addition to the original claim under the
AWHA. However, on March 25, 1994, the plaintiffs dismissed their new FLSA
claim. In consideration of that dismissal, the parties agreed to remand the
remaining original AWHA claim back to state court and the remand was ordered by
the court on May 27, 1994.
2. Borrower's Federal income tax returns for fiscal years 1988, 1989 and
1990 were subject to examination by the Internal Revenue Service ("IRS"). The
examining agent's report proposed adjustments relating primarily to the value
assigned to the inventory of a predecessor of Borrower when it was acquired by
Borrower on September 21, 1989 and the timing of recognition of income from the
sale of Borrower's former subsidiaries. Borrower and the IRS agreed to settle
this claim by payment of $503,913 on December 15, 1994. The payment was not
made and accrues interest by its terms. In addition, the Borrower may be
subject to penalties and other costs.
3. During the summer of 1993, Borrower received notice from Commerce and
Industry Insurance Co. of a claim for $397,271 relating to workman's
compensation liability claims for the period 11/27/87 - 11/27/88. During
November 1994, this matter was given to a collection agency.
4. The attorney general for the State of Washington has investigated the
prices and advertised beginning and ending dates for Borrower's University
Village store "going out of business" sale held in October 1994. Borrower is
advised that it has failed to conform to applicable regulations.
<PAGE>
Schedule 5.12
Environmental Conditions
1. Since October 1988, Borrower and its subsidiary, Texstyrene Plastics,
Inc. ("Texstyrene"), have been implementing a clean-up plan pursuant to the New
Jersey Environmental Clean-up Responsibility Act ("ECRA") at a facility located
in Tinton Falls, New Jersey. As security for the performance of its obligations
under the cleanup plan, the New Jersey Department of Environmental Protection
and Energy ("DEPE") required Borrower to post a letter of credit in the amount
of $1 million, which was later reduced to $120,000, to cover the estimated cost
of implementing the cleanup plan. In late 1993, DEPE approved removing the
requirement that Borrower post a letter of credit in exchange for Borrower's
self-guarantee to cover any remaining costs of cleanup. Borrower estimates the
remaining cost to implement the cleanup plan (excluding legal and professional
fees) to be $48,000, to be incurred over a ten-year period.
<PAGE>
SCHEDULE 6.13
INVENTORY LOCATIONS
OPEN STORES
<TABLE>
<CAPTION>
# NAME ADDRESS CITY ST ZIP
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
502 BURIEN 460 SW 152ND STREET SEATTLE WA 98166
Claim Center 460 SW 152ND STREET SEATTLE WA 98166
506 FOREST PARK 17171 BOTHELL WAY NE SEATTLE WA 98155
508 CROSSROADS 156TH NE & NE 8TH BELLEVUE WA 98008
510 MANITO E 802 29TH AVE SPOKANE WA 99203
512 TOTEM LAKE 12601 120TH NE KIRKLAND WA 98034
514 SHADLE WELLESLEY @ ALBERTA SPOKANE WA 99205
516 UNIVERSITY CTR 3909 SEWARD HIGHWAY ANCHORAGE AK 99503
518 WESTWOOD 2600 SW BARTON SEATTLE WA 98126
520 SEA-TAC 2001 S 320/PACIFIC HWY FEDERAL WAY WA 98003
522 POCATELLO 800 YELLOWSTONE AVE POCATELLO ID 83201
524 FAIRBANKS 1255 AIRPORT WAY & COWLES FAIRBANKS AK 99701
526 FACTORIA 4001 FACTORIA SQ MALL BELLEVUE WA 98006
528 NORTHGATE 300 NORTHGATE PLAZA SEATTLE WA 98125
530 IDAHO FALLS 1515 NORTHGATE MILE IDAHO FALLS ID 83401
532 WENATCHEE 511 VALLEY MALL PARKWAY EAST WENATCHEE WA 98802
536 YAKIMA 2515 MAIN STREET UNION GAP WA 98903
538 OLYMPIA 625 BLACKLAKE BOULEVARD OLYMPIA WA 98502
540 ALDERWOOD 3100 184TH STREET SW LYNNWOOD WA 98036
542 MOSCOW 1922 W PULLMAN ROAD MOSCOW ID 83843
544 NORTHWAY 3101 PENLAND PARKWAY ANCHORAGE AK 99508
546 ABERDEEN 1137 E WISHKAH ABERDEEN WA 98520
548 JUNEAU 8745 GLACIER HIGHWAY JUNEAU AK 99801
550 SOLDOTNA 35249 SPUR HIGHWAY SOLDOTNA AK 99669
552 DIMOND 800 E. DIMOND BLVD. #1 ANCHORAGE AK 99515
556 PORT ANGELES 200 WEST 1ST PORT ANGELES WA 98362
558 SILVERDALE 10317 SILVERDALE WAY N SILVERDALE WA 98383
562 WASILLA 1800 PARKS HWY, STE B WASILLA AK 99687
564 LEWISTON 1720 19TH AVE LEWISTON ID 83501
566 HIGHLAND 5915 6TH AVE TACOMA WA 98406
568 MARYSVILLE 205 MARYSVILLE MALL MARYSVILLE WA 98270
570 COEUR D'ALENE WEST 200 HANLEY AVE. #4 COEUR D'ALENE ID 83814
572 PUYALLUP 3500 S MERIDIAN #600 PUYALLUP WA 98373
582 HILLSBORO 2175 SE TUALATIN VLY HWY HILLSBORO OR 97213
586 TRI-CITIES 415 COLUMBIA CENTER KENNEWICK WA 99336
592 EUGENE 245 VALLEY RIVER CTR EUGENE OR 97401
594 CORVALLIS 215 SW 4TH ST CORVALLIS OR 97333
596 MISSOULA-SOUTHGATE MALL SOUTHGATE MALL MISSOULA MT 59801
600 LOGAN-CACHE VALLEY MALL 1300 N. MAIN ST. LOGAN UT 84341
602 TWIN FALLS 1485 POLE LINE RD.#126 TWIN FALLS ID 83301
604 U-CITY 100 U. CITY MALL, E. S SPOKANE WA 99206
606 MOSES LAKE 813 N. STRATFORD ROAD MOSES LAKE WA 98837
608 ASTORIA 141 SOUTH HIGHWAY 101 WARRENTON OR 97146
DC In-Facility 7202 S. 212TH KENT WA 98032
DC In-Transit to stores
CLOSED STORES
# NAME ADDRESS CITY ST ZIP
504 U-VILLAGE 4500 25TH NE SEATTLE WA 98105
534 MEDFORD 850 BIDDLE ROAD MEDFORD OR 97501
554 SPOKANE, DTN 618 W RIVERSIDE SPOKANE WA 99201
555 SPOKANE, DTN - OUTLET 618 W RIVERSIDE SPOKANE WA 99201
574 LAKEWOOD 10509 GRAVELLY LK DR SW #500 TACOMA WA 98499
576 EVERETT 505 SE EVERETT MALL WY #1 EVERETT WA 98204
578 WASH. CIRCLE 9009 SW HALL BLVD #300 TIGARD OR 97223
580 VANCOUVER 7809-B NE VAN. PLAZA DR VANCOUVER WA 98662
588 LLOYD CENTER 1329 LLOYD CENTER PORTLAND OR 97232
590 JANTZEN BEACH 1700 JANTZEN BEACH CTR PORTLAND OR 97217
598 OGDEN 2265 WASHINGTON BLVD. OGDEN UT 84401
599 OGDEN - OUTLET 2265 WASHINGTON BLVD. OGDEN UT 84401
701 BOISE 350 N. MILWAUKIE #1057 BOISE UT 83788
702 COTTONWOOD 4835 HIGHLAND DR #1277 SALT LAKE CITY UT 84117
703 OREM F-111 UNIVERSITY MALL OREM NE 84058
704 OAK VIEW 3001 S 144TH ST #2115 OMAHA MN 68144
705 MALL OF AMERICA N-102 NORTH GARDEN BLOOMINGTON WA 55425
</TABLE>
<PAGE>
Schedule 6.13
Inventory Locations
Other Inventory Locations:
1. Includes all merchandise inventory in-transit to the distribution center
from vendor via common carrier or other method of transportation.
2. Includes all merchandise inventory in-transit to the stores from a vendor
shipped directly to the stores via common carrier or other method of
transportation.
Borrower intends to open store #610 at 775 Gilman Boulevard, Issaquah, WA
98027, in March 1995.
<PAGE>
Schedule 7.13
Permitted Investments
1. Investments in Frederick Atkins, Inc.
2. Investments in Texstyrene (not to exceed $100,000 during the term of the
Loan Agreement).
3. Any investment identified as cash or cash equivalents on Borrower's balance
sheet.
4. Any transaction identified on Schedule P-1 or 7.14.
5. Advances in connection with purchases in the ordinary course of business.
6. Required deposits in connection with leases and otherwise in the ordinary
course of business.
7. Capital investments permitted pursuant to Section 7.11 of the Loan
Agreement.
8. Advances to professionals in connection with the Bankruptcy Case.
9. Funding of insurance premiums as provided in the trust agreement referred
to in Schedule 7.14.
<PAGE>
Schedule 7.14
Permitted Affiliate Transactions
1. Payment of fees and salaries to officers, directors and employees of
Borrower to the extent not otherwise prohibited under the Loan Agreement.
2. Loans or advances to officers, directors and employees of Borrower for
business or personal purposes in an aggregate amount not to exceed $250,000
outstanding at any time and other loans and advances to such officers,
directors and employees for travel, entertainment and moving and other
relocation expenses.
3. Arms-length purchases or sales of goods and services made in the ordinary
course of business.
4. Any Restricted Payment that is made in compliance with the provisions of
Section 7.1 of the Credit Agreement.
5. Transactions exclusively between Borrower and Texstyrene that constitutes
Permitted Investments.
6. Transactions pursuant to agreements or arrangements in effect on the
Closing Date that have been disclosed in Borrower's filings with the
Bankruptcy Court or the Securities and Exchange Commission.
7. Agreement and Declaration of Trust dated as of January 5, 1995 with United
States Trust Company.
8. Exchange Agreement dated October 18, 1994 with holders of Borrower's Notes
due 1999.
<PAGE>
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
This Amendment Number One To Loan and Security Agreement ("Amendment") is
entered into as of March 6, 1995, between FOOTHILL CAPITAL CORPORATION
("Foothill") and LAMONTS APPAREL, INC., Debtor-In-Possession ("Borrower").
FACT ONE: Foothill and Borrower entered into that certain Amended and
Restated Loan And Security Agreement as of February 17, 1995 (the "Agreement").
FACT TWO: Borrower and Foothill desire to amend the Agreement as provided
herein.
NOW, THEREFORE, Foothill and Borrower hereby amend the Agreement as
follows:
1. Section 7.5 of the Agreement is hereby amended in its entirety to read
as follows:
"7.5 MAINTENANCE OF NET WORTH. Borrower shall not allow its Net Worth
to be less than Ten Million Dollars ($10,000,000) at the end of any
fiscal quarter. "Net Worth" at the end of any fiscal quarter means
stockholders equity as presented on the financial statements of
Borrower for such quarter, as filed with the SEC (determined in
accordance with GAAP), adjusted to exclude, without duplication: (i)
prepetition tax claims; (ii) prepetition claims of Leonard M. Snyder
and Frank E. Kulp,III; (iii) writeoffs of unamortized financing fees,
goodwill and other intangible assets; (iv) reserves recorded in
accordance with GAAP in connection with the closing of stores; (v)
from and after October 29, 1994, reductions resulting from (x) non-
cash charges (including, without limitation, charges associated with
LIFO/RIM adjustments, depreciation and amortization, straight line
rent, deferred financing fees and non-cash interest) or (y) costs
associated with the Bankruptcy case and Borrower's efforts to
implement a plan of reorganization thereunder; (vi) the effect of any
adoption or change in GAAP, whether elected by Borrower or imposed
upon Borrower in compliance with GAAP; and (vii) reductions resulting
from non-cash interest on Borrower's outstanding indebtedness."
