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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 29, 1994 COMMISSION FILE NUMBER 0-15542
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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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the Registrant's voting stock held by
nonaffiliates of the Registrant as of January 20, 1995, was approximately
$3 million (based on the closing sale price of such stock on such date).
As of January 20, 1995, there were 17,887,775 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
Part III incorporates information by reference from registrant's definitive
proxy statement to be filed with the Securities and Exchange Commission within
120 days after the end of the fiscal year.
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The exhibit index is on page 17.
Page 1
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LAMONTS APPAREL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE 52 WEEKS ENDED OCTOBER 29, 1994
PART I
ITEM 1 - BUSINESS
GENERAL BACKGROUND
Lamonts Apparel, Inc. (the "Company") retails brand-name apparel and accessories
for the entire family. The Company focuses on moderate income consumers by
offering a large selection of quality merchandise at competitive prices. The
Company's full-line stores offer a broad and deep selection of moderately
priced, fashion apparel and accessories for the entire family. By concentrating
on nationally recognized brand names, the Company seeks to provide its customers
with an assurance of consistency in quality, fit and style. The Company's
merchandising strategy positions it between discounters/mass merchandisers and
traditional department stores. The Company's marketing strategy is to sell
well-known brand-name apparel and good quality proprietary brands to value
conscious consumers.
The Company's apparel operations began with three Seattle area stores in 1967.
The Company expanded to Spokane, Washington in 1970; to Alaska in 1975; Idaho in
1976; Oregon in 1978; and Montana and Utah in 1989. Currently, the Company
operates 48 stores throughout the Pacific Northwest and Alaska, employing over
2,000 employees in six states. The Company's combination of regional mall and
community center locations permits the Company, in many markets, to offer a
greater number of conveniently located stores than its competitors.
The Company was incorporated in Delaware as Texstyrene Corporation in 1985,
changed its name to Aris Corporation in October 1988 and to Lamonts Corporation
in April 1991. In September 1989, the Company acquired Lamonts Apparel, Inc.
("Apparel") from LH Group, Inc., the former parent of Apparel and a subsidiary
of Northern Pacific Corporation. Prior to the completion of the divestiture of
its original core business in August 1989, the Company manufactured expandable
polystyrene beads and converted them into foam cups and containers, insulation
products, packing materials and custom-molded packaging products. Apparel's
predecessor was incorporated in Washington in May 1923. On October 30, 1992,
Apparel was merged with and into the Company and the name of the Company was
changed to Lamonts Apparel, Inc.
The Company's principal office is located at 3650 131st Avenue, S.E., Bellevue,
Washington 98006, and its telephone number is (206) 562-8386.
Unless the context otherwise requires, as used herein the terms "Lamonts" and
the "Company" shall mean Lamonts Apparel, Inc., a Delaware corporation, together
with its predecessors and their respective subsidiaries.
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.
OPERATIONS
MERCHANDISING AND MARKETING. Lamonts' merchandising mix consists of (i) well-
known, nationally advertised, brand-name merchandise from vendors such as Alfred
Dunner[REGISTERED TRADEMARK], Liz Claiborne[REGISTERED TRADEMARK],
Koret[REGISTERED TRADEMARK], Union Bay[REGISTERED TRADEMARK], Levis[REGISTERED
TRADEMARK], Byer of California[REGISTERED TRADEMARK] and Bugle Boy[REGISTERED
TRADEMARK], (ii) proprietary brand merchandise, much of which is offered at
"everyday" low prices and (iii) merchandise provided by other fashion resources.
Lamonts offers an assortment of branded, moderately priced fashion apparel and
accessories at competitive prices for the entire family. The Company offers
basic and fashion merchandise from existing and emerging vendors. Sales
promotion and inventory allocation decisions are all made centrally by Lamonts'
corporate staff. The Company maintains uniformity with respect to inventory,
pricing decisions, selection of promotional goods and markdown policies
throughout all of its locations.
New management, which began operating the Company in November 1994, has
developed and commenced the implementation of new merchandising strategies,
which are designed 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 new policy to mark-down and clear out old and obsolete
merchandise within its respective season. (See "Item 7 -- Management's
Discussion and Analysis of Financial Condition and Results of Operations".)
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In addition, new management has initiated strategic initiatives including, among
other things, (i) the elimination of the Company's own import buying office,
(ii) the elimination of makeup and treatment from all markets except Alaska,
while maintaining fragrance lines and (iii) the expansion of its selection of
denim and other popular fashion merchandise.
Lamonts utilizes licensees for its family shoe (Wolverine World Wide) and fine
jewelry (Finlay Fine Jewelry) departments. The combined sales of shoes and fine
jewelry represent approximately 4.5% of the Company's fiscal 1994 revenues, but
are not reflected in such revenues for financial reporting purposes because
income derived from the rental fees charged to the licensees are reported as
offsets to operating expenses.
Lamonts advertises primarily through newspaper inserts, direct mail, radio,
television and charge statement inserts in its marketing and promotional
programs. The Company's promotional strategy is to target specific items and
groups, including holders of its proprietary credit card, for sale events.
PURCHASING. The Company's centralized buying organization includes general
merchandise managers, divisional merchandise managers and buyers responsible for
maintaining vendor relationships. As a result of the Company's segmented buying
philosophy and its membership in the Frederick Atkins, Inc. ("Atkins")
cooperative buying service, the Company believes it should benefit from better
market coverage, more rapid recognition of emerging vendors and trends, and
improved vendor relationships.
The Company's membership in Atkins provided it with group buying opportunities
on domestic merchandise, industry research and the ability to supplement its
proprietary brand imports program with Atkins' private label program.
Furthermore, Lamonts' merchandising, marketing and other executives participate
in conferences and meetings arranged by Atkins which serve as important sources
for industry contacts. Additionally, the Company backs certain of its direct
import purchases with letters of credit issued through Atkins. Costs associated
with the letters of credit are based on a fixed percentage of each draw plus a
non-interest bearing deposit of 17% of annual usage.
The Company purchases its merchandise from approximately 2,000 vendors and is
not dependent on any single source of supply. The Company maintains no long
term commitments with any supplier and believes that, if the Bankruptcy Court
approves a satisfactory permanent working capital facility, there will continue
to be an adequate supply of merchandise to satisfy its current and anticipated
requirements. However, 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 number of factoring institutions that continually monitor
the Company's credit lines. As a result of the Filing and until a permanent
working capital facility is obtained, management anticipates that there may be
an interruption of the flow of goods from its vendors, factoring institutions
and its cooperative buying service, as well as a reduction in available credit.
DISTRIBUTION. The Company utilizes a 100,000 square foot, contractor-operated
distribution center dedicated to the Company for centralized receiving and
marking (ticketing). The lease of this distribution center, which expires in
February 1998, is guaranteed by the Company. See "Item 2 - Properties."
Through its distribution center, the Company is generally able to receive and
ship merchandise to its stores within a two-to-three day period. The Company
believes that this distribution center enables it to monitor vendor shipments
more effectively, reduce receiving and marking expenses, reduce related
transportation costs, improve inventory control and reduce inventory shrinkage.
RETURN POLICY. It is the Company's policy to exchange or issue a credit if a
customer is not completely satisfied with any Lamonts purchase. Management
believes that the Company's customer return policy and experience is consistent
with industry practices.
STORE OPERATIONS. The Company's store management team consists of an executive
vice president of stores, four district managers and 45 store managers. Store
managers are primarily responsible for hiring and supervising store personnel
and for day-to-day store operations. A typical Lamonts store employs a staff of
28 to 54 people including the store manager, three to five department managers,
three to six support personnel (bookkeeping, receiving clerks, cashiers and
maintenance personnel) and 20 to 35 sales clerks (approximately one-half part
time).
EMPLOYEES. The Company employs approximately 2,000 employees, approximately 50%
of whom are full-time. Approximately 650 employees working in Seattle and
Wenatchee, Washington, are represented by the United Food and Commercial Workers
Union, pursuant to contracts that expire in May 1995. Management believes its
employee relations are good.
COMPETITION. The retail business in which the Company operates is highly
competitive, with the Company having certain competitors with substantially
greater financial resources. The Company's stores compete with other specialty
store operators, department stores and discount/mass merchandisers on the basis
of quality, fashion, price and service. The Company attempts to differentiate
itself from discount/mass merchandisers and traditional department stores by
positioning itself as a focused specialty retailer with emphasis on the middle
income consumer. Principal competitors in one or more of the Company's market
areas include The Bon Marche (a division of Federated Stores, Inc.), J.C. Penney
Co., Inc., Nordstrom, Sears Roebuck and Company and Mervyn's (a division of
Dayton-Hudson Corporation).
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TRADEMARKS. The Company currently owns various registered trademarks which are
part of its proprietary brand imports program. Management believes that,
although such trademarks are significant, the Company's business is not
dependent on any of such rights.
CREDIT POLICY. The Company offers its customers various methods of payment
including cash, check, Lamonts charge card, certain major credit cards and a
lay-away plan. Since its inception in July 1988, the Company's charge-card
program has been expanded to approximately 522,000 accounts. Growth in credit
sales represents an important element in the Company's marketing strategy
because statistics show that Lamonts charge card holders shop more regularly and
purchase more merchandise than the customer who pays by cash, check or bank
credit card. The Company believes that its proprietary credit card program
provides additional benefits in two areas: (i) industry research shows that
proprietary credit cards build significant customer loyalty and (ii) proprietary
credit cards enhance target marketing by providing valuable demographic and
purchasing behavior information on customers.
The Company's proprietary credit card, administered and owned by National City
Corporation ("National City"), provides for the option of paying in full within
30 days of the billed date with no finance charge or with revolving credit
terms. Terms of the short-term revolving charge accounts require customers to
make minimum monthly payments in accordance with prescribed schedules. Through a
contractual arrangement, as amended, with the Company, National City owns the
receivables generated from purchases made by customers using the Lamonts charge
card. The agreement provides for a minimum fee of 1% of purchases. As the prime
rate exceeds 6%, the minimum fee increases at the same rate. However, the
Company may elect to pass such increase in the minimum fee on to its credit card
customers. At the date the amended contract was executed (March 30, 1994) the
applicable fee was 1%, which is also the current rate. It is the Company's
intent to pass future prime rate increases on to its customers. Additionally,
the Agreement provides for a contingent supplemental fee equal to 0.1% of
purchases for each $1 million by which such purchases are less than $48.0
million in any calendar year, up to a maximum fee of 3%. In the event of store
closures, the agreement provides for adjustments to the dollar value of
purchases required. Pursuant to the terms of the agreement, the Company paid
the minimum fee during the 52 weeks ended October 29, 1994 ("Fiscal 1994").
Additionally, the Company is responsible for 50% of the net bad debt expense.
The agreement with National City may be terminated by either party after June
22, 1999, with 180 days prior written notice. The Company paid National City
$0.8 million for bad debt expense and $0.9 million in fees associated with such
plan during Fiscal 1994.
REGULATIONS. The Company is subject to federal, state and local laws and
regulations affecting retail apparel stores generally. The Company believes
that it is in substantial compliance with these laws and regulations.
REORGANIZATION
BACKGROUND
The Company has experienced financial difficulties for several years. During
the second half of 1992, the Company and its financial advisors commenced
negotiations with certain of the Company's creditors and stockholders regarding
a restructuring of the Company's indebtedness. On October 30, 1992, the Company
completed a comprehensive recapitalization (the "Recapitalization") pursuant to
which, among other things, the Company issued an aggregate of $75.0 million in
principal amount of its 10-1/4% Senior Subordinated Notes due 1999 (the "10-1/4%
Notes") and the Company's funded debt was reduced by $63.6 million.
On December 1, 1993, the Company completed a capital infusion and debt reduction
plan (the "Infusion") that further decreased its leverage. The Infusion
included, among other things, the repurchase of $13.0 million aggregate
principal amount of 10-1/4% Notes, at par, together with accrued interest
through the repurchase date, and the concurrent amendment of the terms of the
10-1/4% Notes that remained outstanding to, among other things, prospectively
reduce the interest rate of such 10-1/4% Notes from 11-1/2% (original rate at
issuance) to 10-1/4%.
On June 10, 1994, the Company amended the terms of the 10-1/4% Notes (the "Cash
Interest Deferral Amendment") to provide, among other things, that interest
payments due on the 10-1/4% Notes through November 1, 1995 could be paid, at the
Company's option, either in cash, at a rate of 12% per annum, or in additional
10-1/4% Notes ("PIK Interest"), at a rate of 13% per annum. Effective with the
Company's May 1, 1996 interest payment, the interest rate on the 10-1/4% Notes
will revert back to the rate of 10-1/4%, payable in cash. In accordance with the
Cash Interest Deferral Amendment, the Company elected to issue additional
10-1/4% Notes for its November 1, 1994 interest payment.
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 for shares of common stock, par value $.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. The
Company, subject to certain conditions, may exercise its option to exchange the
10-1/4% Notes on or prior to March 31, 1995; however, such exchange may not
occur on or prior to the date of the next annual meeting of stockholders of the
Company, which meeting may not occur prior to March 2, 1995 without the consent
of the holders of the 10-1/4% Notes.
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Notwithstanding the foregoing, the Company's financial position continued to
deteriorate. At October 29, 1994, the Company had approximately $24.6 million of
borrowings outstanding under its existing working capital facility and $66.0
million principal amount of 10-1/4% Notes outstanding. The Company's ability to
service its debt and to obtain trade credit was dependent on its performance,
which continued to fall short of projected results, including its results for
the recent holiday season. In response to its deteriorating financial
condition, the Company determined that a more significant financial and
operational restructuring was necessary.
CHAPTER 11 REORGANIZATION
FILING. On January 6, 1995, the Company filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code, 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 result of the Filing, the Company is currently in default under all of its
funded debt agreements in effect prior to the Petition Date. 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
prepetition interest is prohibited during the pendency of the Company's
Chapter 11 case.
In accordance with the Bankruptcy Code, the Company can seek court approval for
the rejection of executory contracts, including real property leases. Any such
rejection may give rise to a prepetition unsecured claim for breach of contract.
In connection with the Company's Chapter 11 proceedings, a review is being
undertaken of all the Company's obligations under its executory contracts,
including real property leases.
For additional information related to the Company's Chapter 11 proceedings, see
"Item 3 - Legal Proceedings" and the Bankruptcy Code. For additional
information on the financial impact of Chapter 11 on the operations of the
Company's business, see "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the subsequent event footnote
in the Consolidated Financial Statements included elsewhere in this document.
POSTPETITION FINANCING. On January 12, 1995, the Bankruptcy Court (i)
authorized the Company to use all cash proceeds of collateral under the
Company's existing working capital facility with Foothill Capital Corporation
("Foothill") and (ii) granted final approval of a $5.0 million aggregate amount
supplemental debtor in possession interim working capital facility between the
Company and Foothill providing for working capital loans (the "DIP Facility").
As a result, the Company has total working capital availability of approximately
$21.0 million until February 28, 1995, the date the DIP Facility expires.
Borrowings under the DIP Facility, together with such cash proceeds, may be used
by the Company to finance general working capital requirements, including
purchases of inventory and other expenditures permitted thereunder. The Company
is currently seeking to obtain permanent working capital financing which will
require approval of the Bankruptcy Court. For additional information on the DIP
Facility, see "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations".
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ITEM 2 - PROPERTIES
The Company considers its ability to maintain attractive, high traffic store
locations to be a critical element of its business and a key determinant of
Lamonts' future growth and profitability. Lamonts' stores are designed to
maximize selling space while providing a fashionable, pleasant shopping
environment.
The Company currently operates 47 full-line stores and one outlet center in the
following locations:
LAMONTS APPAREL, INC. STORE LOCATIONS
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<CAPTION>
<S> <C> <C>
Alaska (7) Washington (27) Utah (2)
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Anchorage: 3 stores Seattle: 9 stores Logan
Fairbanks Bellevue: 3 stores Ogden
Juneau Spokane: 4 stores
Soldotna Tacoma: 3 stores Montana (1)
Wasilla Aberdeen -------------
Moses Lake
Olympia Missoula
Idaho (6) Port Angeles
- -------------------- Tri-Cities Oregon (5)
Vancouver -------------
Coeur d'Alene Wenatchee
Idaho Falls Yakima Astoria
Lewiston Corvallis
Moscow Eugene
Pocatello Hillsboro
Twin Falls Medford
</TABLE>
Of the 48 stores, 19 are located in regional malls, 15 are located in community
malls, 7 are located in strip centers and 7 (including the outlet center) are
located in free-standing locations.
The Company owns both the building and the land for one store and the buildings
for two other stores, both subject to ground leases. The remaining stores are
located in leased facilities. The lease terms for these facilities cover
periods up to 30 years, with an average remaining term of 9 years. The
Company's 52,378 square foot principal executive and administrative offices in
Bellevue, Washington, are leased pursuant to an agreement which runs through
December 1998, with one five-year renewal option.
The Company's stores range in size from 20,000 to 85,000 square feet, with a
typical full-line apparel store averaging approximately 40,000 square feet. The
interiors of Lamonts' stores are attractively decorated and are organized to
maximize traffic flow and merchandise exposure. Signage and service facilities,
such as fitting rooms and customer service areas, are designed to create a
pleasant and convenient shopping environment.
During 1994, the Company determined that three of its Greater Portland, Oregon
full-line stores and all five of its Lamonts For Kids children's stores should
be closed because of poor performance. These closures were to complete the
Company's planned closures of underperforming stores, a process which began with
the closure of the Company's Clackamas Promenade store in August 1993. However,
in connection with its operational restructuring, the Company received
permission from the Bankruptcy Court to close six additional underperforming
stores. The six stores slated for closing are located in Vancouver, Everett and
Lakewood, Washington; Medford, Oregon; Ogden, Utah; and the downtown outlet
center in Spokane, Washington. (See Note 1 of the Notes to the Consolidated
Financial Statements contained elsewhere in this document.)
In October 1993, the Company was advised by the owners of its University Village
(Seattle, Washington) location that they intended to terminate the Company's
lease for the existing 84,000 square foot full-line store in October 1994. The
Company was unable to reach an agreement with such owners to locate a new 40,000
square foot full-line store within the same shopping center. Accordingly, the
Company closed the University Village store in October 1994.
On May 18, 1994, the Company signed a lease agreement to open a new 36,000
square foot full-line store during March 1995 in a 465,000 square foot shopping
center in Issaquah, Washington. This will be the Company's fourth store in the
eastside portion of the Seattle/Tacoma market and will require an initial net
fixed investment of approximately $0.3 million.
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The Company has an arrangement with Distribution Center Systems, Inc. ("DCS"),
whereby DCS provides distribution and merchandise processing services for
Lamonts on a cost plus fee reimbursement basis. As part of the arrangement, the
Company is a guarantor of DCS' lease of the distribution center located in Kent,
Washington which has remaining future minimum rentals of approximately $0.3
million per year. The lease term runs through February 1998.
ITEM 3 - LEGAL PROCEEDINGS
COMMENCEMENT OF CHAPTER 11 PROCEEDINGS
On January 6, 1995, the Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Western District of Washington at Seattle, Case No. 95-00100. The ability of
the Company to effect a successful reorganization under Chapter 11 will depend,
in significant part, upon the Company's ability to formulate a confirmable
reorganization plan that is approved by the Bankruptcy Court and meets the
standards for plan confirmation under the Bankruptcy Code. In a Chapter 11
reorganization plan, the rights of the Company's creditors and stockholders may
be substantially altered. Creditors may realize substantially less than the
full face amount of their claim. Equity interests of the Company's stockholders
may be diluted or even canceled. Investment in any security of the Company,
therefore, should be regarded as highly speculative. It is impossible at this
time to predict the actual recovery, if any, that different classes of creditors
and stockholders might ultimately realize.
The following summary sets forth certain aspects of the Company's Chapter 11
case. This summary is not intended to be an exhaustive summary. For additional
information regarding the effect of the Chapter 11 case on the Company,
reference should be made to the Bankruptcy Code.