2. 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
shall remain in full force and effect.
<PAGE>
3. All initially capitalized terms used in this Amendment shall have the
meanings given to them in the Agreement unless specifically defined herein.
IN WITNESS WHEREOF, Borrower and Foothill have executed this Amendment as
of the date first set forth above.
FOOTHILL CAPITAL CORPORATION
By /s/ Kevin M. Coyle
----------------------------
Title Vice President
--------------------
LAMONTS APPAREL, INC.,
DEBTOR-IN-POSSESSION
By /s/ Loren Rothschild
----------------------------
Title Vice Chairman
--------------------
<PAGE>
March 27, 1995
Lamonts Apparel, Inc.
3650 131st. Avenue, S.E.
Bellevue, Washington 98006
Re: Letter Agreement (the "Letter Agreement"), dated October 18, 1994,
between Lamonts Apparel, Inc. (the "Company") and the undersigned
holders (the "Holders") of the Company's 10 1/4% Subordinated Notes
due 1999 (as amended from time to time, the "Notes").
Ladies and Gentlemen:
Reference is hereby made to the Letter Agreement. The undersigned Holders
have taken the position that they are not obligated to make an Exchange (as
defined in the Letter Agreement) for a variety of reasons including, without
limitation, that the Company has breached a financial covenant in the Loan and
Security Agreement with Foothill Capital Corporation (as provided in paragraph
3(f) of the Letter Agreement) by filing proceedings under Chapter 11. The
Company has taken no position as to whether it may request an Exchange or
whether any covenant that may have been breached in such Loan and Security
Agreement would constitute a financial covenant. Since the parties expect that
the issues relating to an Exchange will be resolved through negotiation of a
Plan of Reorganization, they wish to postpone any dispute over the rights and
obligations of the parties under the Letter Agreement.
The undersigned hereby agree that the period during which the Company may
request the Holders of the Notes to exchange such Notes in accordance with the
terms of the Letter Agreement shall be extended indefinitely beyond March 31,
1995; PROVIDED, however, that the date by which the Company must request such an
exchange shall be 60 days after written notice from the Holders of a majority of
the Notes electing to reinstate a deadline for requesting an Exchange.
The undersigned further agree that (a) the condition contained in paragraph
3(f) shall be measured from the date of the Letter Agreement to March 31, 1995,
and (b) the execution of this instrument shall not be an admission or waiver by
any party as to their rights and obligations under the Letter Agreement.
<PAGE>
Lamonts Apparel, Inc.
March 27, 1995
Page 2
This instrument sets forth the agreement of the undersigned, who are all of
the Holders of the Notes, and may be executed in any number of counterparts, and
by each Holder in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same instrument. The principal amount of the Notes set forth are the
amounts held as of October 18, 1994 which have changed as of the date hereof
solely by virtue of the accrual of interest.
Sincerely,
<PAGE>
Executive Life Insurance Company of New York
By: /s/ Richard J. Lindquist
-----------------------------------------
Name: Richard J. Lindquist
Title: Director, CS First Boston
Investment Management
for Executive Life Insurance
Company of New York
(Principal amount of Notes: $6,429,000)
(Nominee: ATWELL & Co.)
<PAGE>
Illinois State Board of Investments (the "Holder") is a fund whose assets are
managed by Fidelity Management Trust Company. Notice is hereby given that this
Agreement is not executed on behalf of the trustees of the Holder as
individuals, and the obligations of this Agreement are not binding upon any of
the trustees, officers or shareholders of the Holder individually, but are
binding only upon the assets and property of the Holder. The Company agrees
that no shareholder, trustee or officer of the Holder may be held personally
liable or responsible for any obligations of the Holder arising out of this
Agreement. With respect to obligations of the Holder arising out of this
Agreement, the Company shall look for payment or satisfaction of any claim
solely to the assets and property of the Holder.
Northern Trust as Trustee for:
Illinois State Board of Investments
By: /s/ Judith Pascente
--------------------------------------------
Judith Pascente
2nd Vice President
(Principal amount of Notes: $397,000)
(Nominee: ELL & Co.)
<PAGE>
Illinois Municipal Retirement Fund (the "Holder") is a fund whose assets are
managed by Fidelity Management Trust Company. Notice is hereby given that this
Agreement is not executed on behalf of the trustees of the Holder as
individuals, and the obligations of this Agreement are not binding upon any of
the trustees, officers or shareholders of the Holder individually, but are
binding only upon the assets and property of the Holder. The Company agrees
that no shareholder, trustee or officer of the Holder may be held personally
liable or responsible for any obligations of the Holder arising out of this
Agreement. With respect to obligations of the Holder arising out of this
Agreement, the Company shall look for payment or satisfaction of any claim
solely to the assets and property of the Holder.
Northern Trust as Trustee for:
Illinois Municipal Retirement Fund
By: /s/ Judith Pascente
-------------------------------------------
Judith Pascente
2nd Vice President
(Principal amount of Notes: $1,124,000)
(Nominee: ELL & Co.)
<PAGE>
General Motors Employees Domestic Group Pension Trust (the "Holder") is a fund
whose assets are managed by Fidelity Management Trust Company. Notice is hereby
given that this Agreement is not executed on behalf of the trustees of the
Holder as individuals, and the obligations of this Agreement are not binding
upon any of the trustees, officers or shareholders of the Holder individually,
but are binding only upon the assets and property of the Holder. The Company
agrees that no shareholder, trustee or officer of the Holder may be held
personally liable or responsible for any obligations of the Holder arising out
of this Agreement. With respect to obligations of the Holder arising out of
this Agreement, the Company shall look for payment or satisfaction of any claim
solely to the assets and property of the Holder.
Bankers Trust as Trustee for:
General Motors Employees Domestic Group Pension Trust
By: /s/ Donna H. Sheehan, VP
------------------------------------
DONNA H. SHEEHAN
VICE PRESIDENT
(Principal amount of Notes: $1,513,000)
(Nominee: PITT & Co.)
<PAGE>
Pension Reserves Investment Management Board (the "Holder") is a fund whose
assets are managed by Fidelity Management Trust Company. Notice is hereby given
that this Agreement is not executed on behalf of the trustees of the Holder as
individuals, and the obligations of this Agreement are not binding upon any of
the trustees, officers or shareholders of the Holder individually, but are
binding only upon the assets and property of the Holder. The Company agrees
that no shareholder, trustee or officer of the Holder may be held personally
liable or responsible for any obligations of the Holder arising out of this
Agreement. With respect to obligations of the Holder arising out of this
Agreement, the Company shall look for payment or satisfaction of any claim
solely to the assets and property of the Holder.
Pension Reserves Investment Management Board
By: State Street Bank, as Custodian
By: /s/
---------------------------------------
(Principal amount of Notes: $165,000)
(Nominee: CATAMARAN & Co.)
<PAGE>
Fidelity Asset Manager Fund (the "Holder") is an Ontario mutual fund trust.
Each of the parties hereto acknowledges and agrees that this Agreement is not
executed on behalf of the trustees of the Holder as individuals, and the
obligations of this Agreement are not binding upon any of the trustees, officers
or shareholders of the Holder individually, but are binding only upon the assets
and property of the Holder. The Company agrees that no shareholder, trustee or
officer of the Holder may be held personally liable or responsible for any
obligations of the Holder arising out of this Agreement. With respect to
obligations of the Holder arising out of this Agreement, the Company shall look
for payment or satisfaction of any claim solely to the assets and property of
the Holder.
Fidelity Investments Canada Limited, as Trustee for
Fidelity Asset Manager Fund
By: /s/ William Fleury
-------------------------------------
William Fleury
Assistant Secretary
(Principal amount of Notes: $83,000)
(Nominee: THISBE & Co.)
<PAGE>
Fidelity Magellan Fund (the "Holder") is a Massachusetts business trust. A copy
of the Holder's Declaration of Trust is on file with the Secretary of State of
the Commonwealth of Massachusetts. Each of the parties hereto acknowledges and
agrees that this Agreement is not executed on behalf of the trustees of the
Holder as individuals, and the obligations of this Agreement are not binding
upon any of the trustees, officers or shareholders of the Holder individually,
but are binding only upon the assets and property of the Holder. The Company
agrees that no shareholder, trustee or officer of the Holder may be held
personally liable or responsible for any obligations of the Holder arising out
of this Agreement, the Company shall look for payment or satisfaction of any
claim solely to the assets and property of the Holder.
Fidelity Magellan Fund
By: /s/ John H. Costello
-------------------------------------
JOHN H. COSTELLO
Assistant Treasurer
(Principal amount of Notes: $8,267,000)
(Nominee: MAG & Co.)
<PAGE>
Fidelity Puritan Fund (the "Holder") is a portfolio of a Massachusetts business
trust. A copy of the Holder's Declaration of Trust (under the name Fidelity
Puritan Trust) is on file with the Secretary of State of the Commonwealth of
Massachusetts. Each of the parties hereto acknowledges and agrees that this
Agreement is not executed on behalf of the trustees of the Holder as
individuals, and the obligations of this Agreement are not binding upon any of
the trustees, officers or shareholders of the Holder individually, but are
binding only upon the assets and property of the Holder. The Company agrees
that no shareholder, trustee or officer of the Holder may be held personally
liable or responsible for any obligations of the Holder arising out of this
Agreement, the Company shall look for payment or satisfaction of any claim
solely to the assets and property of the Holder. The Company is expressly put
on notice that the rights and obligations of each series of shares of the Holder
under its Declaration of Trust are separate and distinct from those of any and
all other series.
Fidelity Puritan Fund
By: /s/ John H. Costello
-------------------------------------------
JOHN H. COSTELLO
Assistant Treasurer
(Principal amount of Notes: $2,893,000)
(Nominee: M. GARDINER & Co.)
<PAGE>
Spartan High Income Fund (the "Holder") is a portfolio of a Massachusetts
business trust. A copy of the Holder's Declaration of Trust (under the name
Fidelity Fixed-Income Trust) is on file with the Secretary of State of the
Commonwealth of Massachusetts. Each of the parties hereto acknowledges and
agrees that this Agreement is not executed on behalf of the trustees of the
Holder as individuals, and the obligations of this Agreement are not binding
upon any of the trustees, officers or shareholders of the Holder individually,
but are binding only upon the assets and property of the Holder. The Company
agrees that no shareholder, trustee or officer of the Holder may be held
personally liable or responsible for any obligations of the Holder arising out
of this Agreement, the Company shall look for payment or satisfaction of any
claim solely to the assets and property of the Holder. The Company is expressly
put on notice that the rights and obligations of each series of shares of the
Holder under its Declaration of Trust are separate and distinct from those of
any and all other series.
Spartan High Income Fund
By: /s/ John H. Costello
-------------------------------------
JOHN H. COSTELLO
Assistant Treasurer
(Principal amount of Notes: $2,893,000)
(Nominee: HUDD & Co.)