Pursuant to section 362 of the Bankruptcy Code, the commencement of the
Company's Chapter 11 case operates as a stay, applicable to all entities, with
certain exceptions, of the following: (i) commencement or continuation of a
judicial, administrative, or other proceeding against the Company that was or
could have been commenced prior to commencement of the Company's Chapter 11
case, or to recover for a claim that arose before the commencement of the
Company's Chapter 11 case; (ii) enforcement of any judgments against the Company
that arose before the commencement of the Company's Chapter 11 case; (iii) the
taking of any action to obtain possession of property of the Company or to
exercise control over property of the Company; (iv) the creation, perfection or
enforcement of any lien against the property of the Company; (v) the taking of
any action to collect, assess or recover a claim against the Company that arose
before the commencement of the Company's Chapter 11 case; or (vi) the setoff of
any debt owing to the Company that arose prior to the commencement of the
Company's Chapter 11 case against a claim held by such creditor or party-in-
interest against the Company that arose before the commencement of the Company's
Chapter 11 case. Any entity may apply to the Bankruptcy Court for relief from
the automatic stay so that it may enforce any of the aforesaid remedies that are
automatically stayed by operation of law at the commencement of the Company's
Chapter 11 case.
In connection with the Company's Chapter 11 case, the United States Trustee has
appointed two creditors' committees; one committee was appointed for the
Company's bondholders and another for the other general unsecured creditors of
the Company.
Although the Company is authorized to operate its business as debtor in
possession, it may not engage in transactions outside the ordinary course of
business without first complying with the notice and hearing provisions of the
Bankruptcy Code and obtaining Bankruptcy Court approval.
As debtor in possession, the Company has the right, subject to the approval of
the Bankruptcy Court, under the relevant provisions of the Bankruptcy Code, to
assume or reject executory contracts, including real property leases. Certain
parties to such executory contracts with the Company, including parties to such
real property leases, may file motions with the Bankruptcy Court seeking to
require the Company to assume or reject those contracts or leases. In this
context, "assumption" requires that the Company cures, or provides adequate
assurance that it will cure, all existing defaults under the contract or lease
and provides adequate assurance of future performance under the contract or
lease. "Rejection," which is a remedy available under the relevant provisions
of the Bankruptcy Code, means that the Company is relieved from its obligations
to perform further under the contract or lease. Rejection of an executory
contract or lease may constitute a breach of that contract and may afford the
non-debtor party the right to assert a claim against the bankruptcy estate for
damages arising out of the breach which shall be allowed or disallowed as if
such claim had arisen before the date of the filing of the petition.
Prepetition claims that were contingent, unliquidated, or disputed as of the
commencement of the Chapter 11 case, including, without limitation, those that
arise in connection with rejection of executory contracts, may be allowed or
disallowed depending on the nature of the claim. Such claims may be fixed by
the Bankruptcy Court or otherwise settled or agreed upon by the parties.
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Under the Bankruptcy Code, an allowed claim of a creditor that is secured by a
lien on property of the Company's estate, or that is subject to a valid right of
setoff, is a secured claim to the extent of the value of such creditor's
interest in the estate's interest in such property, or to the extent of the
amount subject to setoff, as the case may be, and is an unsecured claim to the
extent that the value of such creditor's interest or the amount so subject to
setoff is less than the amount of such allowed claim. Generally, claims for
unmatured interest are not allowable. To the extent that an allowed secured
claim is secured by property whose value, after recovery of the reasonable,
necessary costs and expenses of preserving or disposing of such property, is
greater than the amount of such claim, the holder of such claim generally is
allowed interest on such claim and any reasonable fees, costs or charges
provided for under the agreement under which such claim arose.
For 120 days after the Petition Date, the Company has the exclusive right to
propose and file a plan of reorganization with the Bankruptcy Court, unless the
Bankruptcy Court otherwise orders. If the Company files a plan of
reorganization during the 120-day exclusivity period, no other party may file a
plan of reorganization until 180 days after the Petition Date, during which
period the Company has the exclusive right to solicit acceptance of the plan.
If the Company fails to file a plan during the 120-day exclusivity period or
such additional time period ordered by the Bankruptcy Court (the "Exclusivity
Period") or, after such plan has been filed, fails to obtain acceptance of such
plan from impaired classes of creditors and equity security holders during the
exclusive solicitation period or such additional time period ordered by the
Bankruptcy Court, any party-in-interest, including a creditor, an equity
security holder, a committee of creditors, or an indenture trustee, may file a
plan of reorganization in the Chapter 11 proceedings. Additionally, if the
Bankruptcy Court were to appoint a Chapter 11 trustee, any party-in-interest may
file a plan, regardless of whether any additional time remains in the Company's
Exclusivity Period.
Section 501 of the Bankruptcy Code allows any creditor or indenture trustee to
file a proof of claim with the Bankruptcy Court and any equity security holder
to file a proof of interest with the Bankruptcy Court. A claim or interest,
proof of which is timely filed under Bankruptcy Code section 501, is deemed
allowed, unless a party-in-interest (including the Company) objects thereto. If
an objection is made to the allowance of a claim, the Bankruptcy Court, after
notice and hearing, will determine the amount, validity, and priority of such
claim. The last date for filing proofs of claim or proofs of interest has not
yet been established by order of the Bankruptcy Court.
After a plan has been filed with the Bankruptcy Court, it will be sent, with a
disclosure statement approved by the Bankruptcy Court after notice and hearing,
to members of all classes of impaired creditors and equity security holders for
acceptance or rejection. Following acceptance or rejection of any plan by
impaired classes of creditors and equity security holders, the Bankruptcy Court
at a noticed hearing will consider whether to confirm the plan.
If at least one class of claims that is impaired under the plan has accepted the
plan, and certain other requirements of the Bankruptcy Code relating to plan
confirmation are satisfied, the proponent of the plan may invoke the so-called
"cramdown" provisions of section 1129(b) of the Bankruptcy Code. Under these
provisions, the Bankruptcy Court, on request of the proponent of the plan, shall
confirm the plan if the plan does not discriminate unfairly, and is fair and
equitable, with respect to each class of claims or interests that is impaired
under, and has not accepted, the plan. As used in the Bankruptcy Code, the
phrases "discriminate unfairly" and "fair and equitable" have narrow and
specific meanings. A "cramdown" might result in holders of the Company's Common
Stock receiving no property or other value for their equity security interests.
Because of this and other possibilities, the value of the Company's securities,
including the Common Stock, is highly speculative.
OTHER LEGAL PROCEEDINGS
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
vigorously defending the remaining AWHA claim. 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
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market and, until
January 20, 1995, was listed on The Nasdaq Stock Market's Smallcap Market
("Nasdaq"). As a result of the Filing, the Common Stock is no longer listed.
The following table sets forth, for the periods indicated, the high and low
closing bid prices as reported on Nasdaq. The bid prices, as stated, represent
inter-dealer prices without adjustments for retail mark-ups, mark-downs or
commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Fiscal 1993: High Low
- -------------------------- --------- --------
<S> <C> <C>
Quarter ended January 30 $24 $5
Quarter ended May 1 6-1/2 3-3/4
Quarter ended July 31 4-1/2 3
Quarter ended October 30 3-1/2 2-1/4
<CAPTION>
Fiscal 1994: High Low
- -------------------------- --------- --------
<S> <C> <C>
Quarter ended January 29 2-3/4 2
Quarter ended April 30 2 1-1/4
Quarter ended July 30 1-3/4 3/4
Quarter ended October 29 13/16 5/8
</TABLE>
The closing bid price of the Company's Common Stock on January 20, 1995 was
$7/16. At January 20, 1995, there were 176 holders of record of the Company's
Common Stock.
DIVIDENDS
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 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.
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data for the Company
and should be read in conjunction with the consolidated financial statements of
the Company, and the related notes thereto, included elsewhere in this Annual
Report. The following financial data are not necessarily comparable for the
periods set forth below because of the effects of, among other things, the
consummation of the Recapitalization in October 1992.
10
<PAGE>
LAMONTS APPAREL, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 weeks ended 52 weeks ended 52 weeks ended 52 weeks ended 53 weeks ended
October 29, 1994 October 30, 1993 October 31, 1992 November 2, 1991 November 3, 1990
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $237,922 $251,015 $258,096 $252,627 $251,487 (1)
Cost of merchandise sold 163,697 157,098 156,940 153,771 153,490
----------------- ----------------- ----------------- ----------------- ----------------
Gross profit 74,225 93,917 101,156 98,856 97,997
----------------- ----------------- ----------------- ----------------- ----------------
Operating and administrative expenses 88,520 84,176 83,798 78,921 79,897
Depreciation and amortization 11,441 11,164 13,290 11,070 10,269
Store closure costs 7,200
----------------- ----------------- ----------------- ----------------- ----------------
Operating costs 107,161 95,340 97,088 89,991 90,166
----------------- ----------------- ----------------- ----------------- ----------------
Earnings (loss) from continuing
operations before other income/(expense),
income tax provision/(benefit), and
extraordinary item (32,936) (1,423) 4,068 8,865 7,831
Other income (expense):
Interest expense
- Cash (8,130) (12,477) (9,936) (16,439) (16,883)
- Non-cash (2) (3,490) (13,417) (5,494) (3,932)
Other income (expense) (369) 29 417 917 1,681
----------------- ----------------- ----------------- ----------------- ----------------
Loss from continuing operations before
income tax provision/(benefit)
and extraordinary item (44,925) (13,871) (18,868) (12,151) (11,303)
Income tax provision/(benefit) (400) (3,000) 710 (552) (2,490)
----------------- ----------------- ----------------- ----------------- ----------------
Loss from continuing operations
before extraordinary item (44,525) (10,871) (19,578) (11,599) (8,813)
Earnings from discontinued operations,
net of income taxes
Gain (loss) from discontinued
operations, net of income taxes 283 (113) 308
Extraordinary item - gain on
extinguishment of debt (3) 23,572
----------------- ----------------- ----------------- ----------------- ----------------
Net earnings (loss) $ (44,525) $(10,871) $ 4,277 $(11,712) $ (8,505)
----------------- ----------------- ----------------- ----------------- ----------------
----------------- ----------------- ----------------- ----------------- ----------------
NET EARNINGS (LOSS) PER COMMON SHARE (4)
Loss from continuing operations
before extraordinary item $ (3.05) $ (1.22) $ (82.84) $ (67.99) $ (60.55)
Earnings from discontinued
operations, net of income taxes
Gain (loss) from discontinued
operations, net of income taxes 1.20 (0.61) 1.89
Extraordinary item - gain on
extinguishment of debt 99.74
----------------- ----------------- ----------------- ----------------- ----------------
Net earnings (loss) per common share $ (3.05) $ (1.22) $ 18.10 $ (68.60) $ (58.66)
----------------- ----------------- ----------------- ----------------- ----------------
----------------- ----------------- ----------------- ----------------- ----------------
Dividends on preferred stock (5) None None None $ (1,045) $ (1,045)
BALANCE SHEET DATA (at end of period)
Working capital $ 9,938 $ 43,060 $ 52,327 $ 52,319 $ 54,367
Total assets 152,589 183,709 195,339 194,954 205,656
Long term debt and obligations under
capital leases, net of current maturities 80,642 93,130 94,615 154,694 150,419
Stockholders' equity/(deficit) 7,560 36,208 46,773 (1,500) 10,212
</TABLE>
11
<PAGE>
LAMONTS APPAREL, INC.
FOOTNOTES TO SELECTED FINANCIAL DATA
(1) The additional week in the fiscal year ended November 3, 1990 accounted for
$2.2 million of revenues.
(2) Non-cash interest expense is comprised of amortization of discounts on the
Company's long term debt and interest paid through issuance of additional
debt.
(3) Extraordinary item reflects gain on cancellation of debt associated with
the Recapitalization.
(4) Represents per common share earnings (loss) after accrual of dividends on
the Old Preferred Stock (hereinafter defined) for all periods presented
except the 52 weeks ended October 29, 1994, October 30, 1993 and
October 31, 1992. Concurrent with the Recapitalization which occurred on
October 30, 1992, the Company (i) converted all of the Old Preferred Stock
into Common Stock, (ii) eliminated all accrued and unpaid dividends
associated with the Old Preferred Stock and (iii) effected a one-for-30
reverse stock split of the Common Stock outstanding prior to the
Recapitalization. All share and per share amounts prior to October 31,
1992 have been restated to reflect the reverse stock split on a retroactive
basis. The weighted average number of shares outstanding for the 52 weeks
ended October 29, 1994, October 30, 1993, October 31, 1992, and November 2,
1991 and the 53 weeks ended November 3, 1990 were 14,583,038, 8,917,624,
236,339, 185,970 and 162,817, respectively.
(5) Represents dividends on the Old Preferred Stock which were accrued but
never declared or paid. All of the accrued and unpaid dividends were
eliminated pursuant to the Recapitalization.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this document.
FINANCIAL CONDITION
BACKGROUND
The Company has experienced financial difficulties for several years. During
the second half of 1992, the Company and its financial advisors commenced
negotiations with certain of the Company's creditors and stockholders regarding
a restructuring of the Company's indebtedness. On October 30, 1992, the Company
completed the Recapitalization pursuant to which, among other things, the
Company issued an aggregate of $75.0 million in principal amount of its 10-1/4%
Notes and issued 8,080,734 shares of its Common Stock, in exchange for $138.6
million (after original issue discount) of outstanding debt and the transfer of
a $2.0 million promissory note held by the Company. In addition, the Company's
9-1/2% Convertible Exchangeable Preferred Stock, par value $15 per share (the
"Old Preferred Stock"), was converted into 622,600 shares of the Company's
Common Stock outstanding subsequent to the Recapitalization. Approximately
$796,000 in principal amount of the Company's 13-1/2% Senior Subordinated
Guaranteed Notes due February 15, 1995 (the "Senior Subordinated Notes")
remained outstanding. As a result of the Recapitalization, the holders of
Common Stock outstanding prior to the Recapitalization held 2.09% of the Common
Stock immediately following the Recapitalization. As a result, the Company's
funded debt was reduced by $63.6 million.
On December 1, 1993, the Company completed the Infusion pursuant to which it
received approximately $13.4 million gross proceeds from the issuance of
4,466,206 shares of its Series A Convertible Preferred Stock, par value $.01 per
share ("Series A Preferred Stock"), which, together with cash flow from
operations was used to repurchase $13.0 million aggregate principal amount of
the 10-1/4% Notes, at par, together with accrued interest through the repurchase
date. Each share of the Series A Preferred Stock automatically converted into
two shares of the Company's Common Stock on March 14, 1994, the effective date
of an amendment to the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock of the Company from
15.0 million to 40.0 million shares. In connection with the Infusion, the terms
of the 10-1/4% Notes that remained outstanding were amended to, among other
things, prospectively reduce the interest rate thereof from 11-1/2% to 10-1/4%.
On June 10, 1994, the Company amended the terms of the 10-1/4% Notes to provide,
among other things, that interest payments due on the 10-1/4% Notes through
November 1, 1995 could be paid, at the Company's option, either in cash, at a
rate of 12% per annum, or in additional 10-1/4% Notes, at a rate of 13% per
annum ("PIK Interest"). Effective with the Company's May 1, 1996 interest
payment, the interest rate on the 10-1/4% Notes will revert back to the rate of
10-1/4%, payable in cash.
12
<PAGE>
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 for shares of 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. The Company, subject to certain conditions, may exercise its
option to exchange the 10-1/4% Notes on or prior to March 31, 1995; however,
such exchange may not occur on or prior to the date of the next annual meeting
of stockholders of the Company, which meeting may not occur prior to March 2,
1995 without the consent of the holders of the 10-1/4% Notes.
Notwithstanding the foregoing, the Company's financial position continued to
deteriorate. At October 29, 1994, the Company had approximately $24.6 million
of borrowings and $2.4 million of trade and stand-by letters of credit
outstanding under its existing working capital facility. Additionally, the
Company had approximately $66.0 million principal amount of 10-1/4% Notes
outstanding at October 29, 1994. At October 29, 1994, the Company had $2.7
million of cash and $1.9 million of restricted cash, a majority of which is held
as a deposit by the Company's buying service for the Company's annual usage of
international letters of credit. The Company's current assets exceeded current
liabilities by approximately $9.9 million at October 29, 1994 as compared to
$43.1 million at October 30, 1993.
The Company's ability to service its debt and to obtain trade credit was
dependent on its performance, which continued to fall short of anticipated
results. In response to its deteriorating financial condition, the Company
determined that a financial and operational restructuring was necessary.
FILING
On January 6, 1995, the Company filed a voluntary petition for 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, 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. For additional information related to the Company's Chapter 11
proceedings, see "Item 1 - Business -- Chapter 11 Reorganization", "Item 3 -
Legal Proceedings" and the Bankruptcy Code.
On January 12, 1995, the Bankruptcy Court (i) authorized the Company to use all
cash proceeds of collateral under the Company's existing working capital
facility with Foothill and (ii) granted final approval of a $5.0 million
aggregate amount supplemental debtor in possession interim DIP Facility. As a
result, the Company has total working capital availability of approximately
$21.0 million until February 28, 1995, the date the DIP Facility expires.
Borrowings under the DIP Facility, together with such cash proceeds, may be used
by the Company to finance general working capital requirements, including
purchases of inventory and other expenditures permitted thereunder. The Company
is currently seeking to obtain permanent working capital financing which will
require approval of the Bankruptcy Court.
Under the DIP Facility, Foothill agreed to make revolving loans to the account
of the Company in an aggregate principal amount not to exceed the Borrowing Base
(as defined in the DIP Facility) up to $5.0 million at any time. The
obligations of the Company under the DIP Facility are collateralized by a lien
on inventory and certain rights to payment arising from the sale of inventory
and related assets and are an allowed administrative expense claim with priority
over certain other administrative expenses.
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 DIP Facility imposes limitations on the Company with respect to, among other
things, (i) subject to certain exceptions, the creation or incurrence of liens,
(ii) consolidations, mergers, and, subject to certain exceptions, sales of
assets, (iii) the incurrence of guarantees or other contingent obligations, (iv)
the making of capital expenditures in excess of specified levels, (v) subject to
certain exceptions, 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.
RESULTS OF OPERATIONS
FISCAL 1994 COMPARED TO THE 52 WEEKS ENDED OCTOBER 30, 1993 ("FISCAL 1993")
REVENUES. Revenues of $237.9 million for Fiscal 1994 decreased 5.2% on a total
store basis from $251.0 million for Fiscal 1993. Comparable store revenues
decreased 6.4% for Fiscal 1994 as compared to Fiscal 1993. Management believes
that revenues have been affected by (i) slow reaction to a changing consumer,
(ii) an unprecedented increase of approximately 1.7 million square feet of mass
merchant/discount retail space since the Fall of 1993 in the Alaska market,
(iii) the continued sluggish economy in the Seattle/Tacoma market and (iv) the
general lower demand for apparel being experienced by the Company and many other
apparel retailers.
13
<PAGE>
GROSS PROFIT. Gross profit, as a percentage of revenues (excluding the effect
of non-cash charges of $12.6 million in Fiscal 1994 and $1.2 million in Fiscal
1993), decreased 1.4% for Fiscal 1994, to 36.5% from 37.9% of revenues in Fiscal
1993. The non-cash charges increased $11.4 million in Fiscal 1994 primarily due
to a $10.0 million charge to reduce the step-up in inventory (recorded in
connection with the Recapitalization in October 1992 pursuant to the provisions
of purchase accounting and the use of the LIFO method of valuing inventory) to
net realizable value. Management believes that the decrease in gross profit is
attributable to (i) planned inventory levels that supported turns at less than
the industry norm, (ii) higher markdowns resulting from lower sales volume which
necessitated extensive clearance pricing to maintain planned inventory levels
and (iii) lower markups on merchandise due to changes in mix of business.
The Company's new management has developed and commenced the implementation of
new merchandising strategies, which are designed 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 new policy to mark-down and clear out
old and obsolete merchandise within its respective season. If new management's
strategy is successful, the Company anticipates that both revenues and gross
margin dollars may increase. However, there can be no assurances that such
strategy will be successful.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses of
$88.5 million (or 37.2% of revenues) for Fiscal 1994 increased compared to $84.2
million (or 33.5% of revenues) for Fiscal 1993. While cost containment measures
were successful in stabilizing or reducing most operating expenses, these
measures were more than offset by (i) increased advertising expenditures which
management believed were necessary to maintain a competitive stance in the
Company's markets, (ii) legal expenditures required to defend against certain
lawsuits (see "Item 3 - Legal Proceedings"), (iii) less favorable experience in
the Company's self-insured medical program and (iv) costs associated with the
change in management.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $11.4
million for Fiscal 1994 remained relatively flat as compared to the comparable
period in the prior year. The increase in depreciation and amortization
associated with newly acquired assets was offset by reductions due to assets
becoming fully depreciated or amortized.