<PAGE>
Fidelity Advisor High Yield Fund (the "Holder") is a portfolio of a
Massachusetts business trust. A copy of the Holder's Declaration of Trust
(under the name Fidelity Advisor Series II Trust) is on file with the Secretary
of State of the Commonwealth of Massachusetts. Each of the parties hereto
acknowledges and agrees that this Agreement is not executed on behalf of the
trustees of the Holder as individuals, and the obligations of this Agreement are
not binding upon any of the trustees, officers or shareholders of the Holder
individually, but are binding only upon the assets and property of the Holder.
The Company agrees that no shareholder, trustee or officer of the Holder may be
held personally liable or responsible for any obligations of the Holder arising
out of this Agreement, the Company shall look for payment or satisfaction of any
claim solely to the assets and property of the Holder. The Company is expressly
put on notice that the rights and obligations of each series of shares of the
Holder under its Declaration of Trust are separate and distinct from those of
any and all other series.
Fidelity Advisor High Yield Fund
By: /s/ John H. Costello
-------------------------------------
JOHN H. COSTELLO
Assistant Treasurer
(Principal amount of Notes: $2,067,000)
(Nominee: HUDD & Co.)
<PAGE>
Variable Insurance Products Fund: High Income Portfolio (the "Holder") is a
portfolio of a Massachusetts business trust. A copy of the Holder's Declaration
of Trust (under the name Fidelity Variable Insurance Products Fund Trust) is on
file with the Secretary of State of the Commonwealth of Massachusetts. Each of
the parties hereto acknowledges and agrees that this Agreement is not executed
on behalf of the trustees of the Holder as individuals, and the obligations of
this Agreement are not binding upon any of the trustees, officers or
shareholders of the Holder individually, but are binding only upon the assets
and property of the Holder. The Company agrees that no shareholder, trustee or
officer of the Holder may be held personally liable or responsible for any
obligations of the Holder arising out of this Agreement, the Company shall look
for payment or satisfaction of any claim solely to the assets and property of
the Holder. The Company is expressly put on notice that the rights and
obligations of each series of shares of the Holder under its Declaration of
Trust are separate and distinct from those of any and all other series.
Variable Insurance Products Fund: High Income
Portfolio
By: /s/ John H. Costello
-------------------------------------
JOHN H. COSTELLO
Assistant Treasurer
(Principal amount of Notes: $2,067,000)
(Nominee: HUDD & Co.)
<PAGE>
Variable Insurance Products Fund II: Asset Manager Portfolio (the "Holder") is a
portfolio of a Massachusetts business trust. A copy of the Holder's Declaration
of Trust (under the name Fidelity Variable Insurance Products Funds II Trust) is
on file with the Secretary of State of the Commonwealth of Massachusetts. Each
of the parties hereto acknowledges and agrees that this Agreement is not
executed on behalf of the trustees of the Holder as individuals, and the
obligations of this Agreement are not binding upon any of the trustees, officers
or shareholders of the Holder individually, but are binding only upon the assets
and property of the Holder. The Company agrees that no shareholder, trustee or
officer of the Holder may be held personally liable or responsible for any
obligations of the Holder arising out of this Agreement, the Company shall look
for payment or satisfaction of any claim solely to the assets and property of
the Holder. The Company is expressly put on notice that the rights and
obligations of each series of shares of the Holder under its Declaration of
Trust are separate and distinct from those of any and all other series.
Variable Insurance Products Fund II: Asset Manager
Portfolio
By: /s/ John H. Costello
-------------------------------------
JOHN H. COSTELLO
Assistant Treasurer
(Principal amount of Notes: $2,645,000)
(Nominee: M. GARDINER & Co.)
<PAGE>
Fidelity Capital & Income Fund (the "Holder") is a portfolio of a Massachusetts
business trust. A copy of the Holder's Declaration of Trust (under the name
Fidelity Summer Street Trust) is on file with the Secretary of State of the
Commonwealth of Massachusetts. Each of the parties hereto acknowledges and
agrees that this Agreement is not executed on behalf of the trustees of the
Holder as individuals, and the obligations of this Agreement are not binding
upon any of the trustees, officers or shareholders of the Holder individually,
but are binding only upon the assets and property of the Holder. The Company
agrees that no shareholder, trustee or officer of the Holder may be held
personally liable or responsible for any obligations of the Holder arising out
of this Agreement, the Company shall look for payment or satisfaction of any
claim solely to the assets and property of the Holder. The Company is expressly
put on notice that the rights and obligations of each series of shares of the
Holder under its Declaration of Trust are separate and distinct from those of
any and all other series.
Fidelity Capital & Income Fund
By: /s/ John H. Costello
--------------------------------------
JOHN H. COSTELLO
Assistant Treasurer
(Principal amount of Notes: $17,545,000)
(Nominee: HUDD & Co.)
<PAGE>
Fidelity Asset Manager (the "Holder") is a portfolio of a Massachusetts business
trust. A copy of the Holder's Declaration of Trust (under the name Fidelity
Charles Street Trust) is on file with the Secretary of State of the Commonwealth
of Massachusetts. Each of the parties hereto acknowledges and agrees that this
Agreement is not executed on behalf of the trustees of the Holder as
individuals, and the obligations of this Agreement are not binding upon any of
the trustees, officers or shareholders of the Holder individually, but are
binding only upon the assets and property of the Holder. The Company agrees
that no shareholder, trustee or officer of the Holder may be held personally
liable or responsible for any obligations of the Holder arising out of this
Agreement, the Company shall look for payment or satisfaction of any claim
solely to the assets and property of the Holder. The Company is expressly put
on notice that the rights and obligations of each series of shares of the Holder
under its Declaration of Trust are separate and distinct from those of any and
all other series.
Fidelity Asset Manager
By: /s/ John H. Costello
--------------------------------------
JOHN H. COSTELLO
Assistant Treasurer
(Principal amount of Notes: $12,317,000)
(Nominee: M. GARDINER & Co.)
<PAGE>
Fidelity Asset Manager: Growth (the "Holder") is a portfolio of a Massachusetts
business trust. A copy of the Holder's Declaration of Trust (under the name
Fidelity Charles Street Trust) is on file with the Secretary of State of the
Commonwealth of Massachusetts. Each of the parties hereto acknowledges and
agrees that this Agreement is not executed on behalf of the trustees of the
Holder as individuals, and the obligations of this Agreement are not binding
upon any of the trustees, officers or shareholders of the Holder individually,
but are binding only upon the assets and property of the Holder. The Company
agrees that no shareholder, trustee or officer of the Holder may be held
personally liable or responsible for any obligations of the Holder arising out
of this Agreement, the Company shall look for payment or satisfaction of any
claim solely to the assets and property of the Holder. The Company is expressly
put on notice that the rights and obligations of each series of shares of the
Holder under its Declaration of Trust are separate and distinct from those of
any and all other series.
Fidelity Asset Manager: Growth
By: /s/ John H. Costello
-------------------------------------
JOHN H. COSTELLO
Assistant Treasurer
(Principal amount of Notes: $1,488,000)
(Nominee: M. GARDINER & Co.)
<PAGE>
Fidelity High Yield Bond Collective Trust (the "Holder") is a fund whose assets
are managed by Fidelity Management Trust Company. Notice is hereby given that
this Agreement is not executed on behalf of the trustees of the Holder as
individuals, and the obligations of this Agreement are not binding upon any of
the trustees, officers or shareholders of the Holder individually, but are
binding only upon the assets and property of the Holder. The Company agrees
that no shareholder, trustee or officer of the Holder may be held personally
liable or responsible for any obligations of the Holder arising out of this
Agreement. With respect to obligations of the Holder arising out of this
Agreement, the Company shall look for payment or satisfaction of any claim
solely to the assets and property of the Holder.
Fidelity Management Trust Company as Trustee for:
Fidelity High Yield Bond Collective Trust
By: /s/ Thomas T. Soviero
-----------------------------------------
Thomas T. Soviero
Vice President
(Principal amount of Notes: $107,000)
(Nominee: PITT & Co.)
<PAGE>
AGREED TO AND ACCEPTED:
LAMONTS APPAREL, INC.
By: /s/ Loren Rothschild
-------------------------
Name: Loren Rothschild
Title:
<PAGE>
WAIVER AND SETTLEMENT AGREEMENT
THIS WAIVER AND SETTLEMENT AGREEMENT is entered into by EARLE J. SPOKANE
and LAMONTS APPAREL, INC. The terms "Your" and "You" reference EARLE J. SPOKANE
and the term "LAMONTS" references LAMONTS APPAREL, INC.
1. YOUR OBLIGATIONS: In consideration of Lamonts' undertakings in
paragraph 2 below, You:
a. Agree to forego any claims for lost wages or benefits of any kind
whatsoever, past, present and future;
b. Hereby release and discharge Lamonts, its affiliates or
subsidiaries, officers, directors, agents, employees, successors and assigns
from all causes of action, claims, or demands of any kind whatsoever, whether
known or unknown, which have or may in the future arise out of or as a
consequence of Your employment or termination of employment. This release and
discharge includes, but is not limited to, any claim to employment, benefits,
damages, or litigation costs or attorneys' fees on any claim of wrongful or
discriminatory discharge. It also includes all claims of violation of statute,
including Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Civil Rights Act of 1991, the Americans with Disability Act,
the Fair Labor Standards Act, the Employee Retirement Income Security Act, the
Washington law against discrimination or any other law or ordinance respecting
employment. It is the intention of both parties to make this release as broad
and general as the law permits;
c. Agree not to pursue or initiate any complaint, charges, or
lawsuits against Lamonts with any governmental agency or any court relating to
Your employment with Lamonts, including but not limited to filing any claim in
the pending Lamonts' Chapter 11 bankruptcy proceeding;
d. Agree not to discuss, disclose or release in any fashion the
existence or terms of this Agreement with anyone, including with any current or
former employee of Lamonts, except to Your counsel or as otherwise required by
law.
e. Agree to direct reference requests to Mary Ryan, Vice President
of Human Resources.
2. LAMONTS' OBLIGATION: In exchange for the consideration offered by You
as described above, Lamonts agrees to provide You with the following
consideration:
a. The gross amount of $107,500.00 which is equal to six months'
base salary or one-half the amount set forth in Your
-1-
<PAGE>
June 17, 1993 employment agreement with Lamonts, less lawful withholding. The
foregoing amount does not include the full salary You will be paid through the
end of February 1995.
b. Payment of Your accrued but unused three weeks of vacation time
at Your usual rate of pay less lawful withholding;
c. Lamonts agrees to waive the provisions of the Covenant not to
Compete included in Your June 17, 1993 Lamonts employment agreement. This waiver
is not and shall not be construed as a waiver of the confidentiality policies by
which you are bound and which survive this Agreement and Your employment with
Lamonts.
d. Since Your termination date is in February, Lamonts will, upon
prompt application by You no later than March 1, 1995, for COBRA benefits, pay
for the selected COBRA coverage through June 30, 1995. However, as provided by
law, Your eighteen months of COBRA entitlement begin on March 1, 1995.
3. NON-CONTINGENT ITEMS: Regardless of whether You choose to enter into
this Agreement or not, You must do the following:
a. Complete and submit by March 1, 1995, all expense reports for the
period through Your date of termination from Lamonts and pay in full all
personal accounts with Lamonts by March 31, 1995. You must surrender to Lamonts
the corporate membership in the Bellevue Athletic Club on or before March 31,
1995. However, any and all expenses incurred at the Bellevue Athletic Club on
or after March 1, 1995, will not be reimbursed by Lamonts, may not be charged to
Lamonts as a business expense and must be paid by You.
b. Return all company property currently in Your possession,
including credit cards and keys, and any and all Lamonts documents of any sort,
whether in hard copy or presently stored on electronic media.