STORE CLOSURE COSTS. Store closure costs of $7.2 million for Fiscal 1994
reflect the Company's estimate of write-offs to be made and costs to be incurred
in connection with certain store closures (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Capital
Expenditures", "Item 2 - Properties" and Note 14 of the Notes to the
Consolidated Financial Statements contained elsewhere in this document). As the
store closure costs consist primarily of non-cash write-offs, the Company
currently anticipates that the net cash outlay will be approximately $1.0
million.
INTEREST EXPENSE. Interest expense of $11.6 million ($8.1 million cash and $3.5
million non-cash) for Fiscal 1994 decreased from $12.5 million (all cash) for
Fiscal 1993. The decrease in interest expense is primarily a result of (i) the
repurchase of $13.0 million of the Company's 10-1/4% Notes in connection with
the Infusion and (ii) the reversal of $0.6 million of accrued interest
previously established as a liability for settlement of an examination of the
Company's Federal income tax returns (see Note 7 of the Notes to the
Consolidated Financial Statements contained elsewhere in this document),
partially offset by (i) the Cash Interest Deferral Amendment (hereinafter
defined) and the Company's election to accrue interest at the PIK Interest rate
of 13% for the November 1, 1994 interest payment and (ii) increased interest
expense associated with higher borrowing levels and higher interest rates under
the Company's existing working capital facility.
OTHER. Other expense of $0.4 million for Fiscal 1994 reflects the write-off of
the pro-rata portion of the deferred financing costs attributable to the $13.0
million of 10-1/4% Notes repurchased pursuant to the Infusion.
NET LOSS. The Fiscal 1994 net loss of $44.5 million increased $33.6 million
compared to the net loss of $10.9 million for Fiscal 1993 primarily as a result
of (i) the $19.7 million decrease in gross profit dollars, $10.0 million of
which is attributable to the net realizable value adjustment to inventory, (ii)
the $7.2 million charge for store closure costs, (iii) higher operating and
administrative expenses and (iv) the $3.0 million reversal of a deferred tax
credit recognized during Fiscal 1993 offset, in part, by (i) the reversal of
$0.4 million of accrued taxes and the $0.6 million of accrued interest
previously established as a liability for settlement of an examination of the
Company's Federal income tax returns (see Note 7 of the Notes to the
Consolidated Financial Statements contained elsewhere in this document) and (ii)
lower interest expense.
FISCAL 1993 COMPARED TO THE 52 WEEKS ENDED OCTOBER 31, 1992 ("FISCAL 1992")
Results of operations for Fiscal 1993 and Fiscal 1992 are not necessarily
comparable because of the effect of the Recapitalization, which was consummated
on October 30, 1992. The Recapitalization reduced the Company's total
indebtedness by $63.6 million. The gain which resulted from the cancellation of
debt associated with the Recapitalization has been reflected as an extraordinary
item for Fiscal 1992.
14
<PAGE>
REVENUES. On a total store basis, revenues decreased 2.8% to $251.0 million for
Fiscal 1993 as compared to $258.1 million for Fiscal 1992. The five stores
opened during Fiscal 1993 and 1992 accounted for $3.1 million of incremental
revenues in Fiscal 1993. Comparable store revenues decreased 3.8% for Fiscal
1993 from Fiscal 1992. The decline in total and comparable store revenues is a
result of (i) the continued sluggish economy in the Pacific Northwest, (ii) the
general lower demand for apparel being experienced by the Company and other
apparel retailers and (iii) unseasonably cold weather in most of the Company's
marketing regions during the summer selling season.
GROSS PROFIT. Gross profit, as a percentage of revenues, for Fiscal 1993,
excluding the effect of non-cash charges of $1.2 million (an increase of $0.4
million over the prior year), decreased 1.6% to 37.9% from 39.5% of revenues in
Fiscal 1992. The decrease is primarily attributable to increased promotional
activity, which management believes was necessary and will continue to be
necessary to maintain a strong presence in the Company's major markets and
additional markdowns required to reduce its inventory of seasonal apparel.
OPERATING AND ADMINISTRATIVE. Operating and administrative expenses of $84.2
million for Fiscal 1993 remained relatively flat as compared to $83.8 million
for Fiscal 1992. Company-wide cost containment measures and expense initiatives
offset a $1.7 million increase in advertising expenditures, which management
believes was necessary to maintain a strong presence in the Company's major
markets. However, lower revenues resulted in an increase in operating and
administrative expenses as a percent of revenues to 33.5% of revenues for Fiscal
1993 as compared to 32.5% of revenues for Fiscal 1992.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $11.2
million (or 4.5% of revenues) for Fiscal 1993 decreased from $13.3 million (or
5.1% of revenues) in Fiscal 1992. Approximately 40% of the $2.1 million
decrease is due to a decline in amortization associated with the Company's
private label credit card acquisition program costs, approximately 35% of the
decrease is a result of assets becoming fully depreciated and approximately 25%
is attributable to a reduction in capitalized deferred financing costs as a
result of the Recapitalization.
INTEREST. Interest expense decreased 46.6% to $12.5 million in Fiscal 1993 from
$23.4 million in Fiscal 1992 due to reductions in the Company's debt and
effective interest rate pursuant to the Recapitalization.
LOSS FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM. The loss from
continuing operations of $10.9 million for Fiscal 1993 reflects an improvement
of $8.7 million as compared to the loss from continuing operations of $19.6
million for Fiscal 1992. Although gross profit was down as a result of lower
revenues, the Company's loss from continuing operations was principally reduced
as a result of (i) lower interest expense, (ii) a $3.0 million tax benefit
associated with the reversal of deferred tax credits which were recorded in
connection with the Recapitalization and (iii) a decrease in depreciation and
amortization.
NET LOSS. The Company reported a net loss of $10.9 million for Fiscal 1993 as
compared to net income of $4.3 million for Fiscal 1992, which included a $23.6
million gain on extinguishment of debt in connection with the Recapitalization.
CASH FLOW
The Company used $5.4 million of cash for operating activities for Fiscal 1994
as compared to the $0.9 million provided by operating activities in Fiscal 1993.
The $6.3 million increase in cash used by operating activities in Fiscal 1994 is
primarily due to a reduction in gross profit and higher operating and
administrative expenses.
The Company utilized $3.7 million of cash for investing activities in Fiscal
1994 as compared to $6.0 million in Fiscal 1993. The $2.3 million decrease in
cash used for investing activities is primarily due to decreased capital
expenditures in Fiscal 1994 as compared to Fiscal 1993, offset by $0.5 million
of proceeds released from escrow received in Fiscal 1993 (see Note 15 of the
Notes to the Consolidated Financial Statements included elsewhere in this
document).
The $3.9 million increase in cash generated from financing activities is due to
higher borrowings under the Company's existing working capital facility in
Fiscal 1994 as compared to Fiscal 1993.
CAPITAL EXPENDITURES
During Fiscal 1994, the Company determined that three of its Greater Portland,
Oregon full-line stores and all five of its Lamonts For Kids children's stores
should be closed because of poor performance. These closures were to complete
the Company's planned closures of underperforming stores, a process which began
with the closure of the Company's Clackamas Promenade store in August 1993.
However, in connection with its operational restructuring, the Company has
received permission from the Bankruptcy Court to close six additional
underperforming stores. The six stores slated for closing are located in
Vancouver, Everett and Lakewood, Washington; Medford, Oregon; Ogden, Utah; and
the downtown outlet center in Spokane, Washington. As store closure costs
consist primarily of non-cash write-offs, the Company currently estimates that
the net cash outlay associated with these closures will be modest. (See Note 1
of the Notes to the Consolidated Financial Statements contained elsewhere in
this document.)
15
<PAGE>
In October 1993, the Company was advised by the owners of its University Village
(Seattle, Washington) location that they intended to terminate the Company's
lease for the existing 84,000 square foot full-line store in October 1994. The
Company was unable to reach an agreement with such owners to locate a new 40,000
square foot full-line store within the same shopping center. Accordingly, the
Company closed the University Village store in October 1994.
On May 18, 1994, the Company signed a lease agreement to open a new 36,000
square foot full-line store during March 1995 in a 465,000 square foot shopping
center in Issaquah, Washington. This will be the Company's fourth store in the
eastside portion of the Seattle/Tacoma market and will require an initial net
fixed investment of approximately $0.3 million.
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, 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 sales are seasonal, with the Christmas Season (first quarter)
generally its strongest quarter. The table below sets forth the impact of
seasonality on the Company's business for Fiscal 1994 and Fiscal 1993 (dollars
in thousands):
<TABLE>
<CAPTION>
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
FISCAL 1994
Revenues $77,737 $48,503 $54,994 $56,688 $237,922
% Contribution 32.7% 20.4% 23.1% 23.8%
FISCAL 1993
Revenues 79,824 50,102 58,722 62,367 251,015
% Contribution 31.8% 20.0% 23.4% 24.8%
</TABLE>
INFLATION
The primary items impacted by inflation include the cost of merchandise,
utilities, and labor. Retail sales prices are generally set to reflect such
inflationary increases, the effects of which cannot be readily determined.
Management of the Company believes that inflationary factors have had a minimal
effect on the Company's operations during the past three years.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index to Consolidated Financial Statements and
Schedules on page 23 for the Company's consolidated financial statements and
notes thereto and supplementary schedules. All other schedules have been
omitted as not required or not applicable or because the information required to
be presented is included in the consolidated financial statements and related
notes.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
16
<PAGE>
PART III
The definitive proxy statement to be filed within 120 days after the end of the
fiscal year is incorporated herein by reference to fulfill the requirements of
Item 10, "Directors and Executive Officers of the Registrant," Item 11,
"Executive Compensation", Item 12, "Security Ownership of Certain Beneficial
Owners and Management," and Item 13, "Certain Relationships and Related
Transactions."
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report
1. FINANCIAL STATEMENTS OF LAMONTS APPAREL, INC. - Reference is made to
the Index to Consolidated Financial Statements on page 23.
2. FINANCIAL STATEMENT SCHEDULES - All schedules have been omitted as
they are either not required or not applicable or because the
information required to be presented is included in the financial
statements and related notes.
3. EXHIBITS. The exhibits listed below will be furnished to any security
holder upon written request for such exhibit, and payment of any
reasonable expenses incurred by Lamonts Apparel, Inc., to the
Corporate Secretary, 3650 131st Avenue SE, Bellevue, Washington 98006.
Exhibit
Number Description of Document
-------- -----------------------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant. (6)
3.2 Amended and Restated By-laws of the Registrant.*
4.1 Specimen Stock Certificate. (5)
4.2 Indenture (the "Indenture"), dated October 30, 1992 between
the Registrant and First Trust National Association, as
Trustee (the "Trustee"), relating to the Registrant's
10-1/4% Senior Subordinated Notes due 1999
(the "Notes"). (4)
4.3 First Supplemental Indenture to the Indenture dated
October 30, 1992. (5)
4.4 Second Supplemental Indenture to the Indenture dated
December 1, 1993. (7)
4.5 Third Supplemental Indenture to the Indenture dated June
10, 1994. (8)
4.6 Fourth Supplemental Indenture to the Indenture dated
October 18, 1994.*
4.7 Security Agreement dated October 30, 1992 between the
Registrant and the Trustee (the "Security Agreement"). (4)
4.8 First Amendment to Security Agreement dated December 1,
1993. (7)
4.9 Indenture (the "13-1/2% Indenture") dated as of January 31,
1986 (including the form of 13-1/2% Senior Subordinated
Guaranteed Note), among the Registrant, Texstyrene
Plastics, Inc. ("TPI") and Bankers Trust Company, as
Trustee (the "13-1/2% Trustee") relating to the Registrants
13-1/2% Senior Subordinated Guaranteed Notes due February
15, 1995.(1)
4.10 First Supplemental Indenture to the 13-1/2% Indenture dated
December 30, 1986, among the Registrant, TPI and the
13-1/2% Trustee. (3)
4.11 Second Supplemental Indenture to the 13-1/2% Indenture
dated October 4, 1988, among the Registrant, TPI and the
13-1/2% Trustee. (2)
4.12 Third Supplemental Indenture to the 13-1/2% Indenture dated
October 29, 1992, among the Registrant, TPI and the 13-1/2%
Trustee. (4)
17
<PAGE>
4.13 Warrant Agreement dated September 21, 1992 between the
Registrant and Society National Bank, as Warrant Agent. (4)
4.14 Warrant Agreement dated June 10, 1994 between the
Registrant and the other parties thereto (including the
form of Warrant attached thereto as Exhibit A). (8)
4.15 Exchange Agreement, dated October 18, 1994, between the
Registrant and the holders of the Notes.*
10.1 Consulting Agreement dated October 30, 1992, between the
Registrant and The Thompson Company. (4)(10)
10.2 Form of Nonstatutory Stock Option Agreement dated
September 14, 1992, between the Registrant and each of
Leonard M. Snyder, Frank E. Kulp, Andrew A. Giordano, Peter
Aaron and Wallace D. Holznagel. (4)(10)
10.3 Form of Nonstatutory Stock Option Agreement dated
September 14, 1992, between the Registrant and each officer
of the Registrant other than its executive officers.
(4)(10)
10.4 Form of Option Exchange Agreement dated September 14, 1992,
between the Registrant and each officer of the Registrant.
(4)(10)
10.5 Lamonts Apparel, Inc. 1992 Incentive and Nonstatutory Stock
Option Plan. (4)(10)
10.6 Employment Agreement dated October 16, 1994, between the
Registrant and Alan Schlesinger.(10)*
10.7 Modification to Employment Agreement dated January 5, 1995
between the Registrant and Alan Schlesinger.(10)*
10.8 Employment Agreement dated December 28, 1994, between the
Registrant and Loren Rothschild.(10)*
10.9 Executive Employment Agreement dated October 30, 1992,
between the Registrant and Leonard M. Snyder. (4)(10)
10.10 Resignation Agreement dated November 14, 1994, between the
Registrant and Leonard M. Snyder.(10)*
10.11 Executive Employment Agreement dated October 30, 1992,
between the Registrant and Frank E. Kulp. (4)(10)
10.12 Resignation Agreement dated November 14, 1994, between the
Registrant and Frank E. Kulp.(10)*
10.13 Executive Employment Agreement dated June 17, 1993, between
the Registrant and Earle J. Spokane. (6)(10)
10.14 Executive Employment Agreement dated October 30, 1992,
between the Registrant and Peter Aaron. (4)(10)
10.15 Executive Employment Agreement dated October 30, 1992,
between the Registrant and Wallace D. Holznagel. (4)(10)
10.16 Loan and Security Agreement (the "Foothill Agreement")
dated January 13, 1994, between the Registrant and Foothill
Capital Corporation ("Foothill"). (7)
10.17 Amendment Number One to the Foothill Agreement dated June
27, 1994. (9)
10.18 Letter Agreement dated October 13, 1994, between the
Registrant and Foothill.*
10.19 Depository Account Agreement dated January 21, 1994, among
the Registrant, Foothill and Seafirst National Bank. (7)
18
<PAGE>
10.20 Loan and Security Agreement dated January 12, 1995 between
the Registrant, as debtor in possession, and Foothill.*
10.21 Equity Registration Rights Agreement dated October 30, 1992
among the Company and the parties listed on the signature
pages thereto. (4)
10.22 Debt Registration Rights Agreement dated October 30, 1992
among the Company and the holders listed on the signature
pages thereto. (4)
10.23 Stockholders Voting Agreement dated October 30, 1992 among
the Company and the holders of Common Stock of the Company
listed on the signature pages thereto. (4)
10.24 Form of Indemnification Agreement dated October 30, 1992,
between the Registrant and each director and officer of the
Registrant. (4)
10.25 Credit Card Plan Agreement dated June 20, 1988, as amended
September 30, 1992, between the Registrant and National
City Bank, Columbus (formerly BancOhio National Bank) (the
"Credit Card Plan Agreement"). (5)
10.26 Amendment No. 2 dated March 30, 1994 to the Credit Card
Plan Agreement. (8)
10.27 Letter Agreement dated November 2, 1994 to the Credit Card
Plan Agreement.*
10.28 Computer Services Agreement dated November 1, 1991, between
the Registrant and Infotech Corporation. (5)
11 Computation of Per Share Earnings.*
21 Subsidiaries of the Registrant. (6)
23 Consent of Coopers & Lybrand LLP.*
27 Financial Data Schedule.*
__________
* Filed herewith
(1) Incorporated by reference from Registration Statement Nos. 33-2292 and
33-2292-01 of the Registrant and TPI, respectively, as filed with the
Commission on December 19, 1985, and as amended on January 3, 1986,
January 29, 1986, February 6, 1986 and February 11, 1986.
(2) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on November 10, 1988.
(3) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with the Commission on March 31, 1989.
(4) Incorporated by reference from Current Report on Form 8-K of the
Registrant as filed with the Commission on November 13, 1992.
(5) Incorporated by reference from Registration Statement No. 33-56038 of
the Registrant, initially filed with the Commission on December 22,
1992.
(6) Incorporated by reference from Registration Statement No. 33-68720 of
the Registrant, initially filed with the Commission on September 14,
1993.
(7) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with the Commission on January 28, 1994.
(8) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on June 14, 1994.
(9) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on September 13, 1994.
19
<PAGE>
(10) Management contract or other compensatory plan, contract or
arrangement between the Registrant and any director or named executive
officer of the Registrant.
(b) Reports filed on Form 8-K
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LAMONTS APPAREL, INC.
By: /s/ EARLE J. SPOKANE
--------------------
EARLE J. SPOKANE
Executive Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
Date: January 27, 1995
21
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Alan R. Schlesinger Chairman of the Board, Chief
- -----------------------
Alan R. Schlesinger Executive Officer, President and
Director (Principal Executive Officer) January 27, 1995
/s/ Loren R. Rothschild Vice Chairman of the Board, Chief
- -----------------------
Loren R. Rothschild Administrative Officer and Director January 27, 1995
/s/ Earle J. Spokane Executive Vice President, Chief January 27, 1995
- -----------------------
Earle J. Spokane Financial Officer, Treasurer
and Assistant Secretary (Principal
Financial and Accounting Officer)
</TABLE>
22
<PAGE>
LAMONTS APPAREL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1 Report of Independent Accountants
F-2 Consolidated Balance Sheets - October 29, 1994 and October 30, 1993.
F-3 Consolidated Statements of Operations for the 52 Weeks Ended October 29,
1994, October 30, 1993 and October 31, 1992.
F-4 Consolidated Statements of Changes in Stockholders' Equity for the 52
Weeks Ended October 29, 1994, October 30, 1993 and October 31, 1992.
F-5 Consolidated Statements of Cash Flows for the 52 Weeks Ended October 29,
1994, October 30, 1993 and October 31, 1992.
F-7 Notes to Consolidated Financial Statements.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Lamonts Apparel, Inc.
We have audited the accompanying consolidated balance sheets of Lamonts Apparel,
Inc. as of October 29, 1994 and October 30, 1993 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
52 weeks ended October 29, 1994, October 30, 1993 and October 31, 1992. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Lamonts
Apparel, Inc. as of October 29, 1994 and October 30, 1993 and the results of its
operations and its cash flows for the 52 weeks ended October 29, 1994, October
30, 1993 and October 31, 1992, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations. As discussed in Note 1 of the Notes to the Consolidated
Financial Statements, on January 6, 1995, the Company filed a voluntary petition
for relief under Chapter 11 of title 11 of the United States Code. These
matters raise substantial doubt about its ability to continue as a going
concern and recover the carrying amounts of its assets, including the excess
of cost over net assets acquired. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Seattle, Washington
January 26, 1995
F-1
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 30,
1994 1993
----------- -----------
<S> <C> <C>
Current Assets:
Cash $2,694 $2,925
Receivables, net 1,994 3,155
Inventories 61,713 82,312
Prepaid expenses and other 5,924 5,970
Restricted cash and escrow 470
---------- ----------
Total current assets 72,325 94,832
Property and equipment 54,661 64,026
Leasehold interests 5,241 5,811
Excess of cost over net assets acquired 13,730 14,091
Deferred financing costs 3,617 2,160
Restricted cash 1,884 1,766
Other assets 1,131 1,023
---------- ----------
Total assets $152,589 $183,709
---------- ----------
---------- ----------
Current Liabilities:
Borrowings under working capital facility $24,593 $13,700
Accounts payable 16,151 17,162
Accrued payroll and related costs 4,979 3,476
Accrued taxes 1,699 1,841
Accrued interest 1,249 5,784
Accrued store closure costs 3,557 214
Other accrued expenses 8,047 8,158
Current maturities of long term debt 796
Current maturities of obligations under capital leases 1,316 1,437
---------- ----------
Total current liabilities 62,387 51,772
---------- ----------
Long Term Liabilities:
Long term debt
Related party 66,026 75,000
Other 796
Obligations under capital leases 14,616 17,334
Other 2,000 2,599
---------- ----------
Total long term liabilities 82,642 95,729
---------- ----------
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.01 par value; 40,000,000 and
15,000,000 shares authorized, respectively;
17,875,230 and 8,931,484 shares issued and
outstanding, respectively 179 89
Additional paid in capital 62,777 46,990
Accumulated deficit (55,396) (10,871)
---------- ----------
Total stockholders' equity 7,560 36,208
---------- ----------
Total liabilities and stockholders' equity $152,589 $183,709
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------------------
OCTOBER 29, OCTOBER 30, OCTOBER 31,
1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
Revenues $237,922 $251,015 $258,096
Cost of merchandise sold 163,697 157,098 156,940
--------- --------- ---------
Gross profit 74,225 93,917 101,156
--------- --------- ---------
Operating and administrative expenses 88,520 84,176 83,798
Depreciation and amortization 11,441 11,164 13,290
Store closure costs 7,200
--------- --------- ---------
Operating costs 107,161 95,340 97,088
--------- --------- ---------
Earnings/(loss) from continuing
operations before other income
(expense), income tax provision/(benefit)
and extraordinary item (32,936) (1,423) 4,068
Other income (expense):
Interest expense
Cash (8,130) (12,477) (9,936)
Non-cash (3,490) (13,417)
Other (369) 29 417
--------- --------- ---------
Loss from continuing operations before
income tax provision/(benefit) and
extraordinary item (44,925) (13,871) (18,868)
Income tax provision/(benefit) (400) (3,000) 710
--------- --------- ---------
Loss from continuing operations (44,525) (10,871) (19,578)
Gain on disposal of discontinued
operations 283
--------- --------- ---------
Loss before extraordinary item (44,525) (10,871) (19,295)
Extraordinary item-gain on extinguishment
of debt 23,572
---------- --------- ----------
Net earnings/(loss) ($44,525) ($10,871) $4,277
---------- --------- ----------
---------- --------- ----------
<CAPTION>
Fully
Primary Primary Primary Diluted
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings/(loss) per common share:
Loss from continuing operations ($3.05) ($1.22) ($82.84) ($65.96)
Gain on disposal of
discontinued operations 1.20 0.95
Extraordinary item-gain on
extinguishment of debt 99.74 79.42
------- ------- ------- -------
Net earnings/(loss) ($3.05) ($1.22) $18.10 $14.41
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Additional
Preferred Common paid-in Accumulated
stock stock capital deficit
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, November 2, 1991 $11,000 $56 $18,893 ($31,449)
Net earnings for the 52 weeks
ended October 31, 1992 4,277
One-for-30 reverse stock split (54) 54
Adjustments to equity resulting
from Recapitalization (11,000) 87 29,417 27,172
Costs associated with
placement of common stock (1,680)
---------- ---------- ---------- -----------
Balance, October 31, 1992 0 89 46,684 0
Net loss for the 52 weeks
ended October 30, 1993 (10,871)
Compensation expense related
to stock option plan 306
---------- ---------- ---------- -----------
Balance, October 30, 1993 0 89 46,990 (10,871)
Net loss for the 52 weeks
ended October 29, 1994 (44,525)
Issuance of Series A Preferred 45 12,990
stock pursuant to the Infusion,
net of issuance costs
Conversion of Series A Preferred
Stock into Common Stock (45) 89 (44)
Options exercised 1
Issuance of warrants 2,205
Compensation expense related
to stock option plan 636
---------- ---------- ---------- -----------
Balance, October 29, 1994 $0 $179 $62,777 ($55,396)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------------------
OCTOBER 29, OCTOBER 30, OCTOBER 31,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings/(loss) ($44,525) ($10,871) $4,277
Adjustments to reconcile net earnings/(loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 11,441 11,164 13,290
Store closure costs 6,129
Non-cash interest, including interest
paid-in-kind and amortization of debt discount 3,490 13,417
Gain on extinguishment of debt (23,572)
Write-off of deferred financing fees 369
Income taxes (400) (3,000)
Stock option expense 636 306 942
Gain on disposition of business operations (283)
Net realizable value adjustment to inventory 10,000
Other 104 (388) 91
Net change in current assets and liabilities 7,342 3,706 (1,419)
--------- --------- ---------
Net cash provided (used) by
operating activities (5,414) 917 6,743
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (3,889) (6,522) (3,655)
Proceeds from escrow 500
Other 228 8 (485)
--------- --------- ---------
Net cash used by investing activities (3,661) (6,014) (4,140)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from sale of preferred stock 13,399
Payment of long-term debt (13,000)
Borrowings under working capital facility 194,768 72,850 45,325
Principal payments under working
capital facility (183,875) (64,950) (43,825)
Principal payments on obligations
under capital leases (1,484) (1,331) (1,144)
Payments of financing costs (805) (1,495) (2,687)
Other (159) (140) (124)
--------- --------- ---------
Net cash provided (used) by financing
activities 8,844 4,934 (2,455)
--------- --------- ---------
Net increase (decrease) in cash (231) (163) 148
Cash, beginning of period 2,925 3,088 2,940
--------- --------- ---------
Cash, end of period $2,694 $2,925 $3,088
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED
------------------------------------------
OCTOBER 29, OCTOBER 30, OCTOBER 31,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net change in
current assets and liabilities
(Increase) decrease in accounts receivable $1,144 ($423) $486
(Increase) decrease in inventory (excluding
adjustment for net realizable value) 9,895 2,912 (2,646)
(Increase) decrease in prepaid expenses (907) 2,318 (3,581)
Increase (decrease) in accounts payable (1,012) (4,718) 2,397
Increase (decrease) in accrued interest (3,982) 4,349 136
Increase (decrease) in other accrued expenses 2,149 (466) 1,949
(Increase) decrease in other working capital 55 (266) (160)
--------- --------- ---------
$7,342 $3,706 ($1,419)
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest payments made $12,178 $8,129 $9,799
Non-Cash Transactions:
Refinancing of debt, net 23,572
Issuance of debt in payment of interest 4,026 1,616
Issuance of warrants 2,205
Conversion of Series A Preferred Stock
into Common Stock 89
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 29, 1994
NOTE 1 - SUBSEQUENT EVENT
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 a result of the Filing, the Company is currently in default under all of its
funded debt agreements in effect prior to the Petition Date. 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
prepetition interest is prohibited during the pendency of the Company's
Chapter 11 case.
In accordance with the Bankruptcy Code, the Company can seek court approval for
the rejection of executory contracts, including real property leases. Any such
rejection may give rise to a prepetition unsecured claim for breach of contract.
In connection with the Company's Chapter 11 proceedings, a review is being
undertaken of all the Company's obligations under its executory contracts,
including real property leases.
On January 12, 1995, the Bankruptcy Court (i) authorized the Company to use all
cash proceeds of collateral under the Company's existing working capital
facility with Foothill Capital Corporation ("Foothill") and (ii) granted final
approval of a $5.0 million aggregate amount supplemental debtor in possession
interim working capital facility between the Company and Foothill providing for
working capital loans (the "DIP Facility"). As a result, the Company has total
working capital availability of approximately $21.0 million until February 28,
1995, the date the DIP Facility expires. Borrowings under the DIP Facility,
together with such cash proceeds, may be used by the Company to finance general
working capital requirements, including purchases of inventory and other
expenditures permitted thereunder. The Company is currently seeking to obtain
permanent working capital financing which will require approval of the
Bankruptcy Court.
Under the DIP Facility, Foothill agreed to make revolving loans to the account
of the Company in an aggregate principal amount not to exceed the Borrowing Base
(as defined in the DIP Facility) up to $5.0 million at any time. The
obligations of the Company under the DIP Facility are collateralized by a lien
on inventory and certain rights to payment arising from the sale of inventory
and related assets and are an allowed administrative expense claim with priority
over certain other administrative expenses.
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 DIP Facility imposes limitations on the Company with respect to, among other
things, (i) subject to certain exceptions, the creation or incurrence of liens,
(ii) consolidations, mergers, and, subject to certain exceptions, sales of
assets, (iii) the incurrence of guarantees or other contingent obligations, (iv)
the making of capital expenditures in excess of specified levels, (v) subject to
certain exceptions, 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.
On January 20, 1995, the Company received permission from the Bankruptcy Court
to close six additional underperforming stores (see Note 14 for discussion of
store closures during the 52 weeks ended October 29, 1994). The additional six
stores slated for closing, which represent approximately 5.3% of the Company's
1994 (hereinafter defined) revenues, are located in Vancouver, Everett and
Lakewood, Washington; Medford, Oregon; Ogden, Utah; and the outlet center in
Spokane, Washington. Subject to court approval of the rejection of the leases,
the closure of these six additional stores is estimated to result in additional
store closure costs of approximately $3.0 million and a reduction of future
minimum rental commitments of approximately $19.0 million, for periods reported
after the Petition Date.
As of the Petition Date, payment of liabilities to unsecured creditors,
including trade creditors and noteholders, and pending litigation against the
Company at the date of the filing are stayed while the Company continues its
business operations as debtor-in-possession.
F-7
<PAGE>
The accompanying consolidated 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. The Company's
recurring losses from operations and the related Chapter 11 Filing raise
substantial doubt about its ability to continue as a going concern. The
appropriateness of using the going concern basis is dependent upon, among other
things, (i) the ability to obtain and comply with debtor-in-possession financing
agreements, (ii) confirmation of a plan of 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.
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. 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 - BACKGROUND AND BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries. On
October 30, 1992, the Company completed a comprehensive recapitalization (the
"Recapitalization"). Prior to the Recapitalization, the Company was named
Lamonts Corporation and was the holding company for Lamonts Apparel, Inc., its
sole operating subsidiary ("Apparel"). Concurrent with the Recapitalization,
Apparel was merged with and into Lamonts Corporation whose name was changed to
Lamonts Apparel, Inc.
Pursuant to the Recapitalization, the Company, among other things, issued (a) an
aggregate of $75.0 million in principal amount of its 10-1/4% Senior
Subordinated Notes due 1999 (the "10-1/4% Notes") (reduced to $62.0 million
after the Infusion, hereinafter defined) and (b) issued 8,080,734 shares of its
common stock, par value $.01 per share ("Common Stock"), in exchange for $138.6
million (after original issue discount) of outstanding debt (including a
majority of the Company's 13-1/2% Senior Subordinated Guaranteed Notes due
February 15, 1995 (the "Senior Subordinated Notes")) and the transfer of a $2.0
million promissory note held by the Company (the "Promissory Note") to one of
its debtholders. In addition, the Company's 9-1/2% Convertible Exchangeable
Preferred Stock, par value $15 per share, (the "Old Preferred Stock"), was
converted into 622,600 shares of Common Stock. Approximately $796,000 in
principal amount of the Company's Senior Subordinated Notes remain outstanding.
As a result of the Recapitalization, the holders of Common Stock outstanding
prior to the Recapitalization held 2.09% of the Common Stock outstanding
immediately following the Recapitalization. In connection with the
Recapitalization, the Company recorded an extraordinary gain on extinguishment
of debt of $23.6 million.
The Recapitalization resulted in a change of ownership of approximately 98% of
the Common Stock of the Company and was reported as a complete reorganization at
October 30, 1992. Purchase accounting was applied in accordance with the
provisions of Accounting Principles Board Opinion No. 16. Accordingly, at
October 30, 1992, all assets and liabilities were re-valued at their estimated
current fair market value and the excess of purchase price over the fair market
value of the net assets acquired was allocated to excess of cost over net assets
acquired.
In December 1993, the Company completed a capital infusion and debt reduction
plan (the "Infusion") pursuant to which it received approximately $13.4 million
from the issuance of 4,466,206 shares of its Series A Convertible Preferred
Stock, par value $.01 per share ("Series A Preferred Stock"), which, together
with cash flow from operations was used to repurchase $13.0 million aggregate
principal amount of the 10-1/4% Notes, at par, together with accrued interest
through the repurchase date. Each share of the Series A Preferred Stock
automatically converted into two shares of the Company's Common Stock on March
14, 1994, the effective date of an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock of the Company from 15.0 million to 40.0 million shares. In
connection with the Infusion, the terms of the 10-1/4% Notes were amended to,
among other things, prospectively reduce the interest rate thereof from 11-1/2%
(original rate at issuance) to 10-1/4%.
All significant intercompany transactions and account balances have been
eliminated in consolidation.
NOTE 3 - SUMMARY OF ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to October 31. The last
three fiscal years are comprised of the 52 weeks ended October 29, 1994
("1994"), October 30, 1993 ("1993") and October 31, 1992 ("1992").
F-8
<PAGE>
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
the Recapitalization, the purchase price allocated to merchandise 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 "Step-up"), the carrying value of
the Company's inventories at October 29, 1994 and October 30, 1993, exceeded the
weighted average cost of inventories by $5.5 million (net of a reserve of $10.0
million) and $17.8 million, respectively. The reserve of $10.0 million was
provided to reduce the Step-up to net realizable value.
PRE-OPENING EXPENSES
Certain costs incurred in connection with the opening of new stores are
capitalized and amortized on a straight-line basis over twelve months commencing
the month following the store opening.
RESTRICTED CASH AND ESCROW
Restricted cash and escrow include amounts held as a deposit by the Company's
buying service for the Company's annual usage of international letters of
credit, deposits for workers' compensation, and escrow associated with the sale
of certain of the Company's former subsidiaries (see Note 15).
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost less accumulated depreciation based
on the following useful lives: buildings, 10-40 years; furniture, fixtures and
equipment, 3-10 years; and leasehold improvements and property under capital
leases, life of lease or useful life if shorter. Depreciation is computed using
primarily the straight-line method for financial reporting purposes and
accelerated depreciation methods for income tax purposes.
Upon sale or retirement of property and equipment, the related cost and
accumulated depreciation are removed from the accounts of the Company and any
gain or loss is reflected in the consolidated financial statements in the period
the sale or retirement occurred. Maintenance and repair costs are expensed as
incurred. Expenditures for renewals and betterments are generally capitalized.
Software development costs incurred in connection with significant upgrades of
management information systems are capitalized. Amortization of capitalized
software development costs begins when the related software is placed in service
using the straight-line method over estimated useful lives of three to five
years.
LEASEHOLD INTERESTS
In connection with the Recapitalization and the application of purchase
accounting, the excess of the fair rental value of leased facilities under
operating leases over the respective contractual rents has been recorded as an
asset at its discounted net present value and is amortized on a straight-line
basis over the respective remaining lease terms. The accumulated amortization
of leasehold interests was $1.1 and $0.6 million at October 29, 1994 and October
30, 1993, respectively.
EXCESS OF COST OVER NET ASSETS ACQUIRED
The Company evaluates the recoverability of the carrying amount of the excess
of cost over net assets acquired by estimating future cash flows from
operations. Management believes that after giving effect to its reorganization
efforts and the Filing, the Company should generate cash flows from operations
in the future sufficient to support this asset. However, because of the
uncertainty surrounding the results of the Filing, there can be no assurance
that such results will occur.
The excess of cost over the fair market value of net assets acquired pursuant
to the Recapitalization is being amortized on a straight-line basis over 40
years. Accumulated amortization approximated $0.7 million and $0.4 million at
October 29, 1994 and October 30, 1993, respectively.
DEFERRED FINANCING COSTS
Costs incurred in connection with the issuance of the Company's debt are
amortized using the effective interest method over the term of the related
indebtedness. In connection with the Cash Interest Deferral Amendment (see Note
8) the Company issued Warrants (the "1994 Warrants") initially to purchase up to
an aggregate of approximately 2.0 million shares of Common Stock of the Company
(or approximately 10% of the Common Stock outstanding after giving effect to the
exercise of such warrants) to the holders of the 10-1/4% Notes. The 1994
Warrants may be exercised on or prior to June 10, 1999, at an initial exercise
price of $1.00 per share of Common Stock. The issuance of the 1994 Warrants
resulted in an increase of $2.2 million in deferred financing costs and
additional paid in capital. The accumulated amortization of deferred financing
costs approximated $1.2 million and $0.4 million at October 29, 1994 and October
30, 1993, respectively.
F-9
<PAGE>
CASH EQUIVALENTS
The Company considers all short term investments with maturities of three months
or less when purchased to be cash equivalents. Under the terms of the agreement
for the Working Capital Facility (see Note 8), all cash from the sale of
inventory collected by the Company is paid to the lender and applied to the
outstanding balance.
NOTE 4 - EARNINGS (LOSS) PER COMMON SHARE
Primary earnings (loss) per common share have been computed by dividing net
earnings (loss) by the weighted average number of common shares and equivalents
outstanding. Common share equivalents included in the computation represent
shares issuable upon assumed exercise of stock options and warrants which would
have a dilutive effect in years where there are earnings. The weighted average
number of shares and equivalents outstanding were 14,583,038, 8,917,624, and
236,339 for 1994, 1993 and 1992, respectively. The weighted average number of
shares and equivalents outstanding for 1992 were restated to reflect the one-
for-30 reverse stock split which occurred in connection with the
Recapitalization.
On a fully diluted basis, the weighted average number of shares and equivalents
outstanding, adjusted to assume the conversion of the Old Preferred Stock, were
296,816 for 1992. Fully diluted earnings per share for 1994 and 1993 are not
presented as (i) the warrants distributed on September 21, 1992 as a dividend to
the holders of Common Stock of record as of September 1, 1992 (the "1992
Warrants"), (ii) the 1994 Warrants and (iii) the Series A Preferred Stock issued
in connection with the Infusion, either have an exercise price greater than the
applicable market price, or the effect of assuming their exercise or conversion
is anti-dilutive.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment comprise the following (dollars in thousands):
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 30,
1994 1993
----------- -----------
<S> <C> <C>
Land $1,412 $1,412
Buildings under capital leases 17,136 19,827
Buildings and improvements 7,594 7,594
Leasehold improvements 20,762 21,926
Furniture, fixtures, and equipment 17,701 17,149
Deferred software costs 5,706 4,435
----------- -----------
70,311 72,343
Less accumulated depreciation
and amortization (15,677) (8,801)
----------- -----------
54,634 63,542
Construction in progress 27 484
----------- -----------
$54,661 $64,026
----------- -----------
----------- -----------
</TABLE>
Accumulated amortization for buildings under capital leases was $2.7 million at
October 29,1994 and $2.0 million at October 30, 1993.
NOTE 6 - LEASES
The Company leases substantially all of its stores, some of its equipment and
its office facility. Generally, store leases provide for minimum rentals
(which, in some cases, include payment of taxes and insurance) and contingent
rentals (based upon a percentage of sales in excess of a stipulated minimum).
The majority of lease agreements cover periods from 20 to 30 years, including
three to six renewal options of five years each.
F-10
<PAGE>
Operating lease rental expense is summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Minimum rentals $9,258 $9,313 $8,982
Contingent rentals 670 567 909
Sublease rentals (710) (684) (677)
------ ------ ------
$9,218 $9,196 $9,214
------ ------ ------
------ ------ ------
</TABLE>
The Company had capital lease contingent rental expense of approximately $0.1
million and received sublease rentals of approximately $0.4 million during each
of 1994, 1993 and 1992. Capital lease interest expense was $2.7 million, $2.9
million and $3.1 million during 1994, 1993 and 1992, respectively.