4. NO ADMISSION OF LIABILITY: This Agreement is not to be interpreted as
any admission of liability whatsoever for any injuries, claims or damages
sustained by You as a result of the above events. The parties released by this
Agreement expressly deny liability and intend merely to avoid litigation of any
claims.
5. FULL AND FINAL SETTLEMENT: The terms of this Agreement are accepted
for the purpose of making a full and final settlement of any and all claims
against Lamonts accrued or accruing prior to the execution of this Agreement and
this Agreement constitutes the full agreement of the parties. Lamonts has made
no promises or inducements other than stated in this Agreement.
6. PERIOD FOR ACCEPTANCE: If You elect to accept the conditions of this
Agreement, You will advise Lamonts accordingly by delivering three (3) executed
copies of this Agreement to Mary
-2-
<PAGE>
Ryan, Vice President of Human Resources at Lamonts within 21 days of receipt of
this Agreement. A copy of this Agreement was originally delivered to You on the
______ day of February, 1995. You are relieved of all duties and
responsibilities as Executive Vice President and Chief Administrative Officer of
Lamonts effective immediately upon receipt of this Agreement, whether or not You
enter into this Agreement.
7. PERIOD OF REVOCATION: You may revoke Your acceptance of this
Agreement at any time prior to the eighth day following the date of Your
acceptance of this Agreement, as indicated above Your signature below
("Effective Date"). Notice of revocation shall be in writing and delivered to
Mary Ryan, Vice President of Human Resources at Lamonts. If not revoked, this
Agreement shall be effective as of the effective date.
8. INVALIDITY OF ANY PORTION OF THIS AGREEMENT: If any part of this
instrument shall to any extent be held invalid or unenforceable, Lamonts, in
its sole discretion, may elect to enforce the remainder of this Agreement, or
cancel it and get back from You, Your successors or assigns or otherwise any
consideration paid or reinstate any rights waived under this Agreement.
YOU ACKNOWLEDGE THAT YOU HAVE CAREFULLY READ AND FULLY UNDERSTAND ALL OF THE
PROVISIONS OF THIS AGREEMENT; THAT LAMONTS ADVISED YOU IN WRITING (AND THIS
PARAGRAPH CONSTITUTES SUCH WRITTEN ADVICE) TO CONSULT AN ATTORNEY REGARDING THIS
AGREEMENT; THAT LAMONTS SHALL HAVE NO RESPONSIBILITY TO REIMBURSE YOU FOR ANY
LEGAL FEES INCURRED BY YOU IN CONNECTION WITH THE REVIEW OR NEGOTIATION OF THIS
RELEASE; THAT YOUR EXECUTION OF THIS AGREEMENT IS VOLUNTARY AND UNCOERCED.
In witness whereof, the hand and seal of the undersigned is set herewith
this ______ day of _______________, 1995.
_____________________________________
EARLE J. SPOKANE
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
Signed before me on ____________________, 1995, by Earle J. Spokane.
___________________________________
(Print name) ______________________
Notary Public in and for the
State of Washington
My appointment expires ____________
-3-
<PAGE>
Dated this ____ day of _____________, 1995.
LAMONTS APPAREL, INC.
By___________________________________
ALAN SCHLESINGER
Its _________________________________
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
Signed before me on ____________________, 1995, by Alan Schlesinger.
___________________________________
(Print name) ______________________
Notary Public in and for the
State of Washington
My appointment expires ____________
-4-
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of March ___, 1995, is by and between Lamonts
Apparel, Inc., a Delaware corporation, Debtor and Debtor in Possession
("Company"), and Alan Schlesinger ("Executive").
WHEREAS, Executive and the Company entered into an Employment
Agreement on October 16, 1994, for the commencement of employment by Executive
with the Company on November 15, 1994, pursuant to which Executive has
undertaken employment with the Company and under which the Company has partially
performed, which agreement was modified in writing on January 5, 1995 ("First
Agreement"); and
WHEREAS, the Company has filed a voluntary petition under Chapter 11
of the United States Bankruptcy Code commencing a Chapter 11 case (the
"Bankruptcy Case"), and has remained debtor-in-possession therein;
WHEREAS, the Company considers that the continued employment of
Executive is essential to the success of the Company in accomplishing its
reorganization in the Bankruptcy Case; and
WHEREAS, subject to the approval of the United States Bankruptcy Court
for the Western District of Washington (the "Bankruptcy Court"), this Agreement
will supersede and replace the First Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants set forth herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. EMPLOYMENT. Executive agrees to enter into the employment of the
Company, and the Company agrees to employ Executive, on the terms and conditions
set forth in this Agreement. Executive agrees during the term of his employment
to devote substantially all of his business time, efforts, skills and abilities
to the performance of his duties as stated in this Agreement and to the
furtherance of the Company's business.
Executive's job title will be Chief Executive Officer and his duties
will be those as are designated by the Board of Directors of the Company
("Board"), consistent with the position of Chief Executive Officer. Executive
<PAGE>
further agrees to serve, without additional compensation, as a director of the
Company, and as an officer or director, or both, of any subsidiary, division or
affiliate of the Company or any other entity in which the Company holds an
equity interest, provided, however, that the Company shall indemnify Executive
from liabilities in connection with serving in any such position to the same
extent as his indemnification rights pursuant to the Company's Certificate of
Incorporation, By-Laws and applicable Delaware law.
As used herein "Plan" shall mean a Plan of Reorganization confirmed by
the Bankruptcy Court contemplating the continuation of the business of the
Company that has been accepted by (i) at least two-thirds in dollar amount and a
majority in number of the holders of Senior Claims (as defined in the Fourth
Supplemental Indenture, dated October 18, 1994, between the Company and First
Trust National Association, to the Indenture made and entered into as of
October 30, 1992, relating to the 10.25% Subordinated Notes of the Company due
1999 (the "Notes")) actually voting to accept or reject the Plan and (ii) at
least two-thirds in dollar amount and a majority in number of the holders of the
Notes actually voting to accept or reject the Plan.
2. COMPENSATION.
(a) BASE SALARY. Executive's BASE SALARY shall be composed of
the following:
(1) SALARY. During the term of Executive's employment with the
Company pursuant to this Agreement, the Company shall pay to Executive as
compensation for his services an annual salary of $450,000 payable semi-monthly
("Salary"). Executive's Salary will be payable in arrears in accordance with
the Company's normal payroll procedures and will be reviewed annually and
subject to upward adjustment at the discretion of the Board or the Compensation
Committee thereof, if any; PROVIDED, that prior to the Effective Date of the
Plan (the "Effective Date"), any such increase shall be subject to the approval
of the Bankruptcy Court.
(2) GUARANTEED PERFORMANCE BONUS. In addition to his salary the
Executive shall be paid a guaranteed annual bonus in the sum of $100,000 per
year, payable at the end of each calendar year. Subject to the next following
sentence, at the end of 1995, the Executive shall be deemed to have been in the
employ of the Company for the full year for purposes of payment of such bonus.
In the event the Executive resigns or the Executive's employment is terminated
2
<PAGE>
during the year, the guaranteed annual bonus shall be prorated and paid upon
termination.
(b) REORGANIZATION BONUS. Upon the Effective Date, the
Executive shall become entitled to receive, and the Company shall become
obligated to pay to the Executive, a bonus (the "Reorganization Bonus") in an
amount equal to the sum of (1) $400,000 plus (2) the Performance Bonus (as
calculated below). The Reorganization Bonus shall be payable within 10 days
after the Effective Date; PROVIDED, however, that the portion of the
Reorganization Bonus payable pursuant to 2(b)(2) shall be payable on the later
of (A) 10 days after the Effective Date and (B) the date actual EBITDA for the
12 months ended February 3, 1996, can be determined.
If the EBITDA
Ratio is The Performance Bonus shall Equal:
- ------------- ----------------------------------
100% or more $350,000
90 - 100% $350,000 x the EBITDA Ratio (defined below)
70 - 90% $315,000 - ($525,000 x (90% - the EBITDA Ratio))
40 - 70% $210,000 - ($700,000 x (70% - the EBITDA Ratio))
40% or less $0
"EBITDA Ratio" shall mean a fraction, (i) the numerator of which is
actual EBITDA (defined below) for the twelve months ended February 3, 1996 and
(ii) the denominator of which is $6,350,000.
"EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization, and reorganization and restructuring expenses, and shall be
calculated in the manner set forth in the Lamonts Apparel, Inc. Projected
Statement of Earnings for Fiscal Year 1995, as filed with the Bankruptcy Court
on or about February 13, 1995.
If Executive shall cease to be employed by the Company prior to the
one year anniversary of the Effective Date as a result of Executive's voluntary
termination of this Agreement in accordance with Section 7 hereof, Executive
shall repay to the Company on such date Executive ceases to be so employed,
3
<PAGE>
one-half of the amount of the Reorganization Bonus received by Executive
hereunder.
The Reorganization Bonus shall be an Expense of Administration
obligation of the Company; PROVIDED, that if the portion of the Reorganization
Bonus payable pursuant to 2(b)(2) can not be determined 10 days after the
Effective Date, any requirement that funds be set aside or reserved for the
payment of such portion of the Reorganization Bonus shall at such time be waived
by the parties hereto.
(C) RETENTION OF PRIOR BENEFITS. The Executive shall retain all
monies and other benefits previously paid to him by reason of the First
Agreement.
(D) EXECUTIVE PERQUISITES. Executive shall be entitled to
receive such executive perquisites and fringe benefits as have been customarily
provided to senior executives of the Company.
(E) CAR ALLOWANCE. Executive shall be entitled to receive a car
allowance of up to $7,200 per annum, payable annually in advance, for business-
related expenses incurred in the use of one personal vehicle.
(F) STOCK OPTIONS. On the Effective Date, the Company shall be
obligated to issue to management and employees of the Company options (the
"Options") to purchase, in the aggregate, a number of shares of common stock of
the Company ("Common Stock") equal to the product of (i) the sum of (A) 10% plus
(B) 2-1/2% times the Consideration Ratio (as defined below), times (ii) the
fully diluted number of shares of Common Stock to be outstanding immediately
following the Effective Date, of which the Executive shall be entitled to
receive, and the Company shall be obligated to issue, Options to purchase a
number of shares of Common Stock at least equal to the product of (i) the sum of
(A) 6% plus (B) 2% times the Consideration Ratio, times (ii) the fully diluted
number of shares of Common Stock to be outstanding immediately following the
Effective Date.
As used herein, the term "Consideration Ratio" shall mean a fraction,
(i) the numerator of which is the lesser of (A) $15.0 million and (B) the
aggregate stated or face value of all debt and the aggregate liquidation value
of all preferred stock issued under the Plan (other than debt or preferred stock
issued in
4
<PAGE>
respect of secured claims or in connection with lease obligations)
(collectively, "New Debt") and (ii) the denominator of which is $15.0 million.
The Options shall have a term of ten years and an exercise price per
share equal to the greater of (A) the par value per share of Common Stock and
(B) the quotient obtained by dividing (1) $10 million minus the present value of
the New Debt (calculated at an effective annual discount rate of 10%) by (2) the
fully diluted number of shares of Common Stock to be outstanding immediately
following the Effective Date. Such Options shall vest (x) 50% upon the
Effective Date, (y) 25% on the first anniversary of the Effective Date and (z)
25% on the second anniversary of the Effective Date; PROVIDED, that such options
shall vest in full upon a Change in Control (as defined in Section 6 hereof).
The fully diluted number of shares outstanding at any time shall be
calculated as if all outstanding options (including any non-vested options) had
been exercised at such time.