Future minimum rental payments (which have not been adjusted for leases that may
be rejected as a result of the Company's Filing, see Note 1) as of October 29,
1994 under capital and operating leases are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C> <C>
For the fiscal years -
1995 $3,633 $7,970
1996 3,016 7,553
1997 2,967 7,165
1998 2,967 7,019
1999 2,967 6,236
Thereafter 18,666 44,105
--------- ----------
Total minimum rental payments 34,216 $80,048
----------
Less estimated executory costs ---------
(primarily taxes and insurance) (135)
Less amounts representing interest (18,149)
----------
Present value of obligations 15,932
Less current portion (1,316)
----------
Long term obligations under capital leases $14,616
----------
----------
</TABLE>
In addition, the Company guarantees an operating lease, expiring February 1998
with one option to renew the lease for a term of three years, of a third party
which operates a distribution center for the Company. At October 29, 1994,
annual future minimum rentals of the operating lease relating to the
distribution center are approximately $0.3 million per year.
NOTE 7 - INCOME TAXES
Effective November 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under
FAS 109, the liability method is used to calculate deferred income taxes. Under
this method, deferred tax assets and liabilities are recognized on temporary
differences between the financial statement and tax bases of assets and
liabilities using applicable enacted tax rates. Under the provisions of FAS
109, the Company elected not to restate prior years and has determined that the
cumulative effect of implementation was immaterial.
F-11
<PAGE>
The income tax provision/(benefit) from continuing operations is comprised of
the following (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current ($400) $710
Deferred ($3,000)
-------- -------- --------
($400) ($3,000) $710
-------- -------- --------
-------- -------- --------
</TABLE>
The differences between the income tax rates applicable to continuing operations
and the federal statutory rates are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Expected benefit (34.0%) (34.0%) (34.0%)
Effect of current year
net operating loss 34.0% 13.1% 33.2%
Adjustment to tax provision (0.9%) 3.8%
Other (0.7%) 0.8%
-------- -------- --------
(0.9%) (21.6%) 3.8%
-------- -------- --------
-------- -------- --------
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities are as follows (dollars in thousands):
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 30,
1994 1993
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryovers $17,650 $12,092
Accrued payroll and related costs 1,094 894
Leasehold interests 2,620 2,592
Store closure expenses 2,363
Other 549 38
Valuation allowance (22,198) (9,976)
---------- ----------
Total deferred income tax assets 2,078 5,640
----------- -----------
----------- -----------
Total Deferred income tax
liabilities:
Inventory (1,282) (5,251)
Property and equipment (796) (389)
----------- -----------
Total deferred income tax
liabilities (2,078) (5,640)
----------- -----------
Net deferred income taxes $0 $0
----------- -----------
----------- -----------
</TABLE>
Pursuant to the Recapitalization, the Company recorded a $3.0 million deferred
tax liability as a result of the difference between the net book basis and the
net tax basis of the Company's assets and liabilities as of the Recapitalization
date. These "temporary differences" will result in the recognition of revenue
and expense in different periods for tax and financial statement purposes. The
temporary differences at the Recapitalization date had no effect on the tax
provision/(benefit) for 1994 or 1992. The temporary differences for 1993
resulted in a tax benefit as follows (dollars in thousands):
<TABLE>
<CAPTION>
1993
-----------
<S> <C>
Difference due to inventory methods ($347)
Proceeds from escrow (170)
Capital (225)
Vacation accrual (35)
Difference due to
depreciation methods (148)
Net operating loss (2,115)
Other 40
-----------
($3,000)
-----------
-----------
</TABLE>
F-12
<PAGE>
In connection with the Recapitalization, the Company issued Common Stock with an
approximate fair market value of $44.0 million and $75.0 million principal
amount of debt in exchange for $138.6 million of debt. In general, when the
fair market value of stock and the issue price of new debt is less than the
adjusted issue price of debt retired, taxable income must be recognized.
However, since the tax basis of the Company's liabilities exceeded the fair
market value of its assets immediately prior to the Recapitalization, the
Company did not recognize taxable income in connection with the Recapitalization
to the extent that it was insolvent for tax purposes immediately prior to the
Recapitalization.
As a result of the Recapitalization, the Company's ability to utilize its
Federal tax net operating loss carryforward of $14.7 million and its alternative
minimum tax net operating loss carryforward of $2.8 million at October 31, 1992,
which expire beginning in 2005, may be significantly limited under Internal
Revenue Code Section 382 in future years. The Federal tax net operating loss
carryforward and the alternative minimum tax net operating loss carryforward at
October 31, 1992 are shown net of a $9.5 million and $6.4 million, respectively,
reduction associated with the Company's agreement with the Internal Revenue
Service ("IRS") discussed below.
During 1994 and 1993, the Company generated an additional $37.2 million of
regular tax and $35.6 million of alternative minimum tax net operating losses
which are available to offset future income, both expiring beginning in 2008.
Possible changes in ownership and cancellation of indebtedness resulting from
the reorganization of the Company under Chapter 11 could further impact the
Company's ability to utilize its net operating loss carryforwards.
The Company's Federal income tax returns for fiscal years 1988, 1989 and 1990
have been examined by the IRS. An agreement, which was reviewed and accepted by
the Joint Committee of Taxation ("Joint Committee"), was reached with the IRS,
whereby the Company was given notice to pay the IRS approximately $504,000 for
additional taxes and interest. As a result of reaching this agreement, the
Company reduced its previously established accrued liability for taxes and
interest for this examination by approximately $1.0 million during 1994. The
IRS also completed its examinations of the Company's Federal income tax returns
for fiscal years 1991 and 1992, which resulted in no additional tax due.
NOTE 8 - DEBT
WORKING CAPITAL FACILITY
At October 30, 1993, the Company had access to a working capital facility
expiring April 30, 1995. Amounts advanced under the facility bore interest at a
rate equal to the bank's base rate plus 1-1/8%. The Company paid a commitment
fee of 3/4% per annum, quarterly in arrears, on the unused portion of average
maximum commitment available. At October 30, 1993, the bank's rate was 6.0%.
In January 1994, the Company replaced its existing working capital facility with
a new loan and security agreement with an asset-based lender (the "Working
Capital Facility"). The Working Capital Facility, which expires in January
1999, was amended on June 27, 1994 to, among other things, (i) modify the
minimum net worth covenant to exclude from the calculation of net worth write-
offs made and costs incurred in connection with the closing of stores and (ii)
change the Company's borrowing capacity in each calendar year to $25.0 million
from January through September and $28.0 million from October through December.
Additionally, on October 18, 1994, the Company's lender granted the Company an
increase in the Company's borrowing capacity for the period from October 1, 1994
through December 31, 1994 from $28.0 million to $31.0 million. The Company's
borrowing base is limited to a specified percentage of eligible inventory (as
defined). Amounts borrowed bore interest payable monthly at 1.75%, increased to
2.25% on June 21, 1994, above the reference rate (the base rate charged by major
money center banks) with a minimum of 7.50% per annum. The Company is required
to pay an annual fee of approximately $0.3 million plus certain other expenses.
In addition, the Company is required to pay a commitment fee of 1/2% per annum
on the unused portion of the average maximum commitment available and a letter
of credit fee of 1-1/2% on outstanding balances per annum. At October 29 1994,
the Company had $24.6 million of borrowings and $2.4 million of letters of
credit outstanding under the Working Capital Facility, with additional borrowing
capacity of $4.0 million. At October 29, 1994, the reference rate was 7.75%.
The Working Capital Facility contains, among other things, limits on (i) the
incurrence of debt and guarantees, (ii) the incurrence of liens and
encumbrances, (iii) the disposition of assets, (iv) mergers and investments, (v)
restricted payments (as defined) and (vi) capital expenditures. The Working
Capital Facility prohibits the Company from permitting its net worth (as
defined) to fall below a specified level at the end of each of any two
consecutive fiscal quarters. The Working Capital Facility is collateralized by
a first lien on all of the Company's inventory and accounts receivable arising
from the sale of such inventory, including cash proceeds thereof.
See further discussion regarding the Company's current working capital facility
in Note 1.
F-13
<PAGE>
LONG TERM DEBT
Long term debt, net of current maturities, is comprised of the following
(dollars in thousands):
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 30,
1994 1993
----------- -----------
<S> <C> <C>
10-1/4% Notes $66,026 $75,000
Senior Subordinated Notes 796
----------- -----------
$66,026 $75,796
----------- -----------
----------- -----------
</TABLE>
The $75.0 million principal amount of 10-1/4% Notes (reduced to $62.0 million
after the Infusion) were issued in connection with the Recapitalization pursuant
to the Note Indenture dated October 30, 1992 between the Company and First Trust
National Association, as trustee (the "Indenture"). The Indenture initially
provided for semi-annual interest payments on May 1 and November 1 of each year
at 11-1/2% per annum. On December 1, 1993, in connection with the Infusion,
holders of the 10-1/4% Notes agreed to an amendment of the terms thereof, to
reduce the interest rate on the 10-1/4% Notes from 11-1/2% to 10-1/4% and to
provide that the 10-1/4% Notes be redeemable in whole or in part, at the option
of the Company, at a premium (initially 105.00%, declining to par after November
1, 1996), together with any accrued but unpaid interest to the redemption date.
Subject to certain exceptions, no principal payments will be due with respect to
the 10-1/4% Notes until the maturity thereof on November 1, 1999. The 10-1/4%
Notes Indenture contains, among other things, covenants that (i) limit the
Company's ability to make payments on its stock, to make certain investments or
to make payments in respect of subordinated indebtedness, (ii) limit the
Company's ability to enter into transactions with affiliates, (iii) limit the
Company's ability to incur additional indebtedness, (iv) require the Company to
repurchase a portion of the 10-1/4% Notes if it fails to maintain a minimum net
worth, (v) limit the Company's ability to create or permit payment restrictions
affecting its subsidiaries, (vi) prohibit the Company from creating, incurring,
assuming or suffering to exist any liens upon its assets other than usual and
customary permitted liens and liens in favor of a working capital lender,
(vii) require the Company to apply 100% of all net asset sale proceeds to
investment in assets directly related to the business of the Company and its
subsidiaries, to repay letter of credit or working capital indebtedness or to
repurchase the 10-1/4% Notes, (viii) require the Company to offer to purchase
all of the 10-1/4% Notes in the event of a post-Recapitalization change of
control and (ix) limit the Company's ability to invest in unrestricted
subsidiaries.
On June 10, 1994, the Company amended the terms of the 10-1/4% Notes (the "Cash
Interest Deferral Amendment") to, among other things, (i) modify the minimum net
worth covenant to exclude from the calculation of net worth write-offs made and
costs incurred in connection with the closing of stores and (ii) provide that
interest payments due on the 10-1/4% Notes through November 1, 1995 may be paid,
at the Company's option, either in cash, at a rate of 12% per annum, or in
additional 10-1/4% Notes, at a rate of 13% per annum ("PIK Interest"). As a
result, the Company is not required to make cash interest payments on the 10-
1/4% Notes prior to May 1, 1996. Effective with the Company's May 1, 1996
interest payment, the interest rate on the 10-1/4% Notes will revert back to the
annual rate of 10-1/4%, payable in cash. The Company elected to accrue interest
at the PIK Interest rate of 13% for the November 1, 1994 interest payment.
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 for shares of 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. The Company, subject to certain conditions, may exercise
its option to exchange the 10-1/4% Notes on or prior to March 31, 1995; however,
such exchange may not occur on or prior to the date of the next annual meeting
of stockholders of the Company, which meeting may not occur prior to March 2,
1995 without the consent of the holders of the 10-1/4% Notes.
The $796,000 of Senior Subordinated Notes are due February 15, 1995. Interest
is paid semi-annually on February 15 and August 15 of each year at 13-1/2% per
annum. The Senior Subordinated Notes are redeemable in whole or in part, at the
option of the Company, without premium or penalty at 100% of the principal
amount thereof, together with any accrued but unpaid interest to the redemption
date.
As a result of the Company's Chapter 11 Filing, the Company is currently in
default on all of its funded debt in effect prior to the Petition Date. See
further discussion in Note 1.
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 107
"Disclosures about Fair Value of Financial Instruments", the following
assumptions were used by management of the Company in estimating its fair value
disclosures for the Company's financial instruments:
F-14
<PAGE>
WORKING CAPITAL FACILITY
The carrying value of borrowings under the Working Capital Facility approximates
their market value as the interest rate was variable.
LETTERS OF CREDIT
At October 29, 1994, the Company had $2.4 million outstanding under trade and
stand-by Letters of Credit with certain banks. The contract amount of the
letters of credit is a reasonable estimate of their fair market value as the
value of each is fixed over the life of the commitment.
LONG TERM DEBT
Management believes the carrying amount the Company's 10-1/4% Notes and the
Senior Subordinated Notes is in excess of fair value based on the Company's
recent Filing. Until a reorganization plan is approved by the Bankruptcy Court,
a fair value can not be readily determined.
NOTE 10 - COMMITMENTS, CONTINGENCIES AND OTHER
LITIGATION
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
vigorously defending the remaining AWHA claim. 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.
CREDIT CARD PLAN AGREEMENT
The Company is party to an agreement with a commercial bank which administers
and owns the receivables generated from purchases made by customers using the
Lamonts credit card. The Company pays a fee, currently 1%, up to a maximum of
3% based on the volume of purchases and is generally responsible for 50% of net
bad debt expenses relating to such purchases. At October 29, 1994 and October
30, 1993, the Company had $0.2 million reserved for bad debts arising from this
program. Bad debt expense for 1994, 1993 and 1992 was approximately $0.8
million, $0.8 million and $1.0 million, respectively.
WARRANTS
On September 21, 1992, the Company distributed as a dividend to the holders of
Common Stock of record as of September 1, 1992, 1992 Warrants to purchase an
aggregate of 821,511 shares (after subsequent adjustment for the Infusion) of
Common Stock. Additional 1992 Warrants to purchase an aggregate of 195,967
shares (after subsequent adjustment for the Infusion) of Common Stock were
distributed to The Thompson Company ("Thompson") pursuant to that certain
consulting agreement dated as of October 30, 1992, by and between the Company
and Thompson. The 1992 Warrants are exercisable, in whole or in part, on or
prior to September 28, 1997. The current exercise price for the 1992 Warrants is
$4.55 per share and will increase on each September 28 by an amount equal to 10%
of the exercise price immediately prior to such increase. At October 29, 1994
none of the 1992 Warrants have been exercised.
On June 10, 1994, in connection with the Cash Interest Deferral Amendment, the
Company issued the 1994 Warrants initially to purchase up to an aggregate of
approximately 2.0 million shares of Common Stock of the Company (or
approximately 10% of the Common Stock outstanding after giving effect to the
exercise of such 1994 Warrants) to the holders of the 10-1/4% Notes. The 1994
Warrants may be exercised on or prior to June 10, 1999, at an initial exercise
price of $1.00 per share of Common Stock. As of October 29, 1994, none of the
1994 Warrants have been exercised.
F-15
<PAGE>
The exercise price per share of Common Stock subject to the 1992 and 1994
Warrants will be decreased for future distributions or issuances by the Company
(i) to all holders of Common Stock or (ii) to any Affiliate (as defined) of:
(A) Common Stock, (B) rights, options or warrants to purchase Common Stock or
(C) securities convertible into or exchangeable for Common Stock, at a price per
share less than the then current market price per share of Common Stock (a
"Dilution Event"). In addition, the exercise price will be decreased if the
Company distributes to all holders of Common Stock or to any Affiliate any of
its assets or debt securities (other than cash dividends or distributions
payable out of its net income for the fiscal year in which the dividend or
distribution is declared and/or the preceding fiscal year). Upon each such
adjustment to the exercise price, the number of shares of Common Stock subject
to the 1992 and 1994 Warrants will be proportionately adjusted.
STOCK OPTIONS
The Lamonts Apparel, Inc. 1992 Incentive and Nonstatutory Stock Option Plan (the
"1992 Stock Option Plan"), which was approved by the Board of Directors and by
the stockholders in 1992 and amended by the Board of Directors and by the
stockholders in 1994, provides for the issuance of options to purchase up to
1,972,845 shares of Common Stock, subject to certain anti-dilution adjustments.
Awards may be granted under the 1992 Stock Option Plan to individuals,
identified by the plan committee, who have or will have a direct and significant
effect on the performance or financial development of the Company. The
following table summarizes the 1992 Stock Option Plan activity:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
---------
<S> <C>
Balance, October 31, 1992 464,531
Granted 30,500
Exercised (37,135)
Canceled (37,246)
---------
Balance, October 30, 1993 420,650
Granted 200,000
Exercised (11,334)
Canceled (16,644)
---------
Balance, October 29, 1994 592,672
---------
---------
</TABLE>
The Company granted the 464,531 options during 1992 concurrently with the
Recapitalization. At October 29, 1994 options to purchase 592,672 shares at an
exercise price of $.01 per share were issued and outstanding of which, 309,652
are currently exercisable and the balance thereof, subject to certain
conditions, will vest ratably through the fifth anniversary of the date of
grant. All options are exercisable for a period of ten years from the date of
grant. The exercise price was below the fair market value of the underlying
shares on the date of grant and, accordingly, $0.6 million and $0.3 million was
charged to compensation expense during 1994 and 1993, respectively.
NOTE 11 - STOCKHOLDERS' EQUITY
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters on which holders are permitted to vote. No stockholder has any
preemptive right or other similar right to purchase or subscribe for any
additional securities issued by the Company, and no stockholder has any right to
convert Common Stock into other securities. No shares of Common Stock are
subject to redemption or to any sinking fund provisions. All of the outstanding
shares of Common Stock are fully paid and nonassessable.
Subject to rights of holders of Preferred Stock (defined hereafter), if any, the
holders of shares of Common Stock are entitled to dividends when, as and if
declared by the Board of Directors from funds legally available therefor and,
upon liquidation, to a pro rata share in any distribution to stockholders. The
Company does not anticipate declaring or paying any dividends on the Common
Stock in the foreseeable future.
F-16
<PAGE>
PREFERRED STOCK
On December 1, 1993, 4,466,206 shares of the Company's Series A Preferred Stock
was issued pursuant to the Infusion. Each share of the Series A Preferred Stock
automatically converted into two shares of Common Stock on March 14, 1994,
concurrent with the stockholders approval of an increase in the number of
authorized shares of Common Stock of the Company from 15.0 million to 40.0
million shares.
Pursuant to the Restated Certificate of Incorporation of the Company, the Board
of Directors has the authority, without further shareholder approval, to provide
for the issuance of up to 10.0 million shares of Preferred Stock in one or more
series and to determine the dividend rights, conversion rights, sinking fund
rights, voting rights, rights and terms of redemption, liquidation preferences,
the number of shares constituting any such series and the designation of such
series. Because the Board of Directors has the power to establish the
preferences and rights of each series, it may afford the holders of any
Preferred Stock preferences, powers and rights (including voting rights) senior
to the rights of the holders of Common Stock. No shares of Preferred Stock are
currently outstanding. Although the Company has no present intention to issue
shares of Preferred Stock, the issuance of shares of Preferred Stock, or the
issuance of rights to purchase such shares, may have the effect of delaying,
deferring or preventing a change in control of the Company. As of October 29,
1994, no shares of Preferred Stock were issued or outstanding.
NOTE 12 - RELATED PARTY TRANSACTIONS
In connection with the Recapitalization, certain of the Company's stockholders,
representing an aggregate of approximately 8,717,000 shares or 98% of the
outstanding Common Stock, entered into a voting agreement (the "Voting
Agreement"). The Voting Agreement provides, among other things, that (i) Apollo
Retail Partners, L.P. (together with its permitted assignees, "ARP") may
designate six persons to the Board of Directors (two of which must be
unaffiliated with ARP, Thompson, the holders of the 10-1/4% Notes or the holders
of the Senior Subordinated Notes who are parties to the Recapitalization
Agreement), (ii) management may designate two persons to the Board of Directors,
(iii) a majority of certain former holders of the Senior Subordinated Notes,
which notes were exchanged for Common Stock pursuant to the Recapitalization,
may designate two persons to the Board of Directors and (iv) Thompson, during
the term of the Thompson consulting agreement described below, may designate one
person to the Board of Directors. In addition, Executive Life Insurance Company
of New York, for so long as it beneficially owns at least 25% of the Common
Stock held by it upon the completion of the Recapitalization, has the right to
exercise one veto per year with respect to individuals proposed to be nominated
as ARP's "outside" director designees. The Voting Agreement will terminate upon
the earlier of (i) October 30, 2002, or (ii) the date upon which at least 25% of
the then outstanding shares of Common Stock are publicly held pursuant to one or
more underwritten registered offerings of primary shares.
A former director of the Company is an affiliate of Morgens Waterfall Vintiadis
& Co. Inc. ("Morgens Waterfall"). Pursuant to the Recapitalization, certain
affiliates of Morgens Waterfall received an aggregate of approximately 16.7%
(1,482,906 shares) of the Common Stock of the Company outstanding immediately
following the completion of the Recapitalization in exchange for approximately
$12.5 million in principal amount of Senior Subordinated Notes.
A former director of the Company was an officer of one of the banks which
extended a line of credit to the Company prior to its replacement with the
existing working capital facility in January 1994 (see Note 8).
Prior to assignment on March 3, 1992, Aurora National Life Assurance Company
(formerly Executive Life Insurance Company ("ELIC")) owned certain debt
instruments of the Company outstanding prior to the Recapitalization, pursuant
to which the Company issued to ELIC $1.0 million in additional securities of the
Company as interest paid in kind and paid ELIC $1.6 million of interest during
1992. Prior to the completion of the Recapitalization, ELIC owned more than 10%
of the Company's Common Stock. After such assignment, the Company paid the
assignee of ELIC, an entity related to ARP, $0.7 million of interest on the
assigned debt during 1992.
Pursuant to the Recapitalization, Executive Life Insurance Company of New York
("ELICNY") received 898,406 shares of the Company's Common Stock and $7.8
million ($6.4 million after adjustment for the Infusion) in principal amount of
the 10-1/4% Notes. During 1994 and 1993, the Company paid ELICNY $0.8 million
and $0.4 million of cash interest on the 10-1/4% Notes, respectively. In
addition, at October 29, 1994 the Company had accrued $0.4 million of interest
on the 10-1/4% Notes, which was subsequently issued to ELICNY in additional
securities of the Company as interest paid in kind. The Company issued to
ELICNY $0.6 million in additional securities of the Company as interest paid
in kind and paid ELICNY $0.3 million of interest during 1992, on certain debt
instruments of the Company outstanding prior to the Recapitalization.
In connection with the Infusion, certain funds managed by Fidelity Management
and Research Company or Fidelity Management Trust Company (the "Fidelity
Funds"), the holders of the remaining 10-1/4% Notes, became the holders of more
than 5% of the Company's Common Stock. Accordingly, the Company has reflected
the entire amount of the 10-1/4% Notes as related party debt at October 29, 1994
and October 30, 1993. During 1994, the Company paid the Fidelity Funds $6.9
million of cash interest on the 10-1/4% Notes. In addition, at October 29, 1994
the Company had accrued $3.6 million of interest on the 10-1/4% Notes, which
was subsequently issued to the Fidelity Funds in additional securities of
the Company as interest paid in kind.
F-17
<PAGE>
NOTE 13 - BENEFIT PLANS
PENSION PLAN
On January 1, 1986, the Company established the Lamonts Apparel, Inc. Employees
Retirement Trust (the "Plan"). The Plan is a noncontributory defined benefit
pension plan for employees of the Company who are not eligible for pension
benefits from another pension plan pursuant to collective bargaining agreements.
Participant benefits are based on years of service and compensation during later
years of employment. It is the Company's policy to make contributions to the
Plan in amounts which comply with the minimum regulatory funding requirements.
The following table sets forth the Company's funded plan status and amounts
recognized in the Company's consolidated balance sheets (dollars in thousands):
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 30,
1994 1993
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations, including vested benefits of $4,176
and $3,427 in 1994 and 1993, respectively. $4,465 $3,906
----------- -----------
----------- -----------
Projected benefit obligation $5,384 $5,137
Plan assets at fair value, primarily money market
funds and guaranteed investment contracts 4,685 4,485
----------- -----------
Projected benefit obligation in excess of
Plan assets 699 652
Unrecognized net loss from past experience
different from that assumed (1,083) (1,157)
Unrecognized prior service cost 102
----------- -----------
Prepaid pension cost ($384) ($403)
----------- -----------
----------- -----------
</TABLE>
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation were
8.5% and 4.5% during 1994 and 8.0% and 5.0% during 1993 and 1992, respectively.
The expected long term rate of return on assets was 9.0% and 8.0% at October 29,
1994 and October 30, 1993, respectively.
Amounts charged to expense under the Plan were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost, benefits earned during
the period $536 $365 $337
Interest cost on projected benefit
obligation 407 340 252
Actual return on assets 11 (565) (271)
Other, including deferred recognition
of asset gain/(loss) (444) 151 (75)
------- ------- -------
Net pension cost $510 $291 $243
------- ------- -------
------- ------- -------
</TABLE>
LAMONTS 401(K) PLAN
The Lamonts Apparel, Inc. Tax Relief Investments Protection Plan, as amended and
restated effective July 1, 1991 (the "401(k) Plan") provides participants the
opportunity to elect to defer an amount from one percent to 10% of their
compensation, in increments of one percent. Under the 401(k) Plan, the Company
matches contributions equal to 50% of each participant's deferred pay
contributions (such contribution not to exceed one percent of the participant's
compensation). The Company contributed $0.2 million during 1994, 1993 and 1992.
F-18
<PAGE>
NOTE 14 - STORE CLOSURE COSTS
In July 1994, the Company determined that three of its Greater Portland, Oregon
full-line stores and all five of its Lamonts For Kids children's stores should
be closed because of poor performance. These stores represent approximately
8.1% of the Company's 1994 revenues. All of the planned store closures are
scheduled to occur by January 31, 1995. A $7.2 million charge for store closure
costs has been recorded. Store closure costs and charges against the reserve
for closure costs for the year ended October 29, 1994 are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
STORE CLOSURE CHARGES AGAINST
COSTS CLOSURE RESERVE
------------- ---------------
<S> <C> <C>
Write-off of property and equipment, net of
obligations under capital leases $2,972 $2,053
Adjustments to inventory carrying values 1,748 703
Estimated operating losses through the dates
of closure 1,357 789
Lease termination costs 367
Employee severance 288 146
Other 468 152
------------- ---------------
$7,200 $3,843
------------- ---------------
------------- ---------------
</TABLE>
See further discussions regarding store closures in Note 1.
NOTE 15 - DISCONTINUED OPERATIONS
On October 27, 1988, the Company sold its United States and Canadian crystal and
expandable polystyrene, injection molding and foam cup and container businesses.
The Company, pursuant to the purchase agreement, deposited $8.0 million of the
proceeds into escrow to pay claims for indemnification to which the Purchaser
was entitled under the purchase agreement. The representations, warranties and
covenants set forth in the purchase agreement terminated on October 27, 1991,
and the indemnification by the Company for taxes relating to tax periods prior
to October 27, 1988, expired in October 1993. During 1993, the Company received
$0.5 million from escrow, which represented the final payout from the proceeds
deposited into escrow on October 27, 1988. Since October 27, 1988, $6.9 million
of the $8.0 million placed in escrow was released to the Company and $1.1
million was paid in claims.
F-19
<PAGE>
AMENDED AND RESTATED
BY-LAWS OF
LAMONTS APPAREL, INC.
(A Delaware Corporation)
ARTICLE I
Offices
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
within the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The Corporation shall also maintain its
principal executive offices at 3650 131st Avenue S.E., Bellevue, Washington
98006, and may have such further office or offices at such place or places,
either within or without the State of Delaware, as the Board of Directors shall
from time to time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at any such place,
either within or without the State of Delaware, as shall be designated from time
to time by the Board of Directors and stated in the notice of meeting or in a
duly executed waiver thereof.
SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders,
commencing with the year 1986, shall be held at such date and time as shall be
designated from time to time by the Board of Directors and stated in the notice
of meeting or in a duly executed waiver thereof. At such annual meeting, the
stockholders shall elect, by a plurality vote, a Board of Directors and transact
such other business as may properly be brought before the meeting.
<PAGE>
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, unless
otherwise prescribed by statute, may be called at any time by the Board of
Directors and shall be called by the Secretary upon the request in writing of
the stockholder or stockholders holding of record at least 10 percent of the
voting power of the issued and outstanding shares of stock of the Corporation
entitled to vote at such meeting.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly required
by statute, written notice of each annual and special meeting of stockholders
stating the date, place and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder of record entitled to vote thereat not less than ten nor
more than sixty days before the date of the meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice. Notice shall be given personally or by mail and, if by mail, shall be
sent in a postage prepaid envelope, addressed to the stockholder at his address
as it appears on the records of the Corporation. Notice by mail shall be deemed
given at the time when the same shall be deposited in the United States mail,
postage prepaid. Notice of any meeting shall not be required to be given to any
person who attends such meeting, except when such person attends the meeting in
person or by proxy for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, or who, either before or after the meeting, shall submit a
signed written waiver of notice, in person or by proxy. Neither the business to
be transacted at, nor the purpose of, an annual or special meeting of
stockholders need be specified in any written waiver of notice.
SECTION 5. LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, showing the address of and
the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior
2
<PAGE>
to the meeting, either at a place within the city, town or village where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not specified, at the place where the meeting is to be held. The list
shall be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 6. QUORUM, ADJOURNMENTS. The holders of a majority of the
voting power of the issued and outstanding stock of the Corporation entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum for the transaction of business at all meetings of stockholders, except
as otherwise provided by statute or by the Certificate of Incorporation. If,
however, such quorum shall not be present or represented by proxy at any meeting
of stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented by proxy. At such adjourned meeting at which a
quorum shall be present or represented by proxy, any business may be transacted
which might have been transacted at the meeting as originally called. If the
adjournment is for more than thirty days, or, if after adjournment a new record
date is set, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 7. ORGANIZATION. At each meeting of stockholders, the Chairman
of the Board, if one shall have been elected, or, in his absence or if one shall
not have been elected, the President shall act as chairman of the meeting. The
Secretary or, in his absence or inability to act, the person whom the chairman
of the meeting shall appoint secretary of the meeting shall act as secretary of
the meeting and keep the minutes thereof.
SECTION 8. ORDER OF BUSINESS. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
SECTION 9. VOTING. Except as otherwise provided by statute or the
Certificate of Incorporation or a Certificate of Designation, each stockholder
of the Corporation shall be entitled at each meeting of stockholders to one
3
<PAGE>
vote for each share of capital stock of the Corporation standing in his name on
the record of stockholders of the Corporation;
(a) on the date fixed pursuant to the provisions of Section 7 of
Article V of these By-Laws as the record date for the determination of the
stockholders who shall be entitled to notice of and to vote at such
meeting; or
(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice
thereof shall be given, or, if notice is waived, at the close of business
on the date next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact, but no proxy shall be voted after three years from its
date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of the meeting at or prior to the time designated in
the order of business for so delivering such proxies. When a quorum is present
at any meeting, the vote of the holders of a majority of the voting power of the
issued and outstanding stock of the Corporation entitled to vote thereon,
present in person or represented by proxy, shall decide any question brought
before such meeting, unless the question is one upon which, by express provision
of statute or of the Certificate of Incorporation or of these By-Laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question. Unless required by statute, or
determined by the chairman of the meeting to be advisable, the vote on any
question need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
SECTION 10. INSPECTORS. The Board of Directors may and shall, if
required by law, in advance of any meeting of stockholders, appoint one or more
inspectors to act at such meeting or any adjournment thereof. If any of the
inspectors so appointed shall fail to appear or act, the chairman of the meeting
shall, or if inspectors shall not have been appointed, the chairman of the
meeting may, appoint one or more inspectors. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector at
4
<PAGE>
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the results, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the
office of director shall act as an inspector of an election of directors.
Inspectors need not be stockholders.
SECTION 11. ACTION BY CONSENT. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, by any provision of statute or of the Certificate of
Incorporation or of these By-Laws, the meeting and vote of stockholders may be
dispensed with, and the action taken without such meeting and vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares of
stock of the Corporation entitled to vote thereon were present and voted.
ARTICLE III
Board of Directors
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. The Board
of Directors may exercise all such authority and powers of the Corporation and
do all such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
SECTION 2. NUMBER QUALIFICATIONS, ELECTION AND TERM OF OFFICE. The
number of directors may be fixed, from time to time, by the affirmative vote of
a majority of the entire Board of Directors or by action of the stockholders of
the Corporation; PROVIDED, that the Board of Directors shall consist of not
less
5
<PAGE>
than one nor more than fifteen members. Subject to the provisions of the
immediately preceding sentence, upon the occurrence of any vacancies in the
Board of Directors resulting from death, resignation or removal, the number of
directors shall automatically be reduced to the extent of the number of such
vacancies. No decrease in the authorized number of directors shall shorten the
term of any incumbent director, and any decrease in the number of directors
(other than a decrease by reason of a vacancy) shall be effective at the time of
the next succeeding annual or special meeting of stockholders. Newly created
directorships resulting from any increase in the number of directors shall be
filled by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum, or by a sole remaining director.
Directors need not be stockholders. Each director shall hold office until his
successor shall have been elected and qualified, or until his death, or until he
shall have resigned, or have been removed, as provided in these By-Laws.
SECTION 3. PLACE OF MEETINGS. Meetings of the Board of Directors shall
be held at such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as shall be specified in
the notice of any such meeting.
SECTION 4. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
other time or place (within or without the State of Delaware) as shall be
specified in a notice thereof given as hereinafter provided in Section 7 of this
Article III.
SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and place as the Board of Directors may
fix. If any day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which would otherwise be
held on that day shall be held at the same hour on the next succeeding business
day. Notice of regular meetings of the Board of Directors need not be given
except as otherwise required by statute or these By-Laws.
6
<PAGE>
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if one shall have been
elected, or by two or more directors of the Corporation or by the President.
SECTION 7. NOTICE OF MEETINGS. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 7, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these By-Laws, such notice need not state the
purposes of such meeting. Notice of each such meeting shall be mailed, postage
prepaid, to each director, addressed to him at his residence or usual place of
business, by first class mail, at least two days before the day on which such
meeting is to be held, or shall be sent addressed to him at such place by
telegraph, cable, telex, telecopier or other similar means, or be delivered to
him personally or be given to him by telephone or other similar means, at least
twenty-four hours before the time at which such meeting is to be held. Notice
of any such meeting need not be given to any director who shall, either before
or after the meeting, submit a signed waiver of notice or who shall attend such
meeting, except when he shall attend for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 8. QUORUM AND MANNER OF ACTING. One third of the total number
of authorized directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, and, except as otherwise
expressly required by statute or the Certificate of Incorporation or these
By-Laws, the act of a majority of the directors present at any meeting at which
a quorum is present shall be the act of the Board of Directors. In the absence
of a quorum at any meeting of the Board of Directors, a majority of the
directors present thereat may adjourn such meeting to another time and place.
Notice of the time and place of any such adjourned meeting shall be given to all
of the directors unless such time and place were announced at the meeting at
which the adjournment was taken, in which case such notice shall only be given
to the directors who were not present thereat. At any adjourned meeting at
which a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. The directors shall act only as
a Board and the individual directors shall have not power as such.
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SECTION 9. ORGANIZATION. At each meeting of the Board of Directors,
the Chairman of the Board, if one shall have been elected, or, in the absence of
the Chairman of the Board or if one shall not have been elected, the President
(or, in his absence, another director chosen by a majority of the directors
present) shall act as chairman of the meeting and preside thereat. The
Secretary or, in his absence, any person appointed by the chairman shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 10. RESIGNATIONS. Any director of the Corporation may resign
at any time by giving written notice of his resignation to the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately upon
its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 11. VACANCIES. Any vacancy in the Board of Directors, whether
arising from death, resignation, removal (with or without cause), an increase in
the number of directors or any other cause, may be filled by the vote of a
majority of the directors then in office, though less than a quorum, or by the
sole remaining director or by the stockholders at the next annual meeting
thereof or at a special meeting thereof, provided, however, that during the term
of the Voting Agreement any such vacancy shall be filled pursuant to Section
2(b)(iv) of the Voting Agreement, if applicable. Each director so elected shall
hold office until his successor shall have been elected and qualified.
SECTION 12. REMOVAL OF DIRECTORS. Any director may be removed, either
with or without cause, at any time, by the holders of a majority of the voting
power of the issued and outstanding capital stock of the Corporation entitled to
vote at an election of directors.
SECTION 13. COMPENSATION. The Board of Directors shall have authority
to fix the compensation, including fees and reimbursement of expenses, of
directors for services to the Corporation in any capacity.
SECTION 14. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, including an executive committee, each committee to consist of one
or more of the directors of the Corporation, provided, however, that during the
term of the
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Voting Agreement no such committee may be designated without the unanimous
consent of the Board of Directors. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In addition, in the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Except to the extent restricted by statute or the
Certificate of Incorporation, each such committee, to the extent provided in the
resolution creating it, shall have and may exercise all the powers and authority
of the Board of Directors and may authorize the seal of the Corporation to be
affixed to all papers which require it. Each such committee shall serve at the
pleasure of the Board of Directors and have such name as may be determined from
time to time by resolution adopted by the Board of Directors. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors.
SECTION 15. ACTION BY CONSENT. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or such committee, as the case may be.
SECTION 16. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Members of the
Board of Directors, or any committee thereof, may participate in a meeting of
the Board of Directors or such committee by means or a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section 16 shall constitute presence in person at such meeting.
ARTICLE IV
Officers
SECTION 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
shall be elected by the Board of Direc-
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tors or by the stockholders and may include a President, one or more
Vice-Presidents, a Secretary and a Treasurer. If the Board of Directors or the
stockholders wish, they may also elect as an officer of the Corporation a
Chairman of the Board and may elect other officers (including one or more
Assistant Treasurers and one or more Assistant Secretaries) as may be necessary
or desirable for the business of the Corporation. Any two or more offices may
be held by the same person, and no officer except the Chairman of the Board need
be a director. Each officer shall hold office until his successor shall have
been duly elected and shall have qualified, or until his death, or until he
shall have resigned or have been removed, as hereinafter provided in these
By-Laws.
SECTION 2. RESIGNATIONS. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately upon
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 3. REMOVAL. Any officer of the Corporation may be removed,
either with or without cause, at any time, by the Board of Directors at any
meeting thereof.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
shall have been elected, shall be a member of the Board, an officer of the
Corporation and, if present, shall preside at each meeting of the Board of
Directors or the stockholders. He shall advise and counsel with the President,
and in his absence, with other executives of the Corporation, and shall perform
such other duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 5. THE PRESIDENT. The President shall be the chief executive
officer of the Corporation. He shall, in the absence of the Chairman of the
Board or if a Chairman of the Board shall not have been elected, preside at each
meeting of the Board of Directors or the stockholders. He shall perform all
duties incident to the office of President and chief executive officer and such
other duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 6. VICE-PRESIDENT. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Board of Directors or
the President. At the request of the President or in his absence or in the
event of his inability or refusal to act, the Vice-President, or if there shall
be more than one, the Vice-Presidents in the order determined by the
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Board of Directors (or if there be no such determination, then the
Vice-Presidents in the order of their election), shall perform the duties of the
President, and, when so acting, shall have the powers of and be subject to the
restrictions placed upon the President in respect of the performance of such
duties.
SECTION 7. TREASURER. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of
Directors may require, an account of the financial condition of the
Corporation; and
(g) in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to
him by the Board of Directors.
SECTION 8. SECRETARY. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all certificates for shares of the
Corporation (unless the seal of the
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Corporation on such certificates shall be a facsimile, as hereinafter
provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to
him by the Board of Directors.
SECTION 9. THE ASSISTANT TREASURER. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the Treasurer and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 10. THE ASSISTANT SECRETARY. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 11. OFFICERS' BONDS OR OTHER SECURITY. If required by the
Board of Directors, any officer of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety as the Board of Directors may require.