(G) TAX WITHHOLDING. The Company has the right to deduct from
any compensation payable to Executive under this Agreement social security
(FICA) taxes and all federal, state, municipal or other such taxes or charges as
may now be in effect or that may hereafter be enacted or required.
(H) BOARD MEMBERSHIP. The Company agrees that it will use its
best efforts to cause Executive to be nominated to the Board of Directors at
each annual meeting of stockholders of the Company during the term of this
Agreement.
(I) LIFE INSURANCE. In addition to any other insurance which
the Company may choose to maintain on the life of the Executive, the Company
shall provide, to the extent it is reasonably able to do so, a term life
insurance policy in the face amount of two million dollars ($2,000,000) payable
to such beneficiary as the Executive may designate; provided, however, that in
no event shall the Company be required to pay premiums on such term life
insurance policy in excess of $15,000 per annum.
5
<PAGE>
(J) DIRECTOR'S AND OFFICER'S INSURANCE. The Company shall
maintain directors' and officers' insurance policies during the term of
Executive's employment hereunder and for a period of twelve months thereafter on
substantially the same terms as the Company's current policies; PROVIDED, that
if any insurer shall cancel or refuse to renew any such policy and the Company
is unable to obtain a replacement policy on substantially the same terms
reasonably satisfactory to Executive, the Company will timely exercise any and
all options thereunder, and pay any and all premiums or other charges necessary,
to extend the period during which claims may be made thereunder; PROVIDED
FURTHER, that the Company shall not be required to pay such premiums or other
charges necessary to extend such period if they are substantially in excess of
the premiums in effect on the date hereof. If the Company does not maintain
directors' and officers' insurance at any time during the term of Executive's
employment hereunder, Executive may terminate this Agreement immediately and
such termination shall be treated as a termination without Cause hereunder.
3. TERM.
(a) The term of Executive's employment under this Agreement will
be a period of four years from the date of the commencement of the Bankruptcy
Case, all subject to approval of the Court and the entry of a final Order
approving this Agreement and granting the Company the authority to enter into
this Agreement.
(b) Notwithstanding the foregoing, this Agreement (other than
Sections 5 through 14, hereof) will terminate upon the earliest to occur of:
(a) the date the Company terminates Executive's employment, (b) the date
Executive resigns from the Company, (c) notice from the Company following the
disability of Executive that renders him unable to perform his essential duties
under this Agreement, even with reasonable accommodation that does not cause
undue hardship to the Company, for at least 90 days out of any 120 consecutive
day period, or (d) the death of Executive, provided, however, that in the event
of the death of Executive, the Company shall pay to the estate of Executive six
months of Base Salary commencing with the next regular pay period after the date
of his death ("Death Benefit"). Any Death Benefit otherwise payable by the
Company shall be offset by proceeds from any life insurance furnished by the
Company for payment of the Death Benefit.
4. TERMINATION BY THE COMPANY; DEFINITION OF CAUSE. Executive's
employment under this Agreement (and his right to receive the
6
<PAGE>
compensation set forth in Section 2 hereof) may be terminated by the Company at
any time for "Cause," or (subject to the rights of Executive pursuant to Section
5 hereof) without "Cause." As used herein, "Cause" shall mean:
(a) Any dishonest or fraudulent act or course of conduct by
Executive, or other act or course of conduct by Executive constituting a
criminal act or which results in improper gain or personal enrichment of
Executive at the expense of the Company, or the commission by Executive of an
act or a course of conduct involving moral turpitude, or Executive's
insubordination to the Board.
(b) Executive's material breach of any of the terms or
conditions of this Agreement or of policies established by the Board, or
Executive's material neglect of his duties or of the Company's business,
provided, however, that no such termination pursuant to this clause (b) shall be
effective unless the Company shall have given Executive ten days' prior written
notice of any such conduct which, if not discontinued or corrected, would lead
to his termination for Cause. Executive will have the opportunity to cure such
non-complying conduct or performance within such 10-day period. Termination
pursuant to this clause (b) shall be effective with respect to matters referred
to in this clause (b) ten days after such notice unless such conduct has been
cured in the good faith judgment of the Board, subject to the provisions of
clause (c) below.
(c) In the event that the Executive disputes the grounds for a
claim of misconduct under clause (b) above, the Bankruptcy Court, prior to the
Effective Date, shall have jurisdiction to determine whether the alleged
misconduct constitutes reasonable grounds for termination for cause. In such
event the determination of the Bankruptcy Court shall be binding upon the
parties.
5. SEVERANCE PAYMENT ON TERMINATION WITHOUT CAUSE.
(a) TERMINATION WITHOUT CAUSE. If Executive's employment is
terminated by the Company without Cause during the term of this Agreement, the
Company shall be obligated to continue to pay Executive his Base Salary for a
period of two years or for the remainder of the term of this Agreement,
whichever period is shorter, subject to the provisions in Section 6 pertaining
to Change in Control; PROVIDED, HOWEVER, that such payments are subject to
reduction in accordance with the provisions of Section 5(b) hereof. At the
Company's sole option, the Company may elect to pay Executive any remaining
7
<PAGE>
Base Salary due under this Section 5(a) in a lump sum, equal to the present
value of such remaining Base Salary payments at an effective annual interest
rate of 10 percent.
(b) OFFSET. If Executive's employment with the Company is
terminated pursuant to Section 5(a), this clause (b) shall apply. The payments
which would have been due and payable in accordance with Section 5(a) hereof
shall be reduced by an amount equal to any amounts that Executive receives in
connection with any other employment, or engagement as a consultant and/or
independent contractor, during the period such payments pursuant to Section 5(a)
would have been due and payable. For purposes of this Section 5(b), any fringe
benefits received by Executive in connection with any other employment that are
reasonably comparable, but not necessarily as beneficial, to Executive as the
fringe benefits then being provided by the Company pursuant to Section 5(a)
hereof, shall be deemed to be the equivalent of, and shall terminate the
Company's responsibility to continue providing, the fringe benefits then being
provided by the Company if Executive's employment with the Company is terminated
pursuant to Section 5(a). Executive shall have no duty to mitigate his damages
and, specifically, Executive shall have no obligation to seek any employment or
engagement which would generate payments or benefits that would constitute an
offset hereunder.
(c) GENERAL RELEASE. Acceptance by Executive of any amounts
pursuant to this Section 5 shall constitute a full and complete release by
Executive of any and all claims Executive may have against the Company, any of
its past, present or future shareholders or any of their respective officers,
directors, and affiliates, past, present or future, including, but not limited
to, claims he might have relating to Executive's cessation of employment with
the Company, or with respect to claims under Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act of 1967, the Americans with
Disabilities Act of 1990, or any other similar Federal, state or local statute,
rule or regulation; provided, however, that there shall be properly excluded
from the scope of such general release the following:
(i) claims that Executive may have against the Company for
reimbursement of ordinary and necessary business expenses incurred by him during
the course of his employment;
(ii) claims that may be made by the Executive for payment of
Base Salary, fringe benefits, stock, or stock options properly due to him; and
8
<PAGE>
(iii) claims respecting matters for which the Executive is
entitled to be indemnified under the Company's Certificate of Incorporation or
Bylaws, respecting third party claims asserted or third party litigation pending
or threatened against the Executive.
A condition to Executive's receipt of any amounts pursuant to this Section 5
shall be Executive's execution and delivery of a general release as described
above. Such payment shall be considered independent consideration made in
exchange for such release. In exchange for such release, the Company shall, if
Executive's employment is terminated without Cause, provide a release to
Executive, but only with respect to claims against Executive which are actually
known to the Company as of the time of such termination.
6. EFFECT OF CHANGE IN CONTROL.
(a) If a Change in Control (as hereinafter defined) shall occur
on or prior to the date specified in Section 3(a) hereof as the end of the Term,
then (i) if the remaining portion of the Term is less than two years, the Term
shall be automatically extended to a date which is 2 years from the date on
which such Change in Control is consummated ("Extended Term"), and, (ii) if
Executive's Options have not fully vested, then upon consummation of a Change in
Control on or after the Effective Date, all Executive Options shall vest
immediately upon such event. In the event that Executive is terminated during
the Extended Term the provisions of Section 5 shall apply.
(b) As used herein, a "Change in Control" shall be deemed to
have occurred if, subsequent to the date hereof:
(1) any "person" (as such term is defined in Section 13(d) of the
Securities Exchange Act of 1934), other than (i) Apollo Advisors, L.P., Lion
Advisors, L.P., FMR Corp., Fidelity Management & Research Company, Fidelity
Management Trust Company, any other beneficial owner of the Company's common
stock as of the Effective Date, or (ii) any investment fund managed by, or firm
or group affiliated with any of the persons specified in clause (i) above, or
any of their respective affiliates, becomes the beneficial owner, directly or
indirectly, of either (A) a majority of the Company's outstanding common stock
or (B) securities of the Company representing a majority of the combined voting
power of the Company's then outstanding voting securities;
9
<PAGE>
(2) a sale is made to any purchaser unaffiliated with the Company or
any of the persons specified in clause (1) above of all or substantially all of
the assets of the Company; or
(3) a merger or consolidation of the Company is made with another
corporation or other legal person unaffiliated with the Company or any of the
persons specified in clause (1) above if, immediately after such merger or
consolidation, less than a majority of the combined voting power of the then-
outstanding securities of such corporation or person are held, directly or
indirectly, in the aggregate by the holders immediately prior to such
transaction of the then-outstanding securities of the Company entitled to vote
generally in the election of the Board.
In no event shall the term "Change in Control" be construed to include
any change of control of the Company or any affiliate of the Company solely as a
result of any exchange of equity for debt securities of the Company or any such
affiliate upon consummation of a plan of reorganization for the Company in the
Bankruptcy Case.
(c) Notwithstanding any other provision of this Agreement, if
the aggregate present value of the "parachute payments" to the Executive,
determined under Section 280G(b) of the Internal Revenue Code of 1986, as
amended ("Code"), is at least three times the "base amount" determined under
such Section 280G, then the Base Salary otherwise payable under this Agreement
and any other amount payable hereunder or any other severance plan, program,
policy or obligation of the Company or any other affiliate thereof shall be
reduced so that the aggregate present value of the "parachute payments" to the
Executive, determined under Section 280G, does not exceed 2.99 times the base
amount. In no event, however, shall any benefit provided hereunder be reduced
to the extent such benefit is specifically excluded by Section 280G of the Code
as a "parachute payment" or as an "excess parachute payment." Any decisions
regarding the requirement or implementation of such reductions shall be made by
such tax counsel as may be selected by the Company and acceptable to Executive.
7. VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement for any reason by giving the Company at least 180 days' written notice
of termination. The Company shall have no obligation to provide any severance
compensation under Section 5 in the event of Executive's voluntary termination
of this Agreement.
10
<PAGE>
8. NON SOLICITATION OF EMPLOYEES. For a period of two years after
the termination or cessation of his employment with the Company for any reason
whatsoever, Executive shall not, on his own behalf or on behalf of any other
person, partnership, association, corporation, or other entity, solicit or in
any manner attempt to influence or induce any employee of the Company or its
subsidiaries or affiliates (known by the Executive to be such) to leave the
employment of the Company or its subsidiaries or affiliates, nor shall he use or
disclose to any person, partnership, association, corporation or other entity
any information obtained while an employee of the Company concerning the names
and addresses of the Company's employees.
9. NONDISCLOSURE OF TRADE SECRETS. During the term of this
Agreement, Executive will have access to and become familiar with various trade
secrets and proprietary and confidential information of the Company, its
subsidiaries and affiliates, including, but not limited to, processes, computer
programs, compilations of information, records, sales procedures, customer and
supplier requirements, pricing techniques, customer and supplier lists, methods
of doing business and other confidential information (collectively referred to
as "Trade Secrets") which are owned by the Company, its subsidiaries and/or
affiliates and regularly used in the operation of its business, and as to which
the Company, its subsidiaries and/or affiliates take precautions to prevent
dissemination to persons other than certain directors, officers and employees.
Executive acknowledges and agrees that the Trade Secrets (1) are secret and not
known in the industry; (2) give the Company or its subsidiaries or affiliates an
advantage over competitors who do not know or use the Trade Secrets; (3) are of
such value and nature as to make it reasonable and necessary to protect and
preserve the confidentiality and secrecy of the Trade Secrets; and (4) are
valuable, special and unique assets of the Company or its subsidiaries or
affiliates, the disclosure of which could cause substantial injury and loss of
profits and goodwill to the Company or its subsidiaries or affiliates.
Executive may not use in any way or disclose any of the Trade Secrets, directly
or indirectly, either during the term of this Agreement or at any time
thereafter, except as required in the course of his employment under this
Agreement, if required in connection with a judicial or administrative
proceeding, or if the information becomes public knowledge other than as a
result of an unauthorized disclosure by the Executive. All files, records,
documents, information, data and similar items relating to the business of the
Company, whether prepared by Executive or otherwise coming into his possession,
will remain the exclusive property of the Company and may not be removed from
the premises of the company under any circumstances without the prior written
consent of the Board (except in the ordinary course of business during the
11
<PAGE>
Executive's period of active employment under this Agreement), and in any event
must be promptly delivered to the Company upon termination of Executive's
employment with the Company. Executive agrees that upon his receipt of any
subpoena, process or other request to produce or divulge, directly or
indirectly, any Trade Secrets to any entity, agency, tribunal or person,
Executive shall timely notify and promptly hand deliver a copy of the subpoena,
process or other request to the Board. For this purpose, Executive appoints the
Company (including any attorney retained by the Company), as his true and lawful
attorney-in-fact, to act in Executive's name, place and stead to perform any act
that Executive might perform to defend and protect against any disclosure of any
Trade Secrets.
10. EQUITABLE RELIEF. Executive acknowledges that the restrictions
contained in Sections 8 and 9 are, in view of the nature of the business of the
Company, reasonable and necessary to protect the legitimate interests of the
Company, that the company would not have entered into this Agreement in the
absence of such restrictions, and that any violation of any provisions of those
Sections will result in irreparable injury to the Company. Executive also
acknowledges that the remedy at law for any violation of these restrictions will
be inadequate and that the Company shall be entitled to temporary and permanent
injunctive relief prohibiting any such violation, without the necessity of
proving actual damages or the posting of an bond, and that the Company shall be
further entitled to an equitable accounting of all earnings, profits and other
benefits arising from any such violation, which rights shall be cumulative of
and in addition to any other rights or remedies to which the Company may be
entitled. In the event of any such violation, the Company shall be entitled to
commence an action for temporary and permanent injunctive relief and other
equitable relief in any court of competent jurisdiction and Executive further
irrevocably submits to the jurisdiction of any federal or state court in the
geographical jurisdiction of Seattle, Washington over any suit, action or
proceeding arising out of or relating to any asserted violation of Section 8
and/or 9. Executive hereby waives, to the fullest extent permitted by law, any
objection that he may now or hereafter have to the jurisdiction of any federal
or state court in the geographical jurisdiction of Seattle, Washington or to the
venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding has been brought in an inconvenient
forum. Effective service of process may be made upon Executive by mail under
the notice provisions contained in Section 14.
11. SEVERABILITY. The parties hereto intend all provisions of
Sections 8 and 9 hereof to be enforced to the fullest extent permitted by law.
12
<PAGE>
Accordingly, should a court of competent jurisdiction determine that the scope
of any provision of Section 8 or 9 hereof is too broad to be enforced as
written, the parties intend that the court reform the provision to such narrower
scope as it determines to be reasonable and enforceable. In addition, however,
Executive agrees that the noncompetition, nonsolicitation and nondisclosure
agreements set forth above each constitute separate agreements independently
supported by good and adequate consideration and shall be severable from the
other provisions of, and shall survive, this Agreement. The existence of any
claim or cause of action of Executive against the Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of the covenants of Executive contained in the noncompetition,
nonsolicitation and nondisclosure agreements. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under present or
future laws effective during the term hereof, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision never constituted a part of this Agreement;
and the remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such illegal,
invalid or unenforceable provision, there shall be added as part of this
Agreement, a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
12. LEGAL EXPENSES; EXECUTIVE'S WARRANTY.
(a) The Company agrees to reimburse Executive for reasonable
attorneys' fees and disbursements incurred and to be incurred by Executive (net
of amounts previously advanced) in the making of this agreement, in seeking
approval of the Bankruptcy Court thereof in the Bankruptcy Case, and in
obtaining such other services as may be required by the Executive in connection
with the effect of the Bankruptcy Case on his employment by the Company. In the
event that the parties do not agree on the amount of such attorneys' fees the
Bankruptcy Court shall be requested to make such determination; provided,
however, that in no event shall the Company be required to pay attorneys' fees
and disbursements in excess of $10,000 after the date of the commencement of the
Bankruptcy Case.
(b) Executive affirms that his employment is not contrary to or
in breach of any lawful agreement or other obligation Executive has to The May
Department Stores Company, and that based upon information known to him
13
<PAGE>
as of the date of this Agreement regarding the business of the Company, he does
not know or possess any trade secrets or proprietary information of The May
Department Stores Company, or any of its affiliates (including its parent) which
would provide the Company with an unfair advantage over such entities in the
retail apparel business, and, in any event, will not, and does not have any
intent to convey any trade secrets or proprietary information to the Company.
13. ARBITRATION - EXCLUSIVE REMEDY.
(a) Except as otherwise provided herein, the parties agree that
the exclusive remedy or method of resolving all disputes or questions arising
out of or relating to this Agreement shall be arbitration; PROVIDED, HOWEVER,
that prior to the Effective Date, all disputes or questions arising out of or
relating to this Agreement shall be resolved by the Bankruptcy Court.
Arbitration shall be held in Seattle, Washington, presided over by one
arbitrator. Any arbitration may be initiated by either party by written notice
("Arbitration Notice") to the other party specifying the subject of the
requested arbitration.
(b) If the parties are unable to mutually select an arbitrator
to hear the matter, then the American Arbitration Association, upon application
of the initiating party, shall provide a panel of arbitrators from which the
parties shall select one to hear the matter.
(c) The arbitration proceeding shall be conducted in accordance
with the Rules for Resolution of Employment Disputes of the American Arbitration
Association. The administrative costs of arbitration (including the expense of
a party in preparing for and presenting the party's case at the arbitration and
of the fees and expenses of legal counsel to a party, all of which shall be
borne by that party), shall be borne by the Company only if Executive receives
substantially the relief sought by him in the arbitration; otherwise, the costs
shall be borne equally between the parties. The arbitration determination or
award shall be final and conclusive on the parties, and judgment upon such award
may entered and enforced in any court of competent jurisdiction.
14. MISCELLANEOUS.
(a) NOTICES. Any notices, consents, demands, requests,
approvals and other communications to be given under this Agreement by either
party to the other must be in writing and must be either (i) personally
delivered, (ii) mailed by registered or certified mail, postage prepaid with
return receipt
14
<PAGE>
requested, (iii) delivered by overnight express delivery service or same-day
local courier service, or (iv) delivered by telex or facsimile transmission, to
the address set forth below, or to such other address as may be designated by
the parties from time to time in accordance with this Section 14(a):
If to the Company: Lamonts Apparel, Inc.
3650 131st Avenue S.E.
Bellevue, Washington 98006
Attention: Chief Financial Officer
Facsimile: (206) 644-2569
With a copy (which
shall not constitute
notice) to: Michael A. Woronoff
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Facsimile: (213) 687-5600
If to Executive: Alan Schlesinger
Lamonts Apparel, Inc.
3650 131st Avenue S.E.
Bellevue, Washington 98006
Facsimile: (206) 644-2569
With a copy (which
shall not constitute
notice) to: Lawrence A. Jacobson
Cohen and Jacobson
577 Airport Boulevard
Suite 230
Burlingame, California 94010
Facsimile: (415) 347-2916
Notices delivered personally or by overnight express delivery service
or by local courier service are deemed given as of actual receipt. Mailed
notices are deemed given three business days after mailing. Notices delivered
by telex or facsimile transmission are deemed given upon receipt by the sender
of
15
<PAGE>
the answer back (in the case of a telex) or transmission confirmation (in the
case of a facsimile transmission).
(b) ENTIRE AGREEMENT. This Agreement supersedes any and all
other agreements, either oral or written, between the parties with respect to
the subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect to the subject matter of this
Agreement.
(c) MODIFICATION. No change or modification of this Agreement
is valid or binding upon the parties, nor will any waiver of any term or
condition in the future be so binding, unless the change or modification or
waiver is in writing and signed by the parties to this Agreement.
(d) GOVERNING LAW. The parties acknowledge and agree that this
Agreement and the obligations and undertakings of the parties under this
Agreement will be performed in Seattle, Washington. This Agreement is governed
by, and construed in accordance with, the laws of the State of Washington, and,
where applicable, the laws of the United States.
(e) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which constitutes an original, but all of which constitute
one document.
(f) ESTATE. If Executive dies prior to the expiration of the
term of employment or during a period when monies are owing to him, any monies
that may be due him from the Company under this Agreement as of the date of his
death shall be paid to his estate when and as otherwise payable.
(g) ASSIGNMENT. The Company shall have the right to assign this
Agreement to its successors or assigns. The terms "successors" and "assigns"
shall include any person, corporation, partnership or other entity that buys all
or substantially all of the Company's assets or a control block of stock of the
Company, or with which the Company merges or consolidates. The rights, duties
and benefits to Executive hereunder are personal to him, and no such right or
benefit may be assigned by him. The provisions of this clause (g) are all
subject to the provisions of Section 6.
(h) BINDING EFFECT. This Agreement is binding upon the parties
hereto, together with their respective executors, administrators, succes-
16
<PAGE>
sors, personal representatives, heirs and permitted assigns, and upon any
Trustee appointed in the Bankruptcy Case whether in the pending Chapter 11 case,
in any converted Chapter 7 case, or otherwise.
(i) WAIVER OF BREACH. The waiver by the Company or Executive of
a breach of any provision of this Agreement by Executive or the Company may not
operate or be construed as a waiver of any subsequent breach.
(j) NO PUBLICITY. Executive and the Company agree that neither
party will publicize the existence of this Agreement prior to the Commencement
Date without the consent of the other party.
(k) This Employment Agreement is subject to approval of the
Bankruptcy Court in the Bankruptcy Case.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
------------------------------
ALAN SCHLESINGER
LAMONTS APPAREL, INC.
Debtor and
Debtor-in-Possession
By:
---------------------------
---------------------------
---------------------------
18
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "AGREEMENT"), made and entered into as of
the _____ day of __________, 1995, by and between Lamonts Apparel, Inc., a
Delaware corporation, as debtor-in-possession (the "COMPANY"), and Loren R.
Rothschild ("ROTHSCHILD").