SECTION 12. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he is also a director of
the Corporation.
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ARTICLE V
Stock Certificates and Their Transfer
SECTION 1. STOCK CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board or the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation. If the Corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in Section 202 of the General Corporation Law
of the State of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each stockholder who so requests the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 2. FACSIMILE SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum
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as it may direct sufficient to indemnify it against any claim that may be made
against the Corporation on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
SECTION 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
SECTION 5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
SECTION 6. REGULATIONS. The Board of Directors may make such
additional rules and regulations, not inconsistent with these By-Laws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation.
SECTION 7. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days
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from the date upon which the resolution fixing the record date is adopted by the
Board of Directors; and (3) in the case of any other action, shall not be more
than sixty days prior to such other action. If no record date is fixed: (1)
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting when no prior action of
the Board of Directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation in accordance with applicable law, or, if prior
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action; and (3) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 8. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its records as the
owner of shares of stock to receive dividends and to vote as such owner, shall
be entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares of stock on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VI
General Provisions
SECTION 1. DIVIDENDS. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of stock of
the Corpora-
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tion, unless otherwise provided by statute or the Certificate of Incorporation.
SECTION 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may
modify or abolish any such reserves in the manner in which it was created.
SECTION 3. SEAL. The seal of the Corporation shall be in such form as
shall be approved by the Board of Directors.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed, and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors
may authorize any officer or officers, agent or agents, in the name and on
behalf of the Corporation to enter into or execute and deliver any and all
deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board or
the President, from time to time, may (or may appoint one or more attorneys or
agents to) cast the votes which the Corporation may be entitled to cast as a
shareholder or otherwise in any other corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board or the President
may instruct the person or persons so appointed as to the manner of casting such
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votes or giving such consent. The Chairman of the Board or the President may,
or may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.
ARTICLE VII
Amendments
These By-Laws may be amended or repealed or new by-laws adopted (a) by
action of the stockholders entitled to vote thereon or (b) if the Certificate of
Incorporation so provides, by action of the Board of Directors at a regular or
special meeting thereof. Any by-law made by the Board of Directors may be
amended or repealed by action of the stockholders at any annual or special
meeting of stockholders.
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FOURTH SUPPLEMENTAL INDENTURE
This Fourth Supplemental Indenture (the "Supplement") is made and
entered into as of October 18, 1994, between Lamonts Apparel, Inc., a Delaware
corporation (the "Company"), and First Trust National Association, as Trustee
(the "Trustee").
WHEREAS, the Company and the Trustee are parties to the Indenture made
and entered into as of October 30, 1992, as supplemented by the First
Supplemental Indenture, the Second Supplemental Indenture and the Third
Supplemental Indenture thereto (together, the "Indenture"), with respect to the
10.25% Senior Secured Notes of the Company (the "Notes");
WHEREAS, the Company desires, and the holders of the Notes (the
"Holders") have unanimously consented, to amend certain provisions of the
Indenture and the Notes as set forth in this Supplement;
WHEREAS, pursuant to Section 9.02 of the Indenture, the Company, when
authorized by a Board Resolution, and the Trustee together, with the written
consent of all of the Holders, are authorized to amend the Indenture and the
Notes as set forth in this Supplement;
WHEREAS, all conditions and requirements necessary to make this
Supplement a valid, binding and legal instrument in accordance with its terms
have been performed and fulfilled and the execution and delivery hereof have
been in all respects duly authorized; and
WHEREAS, in accordance with Section 9.02 of the Indenture, the Company
and the Trustee desire and have agreed to execute and deliver this Supplement in
order to amend the Indenture and the Notes as herein provided.
NOW, THEREFORE, in accordance with Section 9.02 of the Indenture, the
Company and the Trustee hereby agree, for the equal and proportionate benefit of
the respective holders from time to time of the Notes, as follows:
1. Section 1.01 of the Indenture is hereby amended by deleting the
definitions of "Collateral" and "Collateral Agent" therefrom in their entirety.
2. Section 6.01 of the Indenture is hereby amended by deleting
Section 6.01(8) therefrom in its entirety.
3. Section 9.02 of the Indenture is hereby amended by deleting the
first two sentences therefrom and by substituting therefor the following:
"Subject to Section 6.07, the Company, when authorized by a Board
Resolution, and the Trustee, together, with the written consent of the Holder or
Holders of at least a majority in aggregate principal amount of the outstanding
Securities may amend or supplement this Indenture or the Securities without
notice to any other Securityholders. Subject to Section 6.07, the Holder or
Holders of a majority in aggregate principal amount of the outstanding
Securities may waive compliance by the Company with any provision of this
Indenture or the Securities without notice to any other Security Holder."
4. Article Eleven of the Indenture is hereby amended in its entirety
by substituting therefor the following:
"ARTICLE ELEVEN
SECTION 11.01. SUBORDINATION.
<PAGE>
All principal of, premium, if any, and interest on, the Notes
(collectively, "Junior Claims") shall be and hereby are expressly made subor-
dinate and junior in right of payment to all Senior Claims (as defined in Sec-
tion 11.02) to the extent and in the manner provided in these subordination
provisions, and each holder of any such Junior Claim (or of any instrument evi-
dencing the same) by acceptance thereof agrees to be bound by these subordina-
tion provisions. These subordination provisions shall constitute a continuing
offer to all persons who, in reliance upon such provisions, become holders of,
or continue to hold, any such Senior Claims, and such provisions are made for
the benefit of the holders of such Senior Claims.
SECTION 11.02. CERTAIN DEFINITIONS. As used in this Article Eleven,
the following terms shall have the following respective meanings:
"JUNIOR SECURITIES" means Capital Stock or any other securities, the
payment of which is subordinate, at least to the extent provided in these
subordination provisions with respect to Junior Claims, to the payment of all
Senior Claims at the time thereof.
"PROCEEDING" means any (a) insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar proceed-
ing relating to the Company, its property or its creditors as such, (b)
proceeding for any liquidation, dissolution or other winding-up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy pro-
ceedings, or (c) assignment for the benefit of creditors of the Company.
"SENIOR CLAIMS" means (i) all Indebtedness of the Company unless,
under the instrument evidencing the same or under which the same is outstanding,
it is expressly provided that such Indebtedness is junior and subordinate to
other Indebtedness or obligations of the Company; and (ii) all accounts payable
and other obligations to trade creditors representing the balance deferred and
unpaid of the purchase price of property or services.
SECTION 11.03. SUBORDINATION IN THE EVENT OF INSOLVENCY, ETC. In the
event of any Proceeding:
(a) All Senior Claims shall first be paid in full, or such
payment shall be duly provided for, before any payment or distribution, whether
in cash, securities or other property, shall be made to any holder of any Junior
Claim on account of such Junior Claim (excluding payments made with Junior
Securities).
(b) Any payment or distribution of any kind or character,
whether in cash, securities or other property (other than Junior Securities),
which would otherwise (but for these subordination provisions) be payable or
deliverable in respect of any Junior Claim shall be paid or delivered directly
to the holders of Senior Claims (or their representatives) for application in
payment of the Senior Claims in accordance with the priorities then existing
among such holders until all Senior Claims shall have been duly paid in full, or
such payment shall have been duly provided for.
SECTION 11.04. SUBORDINATION IN THE EVENT OF CERTAIN DEFAULTS.
<PAGE>
If the Company shall default in the payment of any Senior Claim when
the same becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise, and the holder or holders of such
Senior Claim have given written notice of such default to the Company and the
Trustee, then, unless and until such default shall have been remedied or waived
or shall have ceased to exist, no direct or indirect payment (in cash, property
or securities or by set-off or otherwise) shall be made or agreed to be made on
account of any Junior Claim, or as a sinking fund for any Junior Claims, or in
respect of any redemption, retirement, purchase or other acquisition of any of
the Junior Claims (excluding payments made with Junior Securities).
SECTION 11.05. TURNOVER OF IMPROPER PAYMENTS.
If any payment or distribution, whether in cash, securities or other
property (other than Junior Securities) shall be received by the Trustee or any
holder of any Junior Claim in contravention of any of the terms hereof and
before all the Senior Claims shall have been paid in full or such payment shall
have been duly provided for, such payment or distribution or security shall be
received in trust for the benefit of, and shall be paid over or delivered and
transferred to, the holders of the Senior Claims (or their representatives) at
the time outstanding in accordance with the priorities then existing among such
holders for application to the payment of all Senior Claims remaining unpaid, to
the extent necessary to pay all such Senior Claims in full.
SECTION 11.06. REINSTATEMENT.
The obligations of the holders of Junior Claims under these
subordination provisions shall continue to be effective, or be reinstated, as
the case may be, if at any time any payment in respect of any Senior Claim, or
any other payment to any holder of any Senior Claim in its capacity as such, is
rescinded or must otherwise be restored or returned by the holder of such Senior
Claim upon the occurrence of any Proceeding, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Company or any substantial part of its property, or otherwise,
all as though such payment had not been made.
SECTION 11.07. COMPANY'S OBLIGATIONS ABSOLUTE.
Nothing contained herein shall impair, as between the Company and the
holder of any Junior Claim, the obligation of the Company to pay to the holder
thereof all amounts payable in respect of such Junior Claim as and when the same
shall become due and payable in accordance with the terms thereof, or prevent
the holder of any Junior Claim from exercising all rights, powers and remedies
otherwise permitted by applicable law or upon a default or event of default
under any Note or the Indenture, all subject to the rights of the holders of the
Senior Claims as set forth in these subordination provisions.
SECTION 11.08. SUBROGATION.
No holder of any Junior Claim shall have any subrogation or other
rights as the holder of a Senior Claim, and each holder of any Junior Claim
hereby waives all such rights of subrogation and all rights of reimbursement or
indemnity whatsoever and all rights of recourse to any security for any Senior
Claim, until such time as all the Senior Claims shall be paid in full or such
payment shall have been duly provided for. From and after the time at which all
Senior Claims have been paid in full or such payment shall have been duly pro-
vided for, the holders of the Junior Claims shall be subrogated to all rights of
any holders of Senior Claims to receive any further payments or distributions
applicable to the Senior Claims until the Junior Claims shall have been paid in
full or such payment shall have been duly provided for, and for the purposes of
such subrogation, no payment or distribution received by the holders of Senior
Claims of cash, securities or other property to which the holders of the Junior
Claims would have been entitled except for these subordination provisions shall,
as between the Company and its creditors other than the holders of Senior
Claims, on the one hand, and the holders of the Junior Claims, on the other, be
deemed to be a payment or distribution by the Company to or on account of the
Senior Claims.
SECTION 11.09. TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN
ABSENCE OF NOTICE.
<PAGE>
The Trustee shall not at any time be charged with knowledge of the
existence of any facts that would prohibit the making of any payment to or by
the Trustee unless and until a Trust Officer of the Trustee or any Paying Agent
shall have received, no later than one Business Day prior to such payment,
written notice thereof from the Company or from one or more holders of Senior
Claims (or their representatives) and, prior to the receipt of any such written
notice, the Trustee, subject to the provisions of Sections 7.1 and 7.2 shall be
entitled in all respects conclusively to assume that no such fact exists.
SECTION 11.10. APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT.
Amounts deposited in trust with the Trustee pursuant to and in
accordance with Article VIII shall be for the sole benefit of holders of Junior
Claims and, to the extent allocated for the payment of Notes, shall not be
subject to the subordination provisions of this Article XI.
SECTION 11.11. HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION
OF NOTES.
Each holder of the Notes by his acceptance thereof authorizes and
expressly directs the Trustee on his behalf to take such actions as may be
necessary or appropriate to effectuate the subordination provisions contained in
this Article XI and to protect the rights of the holders pursuant to the
Indenture, and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company, the immediate filing of a claim for the unpaid
balance of his Notes in the form required in said proceedings and cause said
claim to be approved. If the Trustee does not file a proper claim or proof of
debt in the form required in such proceeding prior to 30 days before the
expiration of the time to file such claim or claims, then each holder of the
Senior Claims (or their representatives) is hereby authorized to have the right
to file and is hereby authorized to file an appropriate claim for and on behalf
of the holders of said Notes. Nothing herein contained shall be deemed to
authorize the Trustee or the holders of Senior Notes (or their representatives)
to authorize or consent to or accept or adopt on behalf of any holder of Notes
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any holder thereof, or to authorize the Trustee or the
holders of Senior Claims (or their representatives) to vote in respect of the
claim of any holder of Notes in any such proceeding.
SECTION 11.12. RIGHT OF TRUSTEE TO HOLD SENIOR DEBT.
The Trustee shall be entitled to all of the rights set forth in this
Article XI in respect of any Senior Claims at any time held by it to the same
extent as any other holder of Senior Claims, and nothing in the Indenture shall
be construed to deprive the Trustee of any of its rights as such holder.
SECTION 11.13. ARTICLE XI NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of principal of, premium, if
any, or interest on the Securities by reason of any provision of this Article XI
shall not be construed as preventing the occurrence of a Default or an Event of
Default under Section 6.1 or in any way prevent the holder of Notes from
exercising any right hereunder other than the right to receive payment on the
Securities.
SECTION 11.14. NO FIDUCIARY DUTY OF TRUSTEE TO HOLDERS OF SENIOR
CLAIMS.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Claims, and shall not be liable to any such holders (other
than for its willful misconduct or negligence) if it shall in good faith
mistakenly pay over or distribute to the holders of Notes or the Company or any
other person, cash, property or securities to which any holders of Senior Claims
shall be entitled by virtue of this Article XI or otherwise. Nothing in this
Section 11.14 shall affect the obligation of any other such person to hold such
payment for the benefit of, any to pay such payment over to, the holders of
Senior Claims (or their representatives)."
5. The form of Security Agreement attached as Exhibit A to the
Indenture is hereby deleted in its entirety.
<PAGE>
6. The title of the Note appearing immediately following the legend
on the front of the form of Note attached as Exhibit B to the Indenture is
hereby amended and restated in its entirety by substituting therefor the
following:
"LAMONTS APPAREL, INC.
10.25% Subordinated Notes
due 1999"
7. The title of the Note appearing immediately prior to numbered
paragraph 1 of the form of Note attached as Exhibit B to the Indenture is hereby
amended and restated in its entirety by substituting therefore the following:
"LAMONTS APPAREL, INC.
10.25% Subordinated Notes
due 1999"
8. Numbered paragraph 4 of the form of Note attached as Exhibit B to
the Indenture is hereby amended and restated in its entirety by substituting
therefore the following:
"4. THE INDENTURE.
The Company issued the Securities under an Indenture, dated as of
October 30, 1992, as amended (the "Indenture"), among the Company and the
Trustee. Capitalized terms herein are used as defined in the Indenture
unless otherwise defined herein. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference
to the TIA, as in effect on the date of the Indenture until such time as
the Indenture is qualified under the TIA, and thereafter as in effect on
the date on which the Indenture is qualified under the TIA. The Securities
are subject to all such terms, and Holders of Securities are referred to
the Indenture and said Act for a statement of them. The Securities are
unsecured obligations of the Company limited in aggregate principal amount
to $62,000,000 plus any additional Securities issued in payment of interest
on the Securities.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made
to: Lamonts Apparel, Inc., 3650 131st Avenue, S.E., Bellevue, Washington
98006, Attn: Chief Financial Officer."
9. Numbered paragraph 20 of the form of Note attached as Exhibit B
to the Indenture is hereby amended in its entirety by substituting therefor the
following:
"20. SUBORDINATION.
Payment of principal, premium, if any, and interest on the Securities
is subordinated, in the manner and to the extent set forth in the Inden-
ture, to the prior payment in full of all Senior Claims."
The Company and the Trustee hereby agree that from and after the date
on which this Supplement becomes effective, the Indenture will be deemed to be
amended as provided herein, and that, except as so amended, the Indenture will
continue in full force and effect, the Company and the Trustee hereby ratifying
and confirming all of the provisions thereof. This Supplement may be executed
in any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute one and the same instrument."
SIGNATURES
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to
be duly executed as of the date first written above.
LAMONTS APPAREL, INC.
By:_________________________
Name:
Title:
[Seal]
Attest:_________________
FIRST TRUST NATIONAL
ASSOCIATION, as Trustee
By:_________________________
Name:
Title:
Attest:_________________
<PAGE>
LAMONTS APPAREL, INC.
October 18, 1994
To the Holder who is a signatory hereto:
Ladies and Gentlemen:
This Letter Agreement sets forth certain agreements between Lamonts
Apparel, Inc. (the "Company") and the undersigned holder (the "Holder") of the
Company's 10 1/4% Senior Secured Notes due 1999 (as amended from time to time,
the "Notes"). Each other holder of Notes (collectively, the "Other Holders") is
concurrently executing a counterpart to this Letter Agreement. Concurrently
with the execution hereof, the Holder has caused its nominee to consent to the
amendment of the Notes and the Indenture relating thereto (the "Indenture") and
to the termination of the related Security Agreement, and the Company and the
Trustee under such Indenture have entered into a supplemental indenture to
implement such amendment and termination.
1. Subject to the terms and conditions hereof, the Holder hereby agrees that,
if requested by the Company (in its sole discretion) on or prior to March 31,
1995, such Holder shall exchange (the "Exchange") that aggregate principal
amount of Notes (the "Exchange Notes") equal to the sum of (a) the aggregate
principal amount of Notes set forth below such Holder's name on the signature
page hereto plus (b) the aggregate principal amount of Notes issued in payment
of interest thereon, in each case together with accrued interest thereon, for
(i) that number of shares of the Company's Series B Preferred Stock, liquidation
preference $1,000 per share (the "Preferred Shares") equal to the product of (x)
50,000 shares times (y) such Holder's Proportionate Share (defined below) and
(ii) that number of shares of the Company's common stock, par value $.01 per
share (the "Common Shares" and, together with the Preferred Shares, the
"Exchange Shares") equal to the product of (x) 41,708,870 shares times (y) such
Holder's Proportionate Share, in each case rounded to the nearest whole share.
The Holder's "Proportionate Share" means a fraction (i) the numerator
of which is the aggregate principal amount of Exchange Notes outstanding
immediately prior to the Exchange and (ii) the denominator of which is the
aggregate principal amount of Notes outstanding immediately prior to the
Exchange.
Upon the request of the Holder and the Other Holders, acting
unanimously, the Holder shall cause its nominee to consent to, and the Company
shall execute and deliver and use its reasonable best efforts to cause the
Trustee to execute and deliver an amendment of the Notes and the Indenture (the
"Amendment"), to be agreed upon among the Company, the Holder and the Other
Holders, which Amendment provides that the Company's option to cause the
Exchange shall be embodied in the Notes and the Indenture.
The terms of the Preferred Shares shall be set forth in a certificate
of designations relating thereto (the "Certificate of Designations") to be
agreed upon among the Company, the Holder and the Other Holders, which
certificate will provide, among other things, that dividends on the Preferred
Shares will accrue semi-annually (in cash, or at the Company's option, in kind)
at an annual rate equal to 12.75%, and that the Preferred Shares will be
redeemable, at the Company's option, at the following per share redemption
prices (expressed as a percentage of the liquidation preference on, and accrued
but unpaid dividends through, the date of redemption):
During Year %
----------- -
1 85
2 90
3 95
4 and after 100
<PAGE>
2. The consummation of the Exchange will occur at a closing (the "Closing") to
occur on the later of (a) five business days after the Company delivers the
request specified in paragraph 1 above and (b) the first business day on which
the conditions set forth in paragraph 3 below have been satisfied or waived, or
at such other time as may be agreed upon by the parties hereto; PROVIDED, that
without the consent of the Company and the Holder, such Exchange shall not occur
on or prior to the date of the next annual meeting of the shareholders of the
Company, which meeting shall not occur prior to March 2, 1995. At the Closing,
(i) the Holder will deliver to the Company all of the Exchange Notes and (ii)
the Company will deliver to the Holder fully paid and non-assessable
certificates for the Exchange Shares.