WITNESSETH:
WHEREAS, the Company and Rothschild have previously entered into the
employment agreement, dated as of December 28, 1994 (the "DECEMBER AGREEMENT"),
between such persons;
WHEREAS, the Company has filed a voluntary petition under Chapter 11
of the United States Bankruptcy Code commencing a Chapter 11 case (the "CASE"),
and has remained debtor-in-possession therein;
WHEREAS, subject to the approval of the United States Bankruptcy Court
for the Western District of Washington (the "BANKRUPTCY COURT"), this Agreement
will supersede and replace the December Agreement; and
WHEREAS, the Company desires to employ Rothschild on the terms and
conditions set forth in this Agreement, and Rothschild desires to be employed by
the Company on such terms and conditions.
NOW, THEREFORE, the Company and Rothschild agree as follows:
1. EMPLOYMENT OF ROTHSCHILD; SERVICES TO BE PERFORMED. The Company
hereby agrees to employ Rothschild, and Rothschild agrees to enter into the
employment of the Company, on the terms and conditions set forth in this
Agreement. Rothschild agrees during the term of his employment to devote such
portion of his business and professional time, efforts, skills and abilities to
the performance of his duties as stated herein and to the furtherance of the
Company's business as the Chairman of the Board of Directors of the Company may
reasonably direct.
Rothschild's job title will be Vice Chairman of the Board of Directors
of the Company and his duties will be those as are mutually determined by the
Chairman and the Vice Chairman of the Board of Directors of the Company,
consistent with the position of
<PAGE>
Vice Chairman, including managing the legal, financial and administrative
functions of the Company.
As used herein, the term "Plan" shall mean a Plan of Reorganization
confirmed by the Bankruptcy Court contemplating the continuation of the business
of the Company that has been accepted by (i) at least two-thirds in dollar
amount and a majority in number of the holders of Senior Claims (as defined in
the Fourth Supplemental Indenture, dated October 18, 1994, between the Company
and First Trust National Association, to the Indenture made and entered into as
of October 30, 1992, relating to the 10.25% Subordinated Notes of the Company
due 1999 (the "Notes")) actually voting to accept or reject the Plan and (ii) at
least two-thirds in dollar amount and a majority in number of the holders of the
Notes actually voting to accept or reject the Plan.
2. TERM. Unless terminated at an earlier date in accordance with
Section 8, the term of this Agreement (the "INITIAL TERM") shall continue until
the 90th day following the effective date of the Plan (the "Effective Date");
PROVIDED, HOWEVER, that the Company may, by written notice delivered not less
than 30 days prior to the expiration of the Initial Term, extend the term of
this Agreement for an additional one year period commencing on the 91st day
following the Effective Date (the Initial Term and such extension, if any, the
"TERM").
3. COMPENSATION.
(a) BASE SALARY. Subject to Section 8 hereof, as compensation
for Rothschild's services hereunder, the Company shall pay to Rothschild a base
salary of $240,000 per year, payable in equal monthly installments of $20,000,
in arrears at the end of each calendar month during the Initial Term. If the
Term is extended in accordance with Section 2 hereof, such base salary for the
remainder of the Term shall be increased to $365,000, payable in equal monthly
installments of $30,416.67, in arrears at the end of each calendar month during
the remainder of the Term.
(b) REORGANIZATION BONUS. Subject to Section 8 hereof, as
compensation for Rothschild's services hereunder, if the Plan is confirmed, the
Company shall pay to Rothschild, upon the Effective Date, a bonus in an amount
equal to the sum of (1) $186,667 plus (2) the Performance Bonus (as calculated
below). The portion of the Reorganization Bonus payable pursuant to 2(b)(2)
shall be payable on the later of (A) the Effective Date and (B) the date actual
EBITDA for the 12 months ended February 3, 1996, can be determined.
2
<PAGE>
<TABLE>
<CAPTION>
If the EBITDA
Ratio is The Performance Bonus Shall Equal:
- ----------- ---------------------------------
<S> <C>
100% or more $163,333
90 - 100% $163,333 x the EBITDA Ratio (defined below)
70 - 90% $147,000 - ($245,000 x (90% - the EBITDA Ratio))
40 - 70% $98,000 - ($326,666 x (70% - the EBITDA Ratio))
40% or less $0
</TABLE>
"EBITDA Ratio" shall mean a fraction, (i) the numerator of which is
actual EBITDA (defined below) for the twelve months ended February 3, 1996 and
(ii) the denominator of which is $6,350,000.
"EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization, and reorganization and restructuring expenses, and shall be
calculated in the manner set forth in the Lamonts Apparel, Inc. Projected
Statement of Earnings for Fiscal Year 1995, as filed with the Bankruptcy Court
on or about February 13, 1995.
The Reorganization Bonus shall be an Expense of Administration
obligation of the Company; PROVIDED, that if the portion of the Reorganization
Bonus payable pursuant to 2(b)(2) can not be determined 10 days after the
Effective Date, any requirement that funds be set aside or reserved for the
payment of such portion of the Reorganization Bonus shall at such time be waived
by the parties hereto.
(c) PERFORMANCE BONUS. If the Term is extended in accordance
with Section 2 hereof, in addition to the base salary to which Rothschild shall
be entitled, the Company shall pay to Rothschild a performance bonus in an
amount to be determined by the Board of Directors of the Company; PROVIDED, that
prior to the Effective Date, any such amount shall be subject to the approval of
the Bankruptcy Court.
4. STOCK OPTIONS. On the Effective Date, the Company shall be
obligated to issue to management and employees of the Company options (the
"Options") to purchase, in the aggregate, a number of shares of common stock of
the Company ("Common Stock") equal to the product of (i) the sum of (A) 10% plus
(B) 2-1/2% times the Consideration Ratio (as defined below), times (ii) the
fully diluted number of shares of Common Stock to be outstanding immediately
following the Effective Date, of which the Executive shall be
3
<PAGE>
entitled to receive, and the Company shall be obligated to issue, Options to
purchase a number of shares of Common Stock at least equal to the product of (i)
the sum of (A) 1 1/2% plus (B) 1/2% times the Consideration Ratio, times (ii)
the fully diluted number of shares of Common Stock to be outstanding immediately
following the Effective Date.
As used herein, the term "Consideration Ratio" shall mean a fraction,
(i) the numerator of which is the lesser of (A) $15.0 million and (B) the
aggregate stated or face value of all debt and the aggregate liquidation value
of all preferred stock issued under the Plan (other than debt or preferred stock
issued in respect of secured claims or in connection with lease obligations)
(collectively, "New Debt") and (ii) the denominator of which is $15.0 million.
The Options shall have a term of ten years and an exercise price per
share equal to the greater of (i) the par value per share of Common Stock and
(ii) the quotient obtained by dividing (A) $10 million minus the present value
of the New Debt (calculated at an effective annual discount rate of 10%) by (B)
the fully diluted number of shares of Common Stock to be outstanding immediately
following the Effective Date. Such Options shall vest on the Effective Date;
PROVIDED, that if the Initial Term is extended in accordance with Section 2
hereof, such Options shall vest (x) 50% upon the Effective Date and (y) 50% on
the first anniversary of the Effective Date; PROVIDED, FURTHER, that if this
Agreement is thereafter terminated pursuant to Section 8(a)(i), such Options
shall vest in full upon the date of such termination.
The fully diluted number of shares outstanding at any time shall be
calculated as if all outstanding options (including any non-vested options) had
been exercised at such time.
5. TAX WITHHOLDING; WAIVER OF BENEFITS. The Company has the right
to deduct from all compensation and amounts payable to Rothschild under this
Agreement social security (FICA) taxes and all federal, state, municipal or
other such taxes, deductions or charges as may now be in effect or that may
hereafter be enacted or required. During the Initial Term, Rothschild hereby
waives, to the fullest extent permitted by applicable law, all benefits and
executive perquisites provided to employees of the Company, including, without
limitation, those provided to its senior executives (but excluding benefits and
perquisites provided to directors of the Company, including (without
limitation), directors' and officers' liability insurance).
6. EXPENSES. Rothschild acknowledges that the performance of his
duties hereunder will require significant travel, primarily to Bellevue,
Washington, and agrees to be present in such other locations at such other times
as the Chairman of the Board of Directors
4
<PAGE>
may reasonably request. Rothschild shall be reimbursed by the Company, in
accordance with its reimbursement policy from time to time in effect, for all
reasonable and necessary out-of-pocket expenses incurred by him in performing
his duties under this Agreement, including (without limitation) hotel, rental
car, airfare and other reasonable travel expenses between Rothschild's home in
Los Angeles, California, and Bellevue, Washington. Rothschild shall be
furnished with a suitable office and secretarial assistance at the Company's
headquarters.
7. CONFIDENTIAL INFORMATION.
(a) CONFIDENTIALITY. Except as permitted or directed by the
Company's Board of Directors through written authorization, during the Term and
for a period of two years thereafter, Rothschild shall not, and shall not permit
any of his affiliates or representatives (collectively, "REPRESENTATIVES") to,
divulge, furnish or make accessible to anyone or use in any way (other than in
the ordinary course of the business of the Company) any confidential or secret
knowledge or information of the Company which Rothschild or any of his
Representatives has acquired or becomes acquainted with or will acquire or
become acquainted with prior to the termination of this Agreement, whether
developed by itself or by others, concerning any trade secrets, confidential or
secret designs, directly or indirectly useful in any aspect of the business of
the Company, any customer or supplier lists of the Company, any confidential or
secret development or research work of the Company, or any other confidential
information or secret aspects of the business of the Company. The foregoing
obligations of confidentiality, however, shall not apply to disclosure of any
knowledge or information that is required by any governmental agency or
instrumentality to be disclosed or is now published or which subsequently
becomes generally publicly known in the form in which it was obtained from the
Company, other than as a direct or indirect result of the breach of this
Agreement by Rothschild or any of his Representatives; PROVIDED, HOWEVER, that,
in the case of a governmental agency or instrumentality seeking disclosure of
such confidential material, Rothschild agrees to provide the Company with prompt
notice, sufficient information and reasonable assistance so that the Company can
seek an appropriate order or other appropriate remedy or, if the Company wishes,
waive Rothschild's compliance with this Section 7.
(b) CONFIDENTIAL MATERIALS. Upon termination of this Agreement
and upon written request of the Company, Rothschild agrees to deliver promptly
to the Company all written confidential or secret knowledge or information of
the Company, including, without limitation, all analyses, compilations, studies
or other documents or records prepared by Rothschild, his Representatives or any
others, and all copies or other reproductions of any of the aforementioned
items.
5
<PAGE>
8. TERMINATION.
(a) BASES FOR TERMINATION. Notwithstanding any other provision
hereof, this Agreement and the relationship created hereunder between the
Company and Rothschild shall terminate prior to the expiration of the Term only
upon the occurrence of any one of the following events:
(i) 30 days after delivery to Rothschild by the
Company of written notice of the Company's voluntary and unilateral termination
of this Agreement;
(ii) At any time prior to extension of the Term in
accordance with Section 2 hereof, 30 days after delivery to the Company by
Rothschild of written notice of Rothschild's voluntary and unilateral
termination of this Agreement; or
(iii) immediately after delivery to Rothschild by the
Company of written notice of termination for "cause." For purposes of this
Agreement, "cause" shall mean (A) any dishonest or fraudulent act or course of
conduct by Rothschild, or other act or course of conduct by Rothschild
constituting a criminal act or that results in improper gain or personal
enrichment of Rothschild at the expense of the Company, or the commission by
Rothschild of an act or a course of conduct involving moral turpitude, or
Rothschild's insubordination to the Board of Directors of the Company; or
(B) the engaging by Rothschild in willful misconduct or gross negligence that is
injurious to the Company; or (C) a material breach by Rothschild of any of the
terms or conditions of this Agreement or of policies reasonably established by
the Board of Directors of the Company, or Rothschild's material neglect of his
duties or of the Company's business, PROVIDED, HOWEVER, that no such termination
pursuant to this clause (C) shall be effective unless the Company shall have
given Rothschild ten days' prior written notice specifying the manner in which
Rothschild's conduct or performance fails to comply with this clause (C) and
Rothschild shall not have cured such non-complying conduct or performance within
such 30-day period. (Termination pursuant to this clause (C) shall be effective
30 days after such notice unless such conduct has been cured in the good faith
judgment of the Board of Directors of the Company.)
(b) EFFECT OF TERMINATION.
6
<PAGE>
(i) If this Agreement is terminated pursuant to
Section 8(a)(i), Rothschild shall be entitled to receive only (A) the unpaid
portion of his base salary that would have been payable pursuant to Section 3(a)
during the Termination Period (defined below) had this Agreement not been so
terminated, which shall be paid to Rothschild in arrears at the end of each
calendar month during such period, plus (B) if the Effective Date occurs on or
prior to the 270th day following the date of termination, (i) the amount payable
pursuant to Section 3(b) and (ii) the securities to which Rothschild would have
been entitled pursuant to Section 4, in each case had this Agreement not been so
terminated, in each case upon the Effective Date, plus (C) any unreimbursed
expenses payable pursuant to Section 6, which shall be paid to Rothschild within
ten business days after the date that Rothschild submits to the Company
reasonable documentation of such unreimbursed expenses. "TERMINATION PERIOD"
shall mean the period beginning on the effective date of termination and ending
(i) during the Initial Term on the earlier of (x) the one-year anniversary of
such date and (y) the Effective Date and (ii) if the Term is extended in
accordance with Section 2 hereof, on the last day of the Term.
(ii) If this Agreement is terminated pursuant to
Section 8(a)(ii) or (iii), Rothschild shall be entitled to receive only (A) his
base salary payable pursuant to Section 3(a), pro-rated through the effective
date of such termination, which shall be paid to Rothschild on the effective
date of such termination, plus (B) any unreimbursed expenses payable pursuant to
Section 6, which shall be paid to Rothschild within ten business days after the
date that Rothschild submits to the Company reasonable documentation of such
unreimbursed expenses. If this Agreement is terminated pursuant to Section
8(a)(ii) or (iii) on or prior to June 21, 1995, Rothschild shall repay to the
Company an amount equal to $62,500.00, which shall be paid on the effective date
of such termination, and netted against amounts otherwise owed pursuant to this
clause (ii).
(c) GENERAL RELEASE. Acceptance by Rothschild of any amounts
pursuant to this Section 8 shall constitute a full and complete release by
Rothschild of any and all claims Rothschild may have against the Company, its
officers, directors, and affiliates, including, but not limited to, claims he
might have relating to Rothschild's cessation of employment with the Company;
provided, however, that there may be properly excluded from the scope of such
general release the following:
7
<PAGE>
(i) claims that Rothschild may have against the
Company for reimbursement of reasonable and necessary business expenses incurred
by him during the course of his employment;
(ii) claims that may be made by Rothschild for payment
of base salary properly due to him; or
(iii) claims respecting matters for which Rothschild is
entitled to be indemnified under the Company's Certificate of Incorporation or
Bylaws, respecting third-party claims asserted or third-party litigation pending
or threatened against Rothschild.
A condition to Rothschild's receipt of any amounts pursuant to this Section 8
shall be Rothschild's execution and delivery of a general release as described
above. In exchange for such release, the Company shall, if Rothschild's
employment is terminated without cause, provide a release to Rothschild, but
only with respect to claims against Rothschild that are actually known to the
Company as of the time of such termination.
9. LIABILITY OF ROTHSCHILD. Rothschild assumes no responsibility
under this Agreement, other than to perform the services to be performed
hereunder in good faith and to maintain the confidentiality of any confidential
or secret information of the Company pursuant to Section 7. Rothschild shall
not be liable to the Company, except by reason of acts constituting bad faith,
willful misfeasance, gross negligence or reckless disregard of his duties.
The Company shall maintain directors' and officers' insurance policies
during the Term and for a period of twelve months thereafter on substantially
the same terms as the Corporation's current policies; PROVIDED that if any
insurer shall cancel or refuse to renew any such policy and the Company is
unable to obtain a replacement policy on substantially the same terms reasonably
satisfactory to Rothschild, the Company will timely exercise any and all options
thereunder, and pay any and all premiums or other charges necessary, to extend
the period during which claims may be made thereunder; PROVIDED FURTHER, that
the Company shall not be required to pay such premiums or other charges
necessary to extend such period if they are substantially in excess of the
premiums in effect on the date hereof. If the Company does not maintain
directors' and officers' insurance at any time during the Term, Rothschild may
terminate this Agreement immediately and such termination shall be treated as a
termination under 8(a)(i) hereof.
8
<PAGE>
10. OTHER BUSINESS ACTIVITIES. The Company acknowledges and agrees
that Rothschild may perform consulting services for other persons; PROVIDED,
HOWEVER, that Rothschild may not perform consulting or other services for any
retail apparel chain that is competitive with the Company or its subsidiaries in
any geographical area in which the Company or any of its subsidiaries engages in
business. Subject to the foregoing proviso, nothing in this Agreement shall
restrict or limit the right of Rothschild, the Company or their respective
affiliates or associates to engage in whatever activities they choose, whether
or not competitive with matters covered by this Agreement, and none of them
shall, as a result of this Agreement, have any obligation to offer any interest
in such activities to any party hereto.
11. ARBITRATION - EXCLUSIVE REMEDY.
(a) Except as otherwise provided herein, the parties agree that
the exclusive remedy or method of resolving all disputes or questions arising
out of or relating to this Agreement shall be arbitration; PROVIDED, HOWEVER,
that prior to the Effective Date, all disputes or questions arising out of or
relating to this Agreement shall be resolved by the Bankruptcy Court.
Arbitration shall be held in Seattle, Washington, presided over by one
arbitrator. Any arbitration may be initiated by either party by written notice
("Arbitration Notice") to the other party specifying the subject of the
requested arbitration.
(b) If the parties are unable to mutually select an arbitrator
to hear the matter, then the American Arbitration Association, upon application
of the initiating party, shall provide a panel of arbitrators from which the
parties shall select one to hear the matter.
(c) The arbitration proceeding shall be conducted in accordance
with the Rules for Resolution of Employment Disputes of the American Arbitration
Association. The administrative costs of arbitration (including the expense of
a party in preparing for and presenting the party's case at the arbitration and
of the fees and expenses of legal counsel to a party, all of which shall be
borne by that party), shall be borne by the Company only if Rothschild receives
substantially the relief sought by him in the arbitration; otherwise, the costs
shall be borne equally between the parties. The arbitration determination or
award shall be final and conclusive on the parties, and judgment upon such award
may entered and enforced in any court of competent jurisdiction.
12. MISCELLANEOUS.
(a) ASSIGNMENT. The Company shall have the right to assign
this Agreement to its successors or assigns. The terms "successors" and
"assigns" shall include any person, corporation, partnership or other entity
that buys all or substantially all of the
9
<PAGE>
Company's assets or all of its stock, or with which the Company merges or
consolidates. The rights, duties and benefits to Rothschild hereunder are
personal to him, and no such right or benefit may be assigned by him.
(b) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF WASHINGTON AND FOR ALL PURPOSES
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WITHIN SAID STATE WITHOUT CONSIDERATION OF
ANY CONFLICTS OF LAW PROVISIONS THEREOF.
(c) ENTIRE AGREEMENT. This Agreement evidences the entire
understanding and agreement of the parties hereto relative to the employment
arrangement between Rothschild and the Company and the other matters discussed
herein. This Agreement supersedes any and all other agreements and
understandings, whether written or oral, relative to the matters discussed
herein.
(d) SEVERABILITY. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law. If any term, provision
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find and employ a
valid, legal, nonvoid and enforceable alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(e) AMENDMENTS/WAIVERS. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
(f) HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10
<PAGE>
(g) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
(h) NOTICES. Any notices or other communications to the Company
or Rothschild required or permitted hereunder shall be in writing, and shall be
sufficiently given if made by hand delivery, by telex, by telecopier or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
(i) If to the Company:
Lamonts Apparel, Inc.
3650 131st Avenue S.E.
Bellevue, Washington 98006
Telecopier No.: (206) 644-2569
Attention: Chief Executive Officer
(ii) If to Rothschild:
Loren R. Rothschild
1201 Tower Grove Drive
Beverly Hills, California 90210
Telecopier No.: (310) 271-1784
The Company or Rothschild by notice to the other party may designate additional
or different addresses as shall be furnished in writing by such party. Any
notice or communication to the Company or Rothschild shall be deemed to have
been given or made as of the date so delivered, if personally delivered; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and five
business days after mailing if sent by registered or certified mail, postage
prepaid (except that a notice of change of address shall not be deemed to have
been given until actually received by the addressee).
(i) SUBJECT TO COURT APPROVAL. This Agreement is, in all
respects, subject to the approval of the Bankruptcy Court.
11
<PAGE>
IN WITNESS WHEREOF, the Company and Rothschild have executed this
Agreement as of the date set forth in the first paragraph.
LAMONTS APPAREL, INC., debtor-in-possession
By: _______________________________
Name: Alan Schlesinger
Title: Chairman and
Chief Executive Officer
____________________________
LOREN R. ROTHSCHILD
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
EXHIBIT 11.1
COMPUTATION OF PER SHARE LOSS
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
January 28, 1995 January 29, 1994
----------------------------------- -----------------------------------
Fully Fully
Primary Diluted Primary Diluted
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
LOSS
Net loss ($23,989,000) ($23,989,000) ($236,000) ($236,000)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
NUMBER OF SHARES
Weighted average shares:
Outstanding 17,883,135 17,883,135 8,934,428 8,934,428
Incremental shares for
conversion of preferred stock 5,889,502
Incremental shares for
outstanding stock options 522,553 414,479
--------------- --------------- --------------- ---------------
17,883,135 18,405,688 8,934,428 15,238,409
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Net loss per share ($1.34) ($1.30) ($0.03) ($0.02)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-START> OCT-30-1994
<PERIOD-END> JAN-28-1995
<CASH> 7,972
<SECURITIES> 0
<RECEIVABLES> 3,050
<ALLOWANCES> 0
<INVENTORY> 29,145
<CURRENT-ASSETS> 46,616
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 121,415
<CURRENT-LIABILITIES> 29,445<F1><F2>
<BONDS> 0
<COMMON> 179
0
0
<OTHER-SE> (16,542)
<TOTAL-LIABILITY-AND-EQUITY> 121,415
<SALES> 71,014
<TOTAL-REVENUES> 71,014
<CGS> 59,841
<TOTAL-COSTS> 59,841
<OTHER-EXPENSES> 32,165<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,026<F4>
<INCOME-PRETAX> (23,989)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,989)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,989)
<EPS-PRIMARY> (1.34)
<EPS-DILUTED> 0
<FN>
<F1>Excludes liabilities subject to settlement under reorganization proceedings.
<F2>Includes $3.0 million accrual for store closure costs.
<F3>Includes operating and administrative expenses of $22.0 million, depreciation
and amortization of $2.7 million and reorganization expenses of $7.5 million.
<F4>Includes cash interest expense of $1.3 million and non-cash interest expense of
$1.7 million.
</FN>
</TABLE>