3. The obligations of the parties hereto to consummate the Exchange are
conditioned upon the satisfaction or waiver of the following conditions:
(a) the negotiation of (i) the Certificate of Designations, (ii)
an agreement relating to a registration statement for an offering to be made on
a continuous basis pursuant to Rule 415 (or any similar rule) under the
Securities Act of 1933, as amended (the "Securities Act"), permitting resale of
the Exchange Shares (the "Registration Rights Agreement") and (iii) if
applicable, the Amendment, in each case in form and substance satisfactory to
the Holder and as approved by the board of directors of the Company;
(b) the amendment of the certificate of incorporation of the
Company to permit the consummation of the Exchange either (i) by authorizing a
capitalization that is sufficient to permit the issuance of the Common Shares to
be received by the Holder and the Other Holders or (ii) by providing for a
reverse stock split achieving the same result (in which event the number of
Common Shares to be received by the Holder and the Other Holders pursuant to the
Exchange shall be proportionately adjusted);
(c) the consummation by the Company and the Other Holders of the
transactions contemplated by such persons' counterpart agreements hereto;
(d) the delivery of (i) customary and reasonable closing
certificates and (ii) an opinion of counsel to the Company, addressed to the
Holder, (A) to the effect that (x) the Company has the corporate power and
authority to execute and deliver this Letter Agreement and to consummate the
transactions contemplated hereby and that such actions will not conflict with or
result in a violation of the Company's certificate of incorporation or by-laws
and (y) the Exchange Shares have been duly authorized and when delivered in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable and (B) concerning such other customary matters reasonably
requested by the Holder; PROVIDED, that if the Amendment is adopted, in lieu of
such certificates and opinions, there shall be delivered such customary
certificates and opinions, if any, contemplated by the Amendment;
(e) the composition of the Board of Directors of the Company on
the earlier of (i) the date of the Exchange and (ii) the date of the
effectiveness of the Amendment being satisfactory to the Holder; and
(f) the absence, from the date hereof to the date of the
Exchange, of any breach of a financial covenant (whether or not waived)
contained in that certain Loan and Security Agreement by and between Foothill
Capital Corporation and the Company, dated as of January 13, 1994 as amended and
in effect on the date hereof.
4. Each party hereto severally represents and warrants to each other party
hereto and to the Other Holders that (a) such party has the requisite power and
authority to execute and deliver this Letter Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby;
(b) the execution and delivery of this Letter Agreement by such party, the
performance by such party of its obligations hereunder and the consummation of
the transactions contemplated hereby have been duly and validly authorized; (c)
this Letter Agreement has been duly and validly executed and delivered by such
party and constitutes the valid and binding obligation of such party,
enforceable against such party in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies; and (d) such party will use
its reasonable efforts to, negotiate, execute and deliver, as promptly as
possible, all agreements and instruments necessary to consummate the
transactions contemplated hereby.
<PAGE>
5. The Holder further represents to each other party hereto that (a) it owns
beneficially the aggregate principal amount of Exchange Notes, set forth below
such Holder's name on the signature page hereto, free and clear of all liens
other than liens created hereby, (b) it is an "accredited investor" as defined
in Rule 501(a) promulgated under the Securities Act), (c) it will acquire the
Exchange Shares for its own account, and not with a view to the sale or
distribution of all or any part thereof in any transaction that would be in
violation of the securities laws of the United States, (d) it shall not sell,
assign, pledge, give, transfer, distribute or otherwise dispose of any of the
Exchange Notes or any interest therein, or make any offer or attempt to do any
of the foregoing, on or prior to the earlier of (i) the date of the Exchange or
(ii) the date of the effectiveness of the Amendment and (e) it has received all
such information necessary and appropriate to enable it to evaluate the risk
inherent in entering into this Agreement and making the Exchange and in
consummating the other transactions contemplated hereby.
6. This Letter Agreement will be binding upon and inure solely for the benefit
of the parties hereto and their respective successors and assigns, and no other
person (excluding the Other Holders) shall acquire or have any right hereunder
or by virtue hereof.
7. This Letter Agreement may be amended, modified or supplemented, and waivers
or consents to departures from the provisions hereof may be given, provided that
the same are in writing and signed by each of the parties hereto.
8. Each of the parties hereto agree to execute and deliver such other
documents, certificates, agreements and other writings and to take such other
actions (including, without limitation, voting all securities of the Company
owned by it) as may be necessary in order to consummate or implement
expeditiously the transactions contemplated hereby.
9. THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED
WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
10. The Company agrees to reimburse the Holder for all reasonable out-of-pocket
expenses incurred by it in connection with the negotiation, and execution of
this Letter Agreement and the other instruments contemplated hereby and the
performance of the transactions contemplated hereby and thereby; PROVIDED,
HOWEVER, that the Company shall be liable for the fees and expenses of only one
legal counsel for the Holder and the Other Holders.
11. No stockholder, director, officer, employee, agent, or representative, as
such, past, present or future, of the Company or any stockholder of the Company
shall have any liability for any obligation of the Company hereunder or for any
claim based on, in respect of or by reason of, such obligations or any of the
transactions contemplated by this Letter Agreement or any other instrument
contemplated hereby. The Holder hereby waives and releases all such liability;
PROVIDED, that such waiver and release shall not apply to any such liability
based upon such person's gross negligence, breach of fiduciary duty or wilful
misconduct. The waiver and release are part of the consideration for the
transactions contemplated hereby.
12. This Letter Agreement may be executed in any number of counterparts, and by
the parties hereto 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 agreement.
If the foregoing correctly sets forth the agreement between us, please
indicate by signing where indicated below and returning the attached copy of
this letter whereupon this Letter Agreement shall be a valid and binding
agreement among us.
Sincerely,
LAMONTS APPAREL, INC.
By:
-------------------------------------------
Name:
Title:
Accepted and Agreed:
Executive Life Insurance Company of New York
By:
-------------------------------
By:
----------------------------
Name:
Title:
(Principal amount of Notes: $6,429,000)
(Nominee: ATWELL & 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:
(Principal amount of Notes: $1,124,000)
(Nominee: ELL & Co.)
----------------------------------------
<PAGE>
General Motors Retirement Program for Salaried Employees (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 Retirement Program for Salaried
Employees
By:
(Principal amount of Notes: $628,000)
(Nominee: PITT & Co.)
----------------------------------------
<PAGE>
General Motors Hourly Rate Employees Pension Plan (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 Hourly Rate Employees Pension Plan
By:
(Principal amount of Notes: $885,000)
(Nominee: PITT & 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:
(Principal amount of Notes: $397,000)
(Nominee: ELL & 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:
(Principal amount of Notes: $165,000)
(Nominee: CATAMARAN & Co.)
----------------------------------------
<PAGE>
White Consolidated Industries, Inc. Master 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.
Mellon Bank as Trustee for:
White Consolidated Industries, Inc. Master Pension
Trust
By:
(Principal amount of Notes: $107,000)
(Nominee: PITT & 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:
(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:
(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:
(Principal amount of Notes: $1,488,000)
(Nominee: M. GARDINER & 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:
(Principal amount of Notes: $83,000)
(Nominee: THISBE & 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:
(Principal amount of Notes: $2,645,000)
(Nominee: M. GARDINER & 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:
(Principal amount of Notes: $2,067,000)
(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:
(Principal amount of Notes: $2,067,000)
(Nominee: HUDD & 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:
(Principal amount of Notes: $2,893,000)
(Nominee: HUDD & 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:
(Principal amount of Notes: $2,893,000)
(Nominee: M. GARDINER & 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:
(Principal amount of Notes: $8,267,000)
(Nominee: MAG & Co.)
----------------------------------------
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of October, 16, 1994, is by and between
Lamonts Apparel, Inc., a Delaware corporation ("Company"), and Alan Schlesinger
("Executive").
WHEREAS, Executive desires to enter into employment with the Company,
and the Company desires to employ Executive;
NOW, THEREFORE, in consideration of the foregoing recital 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
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.
2. COMPENSATION. (a) BASE 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 base salary of not less
than $450,000 payable semi-monthly ("Base Salary"). Executive's Base 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.
(b) PERFORMANCE BONUS. In addition to his Base Salary,
Executive shall be a participant in the Company's Management Bonus Plan.
Executive shall be eligible to receive an annual performance bonus in a
guaranteed minimum amount of $50,000, but not to exceed $175,000, based upon the
achievement of performance targets for the relevant fiscal year under such terms
as may be mutually determined by Executive and the Company's Compensation
Committee. Executive shall be eligible for a pro rated performance bonus in the
event his employment with the Company ends during the fiscal year.
(c) SIGNING BONUS. The Company shall pay Executive a $125,000
signing bonus payable on or before January 6, 1995.
(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. [Would cover country club
membership if currently provided to senior executives]
(e) CAR ALLOWANCE. Executive shall be entitled to receive a car
allowance of up to $7,200 per annum for business-related expenses incurred in
the use of one personal vehicle.
(f) MOVING AND RELATED COSTS. Executive agrees to permanently
relocate his principal residence to the Seattle, Washington area as soon as
practicable after the Commencement Date. The Company shall reimburse Executive
for all normal moving costs involved in relocating his family's belongings and
household furnishings to the Seattle, Washington area. The Company shall also
reimburse Executive for legal fees and other customary closing costs in
connection with the purchase or rental of a house in the Seattle, Washington
area. In the event any of the reimbursements provided to Executive under this
Section 2(f) result in taxable income to Executive (after subtracting any
applicable deductions and/or credits available to Executive),
<PAGE>
the Company shall reimburse Executive for the amount of any taxes paid by
Executive as a result of his receipt of such reimbursements.
(g) INTERIM TRAVEL; LIVING EXPENSES. The Company shall
reimburse Executive for reasonable travel expenses incurred by him and his
spouse in traveling from Los Angeles, California to Seattle, Washington, for a
maximum of three trips in connection with the move. The Company shall also
reimburse Executive for reasonable temporary living expenses in Seattle from the
Commencement Date (as defined below) until the earlier of 60 days later or the
date that Executive is no longer obligated to pay rent on his home in Los
Angeles.
(h) STOCK BENEFITS. The Company is currently contemplating a
restructuring of its finances (the "Restructuring") under terms set forth in the
Summary Term Sheet attached to this Agreement as Exhibit 1. The contemplated
terms of the Restructuring include that the Company will be granted the right to
exercise a repurchase option (the "Repurchase Option") which will involve the
issuance of new shares of common stock of the Company. The benefits to be
provided to Executive under this Section 2(h) are conditioned upon the
occurrence of the Restructuring and the Company's exercise of the Repurchase
Option. In the event both of these conditions do not occur, Executive shall not
receive the benefits set forth in this Section 2(h), but rather shall receive
substantially comparable benefits under such mutually satisfactory terms as may
be negotiated between Executive and the Company's Compensation Committee. In
the event of a stock split, reverse stock split, or other similar event
concerning the Company's common stock, then an equitable adjustment shall be
made in the number of shares of the Company's common stock to be issued to
Executive under the terms of this Section 2(h) and the option exercise price, to
prevent dilution or enlargement of his rights hereunder.
(i) STOCK ISSUANCE. On or about March 31, 1995, the
Company shall issue to Executive 397,000 shares of common stock of the Company.
At the time any taxes are due and payable by Executive as a result of
Executive's receipt of this common stock, the Company will provide Executive
with a no-interest loan in the amount of Executive's tax liability incurred by
reason of his receipt of the common stock. The loan shall be repaid in full by
Executive to the Company one year after it is made, unless Executive is
terminated for cause or voluntarily resigns, in which event the loan shall be
due and payable immediately upon the effective date of Executive's termination
or resignation.
(ii) STOCK OPTIONS. Subject to any terms and conditions
and/or limitations imposed by the Company's Incentive and Nonstatutory Option
Plan (the "Plan"), Bylaws or applicable law, on the occurrence of the Company's
exercise of the Repurchase Option the Committee will grant Executive an
incentive option (to the extent permitted by law) and to the extent not so
permitted, a non-qualified stock option (the "Options"), pursuant to the
Company's Plan, entitling Executive to purchase 4,500,000 shares of common stock
of the Company at an exercise price of $.39 per share. Subject to the terms of
the Plan and any individual stock option agreement executed thereunder, the
options will vest 25% on the first anniversary of the Commencement Date and an
additional 25% on each anniversary thereafter, so that the options will be fully
exercisable four years from the Commencement Date. Upon the exercise by
Executive of the Options, in whole or in part, the Company shall also issue to
Executive additional shares of common stock having an aggregate value equal to
the intrinsic value of the Options exercised by Executive up to a cumulative
maximum of $2,000,000 worth of additional shares of common stock. For purposes
of this subsection, the intrinsic value of an Option shall be equal to the fair
market value of one share of the Company's common stock as of the date of
exercise of the Options minus the exercise price, multiplied by the number of
shares of common stock purchased by Executive in exercise of the Options (the
"Intrinsic Value Amount"). For purposes of this subsection, the definition of
"Fair Market Value" shall be the same as the definition contained in the Plan.
In the event the Company's common stock is not publicly traded at the time of
the date in question, the Intrinsic Value Amount shall be determined by using
the Fair Value of the common stock as defined in the Plan. The amount of
additional shares of common stock issued shall equal the Intrinsic Value Amount
(up to a cumulative maximum of $2,000,000) divided by the fair market value of
one share of common stock on the date of exercise of Executive's Options.
Except as provided in Section 5(a) and Section 6, Executive must be employed by
the Company on the vesting date in order for the options to vest. The options
will expire ten years after the Commencement Date. Executive shall be eligible
for the grant of additional options in the normal course of annual reviews by
the Compensation Committee, so long as he shall be employed by the Company.
<PAGE>
(i) 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.
(j) 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.
3. TERM. The term of Executive's employment under this Agreement
will begin on November 15, 1994 (the "Commencement Date") and will continue for
four years.
Notwithstanding the foregoing, this Agreement (other than Sections 5
through 11, 12(b), 13, and 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 (1) proceeds from any life insurance furnished to
Executive by the Company, and (2) any other life insurance which the Company
elects to purchase on the life of Executive, the proceeds of which are payable
to his estate.
4. TERMINATION BY THE COMPANY; DEFINITION OF CAUSE. Executive's
employment under this Agreement (and his right to receive the 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; or
(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.
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; 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 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. Executive shall also continue to receive the fringe benefits he is
entitled to receive pursuant to Section 2(d) hereof for the first twelve months
of the period he is entitled to receive such Base Salary payments, or for the
remainder of the term of this Agreement, whichever period is shorter. In the
event of termination without Cause, Executive's right to exercise the stock
options to be granted hereunder shall be governed by the terms of the Company's
Stock Option Plan, as may be in effect at that time; provided, however, that if
such termination occurs before Executive has been employed by the Company for
one year, the effective date of termination will, to the extent Executive is not
employed by another employer, be postponed to the end of the twelve month period
while he is receiving fringe
<PAGE>
benefits, so that he will, in such case, be deemed to be employed on the first
anniversary of his stock option grant and thus entitled to exercise 25% of his
stock options on that date. It is further provided that if such termination
without cause occurs after Executive has been employed by the Company for one
year, Executive shall be entitled to exercise a pro rata portion of the 25% of
his stock options which would have vested, had Executive remained employed on
the applicable anniversary of the Commencement Date, based on the number of full
months Executive was employed during the applicable vesting year.
(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 pursuant to Section 5(a) hereof. The Company
acknowledges that, if Executive's employment with the Company is terminated
pursuant to Section 5(a), Executive shall have no duty to mitigate his damages.
(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, its
officers, directors, and affiliates, including, but not limited to, claims he
might have relating to Executive's cessation of employment with the Company;
provided, however, that there may 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 or stock option properly due
to him; or
(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. 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 termination of this
Agreement and Executive is terminated without cause within three months after
the date on which such Change in Control is consummated, Executive's stock
options under Section 2(h)(ii) shall become fully vested and the Company shall
be obligated to continue to pay Executive his Base Salary for a period of two
years or the remainder of the term of this Agreement, whichever period is
shorter; provided, however, that such payments are subject to reduction in
accordance with the provisions of Section 5(b). At the Company's sole option,
the Company may elect to pay Executive the Base Salary due under this Section 6
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) 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
Apollo Advisors, L.P., Fidelity Investments, any other beneficial owner of the
Company's common stock (now or immediately after the events surrounding the
Restructuring) or any firm or group affiliated with Apollo Advisors, L.P.,
Fidelity Investments or such other beneficial owners, becomes the beneficial
owner, directly or indirectly, of either (A) a majority of the Company's
outstanding Common Stock or
<PAGE>
(B) securities of the Company representing a majority of the combined voting
power of the Company's then outstanding voting securities.
(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 such 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(b)
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 60 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.
8. NONSOLICITATION 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
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 irrevocably
nominates and 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.
<PAGE>
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 a 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.
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 up to $5,000
of his attorney's fees and disbursements incurred in connection with the
negotiation of this Agreement, as well as for all reasonable out-of-pocket
expenses incurred by Executive prior to the date hereof in connection with his
employment by the Company.
(b) As a condition to the entering into of this Agreement and to
Executive's employment by the Company, Executive hereby represents and warrants
to the Company that his employment by the Company 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 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.
<PAGE>
13. ARBITRATION - EXCLUSIVE REMEDY.
(a) Except as provided in Section 10 hereof, 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. 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 (exclusive of 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 be 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 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.
----------------------------
----------------------------
Attention:
-----------------
With a copy (which
shall not constitute
notice) to:
----------------------------
If to Executive: Alan Schlesinger
----------------------------
----------------------------
With a copy (which
shall not constitute
notice) to:
----------------------------
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 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.
<PAGE>
(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
constitutes 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 and as when 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 all of its stock, 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.
(h) BINDING EFFECT. This Agreement is binding upon the parties
hereto, together with their respective executors, administrators, successors,
personal representatives, heirs and permitted assigns.
(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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
--------------------------------------------------
Alan Schlesinger
Approved on behalf of Lamonts Apparel, Inc. and the Compensation Committee of
the Board of Directors:
- ------------------------------
- ------------------------------
- ------------------------------
<PAGE>
MODIFICATION TO EMPLOYMENT AGREEMENT
This Modification to Employment Agreement, dated as of January 5, 1995,
is by and between Lamonts Apparel, Inc., a Delaware corporation ("Company"), and
Alan Schlesinger ("Executive").
WHEREAS, Executive and the Company have entered into an agreement, dated as
of October 15, 1994 (the Employment Agreement), pursuant to which the Company
employed Executive; and
WHEREAS, Executive has undertaken employment as the Chief Executive Officer
and has been elected as Chairman of the Board of Directors; and
WHEREAS, the Company and the Executive desire to make certain modifications
to the Employment Agreement to enable the parties to accomplish certain of the
intended objectives of the Employment 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 Employment
Agreement is hereby modified as follows:
A. MODIFICATIONS
1. Paragraph 2(e) of the Employment Agreement deleted and replaced
with the following provision;
"(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."
2. Paragraph 2(f) of the Employment Agreement is deleted and
replaced with the following provision:
"(f) MOVING AND RELATED COSTS. The Company shall pay Executive
$47,000 on the date hereof, as the agreed relocation benefit to be
provided to the Executive. Executive shall promptly relocate his
principal residence to the Seattle, Washington, area; provided, that
in the event Executive resigns or is terminated within 6 months or
such longer period as the parties may agree Executive shall not be
required to permanently relocate his principal residence to the
Seattle, Washington area and Executive shall repay to the Company such
portion of such relocation benefit that Executive has not used on
travel and temporary living expenses.
3. Paragraph 2(g) is deleted and replaced with the following
provisions:
"(g) COMPENSATION FOR LOST BENEFITS. The Company shall pay Executive
$168,000 on the date hereof in full compensation for all compensation
and benefits forfeited by Executive from his previous employer.
4. Paragraph 2(h)(i) of the Employment Agreement is hereby deleted.
B. RESERVATION OF RIGHTS
This Modification of Employment Agreement is intended only to modify
the specific provisions set forth above in order to accommodate the respective
interests of the parties under the circumstances under which this Modification
is made. Neither the making of this Modification, nor the making of any term or
provision hereof, nor the performance of any such terms shall act as a release,
waiver, discharge, accord, satisfaction, novation, estoppel, or act in any other
fashion to prejudice any rights, claims or causes of action or defenses of the
parties, their agents, employees or representatives.
Dated:
-------------- --------------------------
Alan Schlesinger
Dated: LAMONTS APPAREL, INC.
--------------
By
------------------------
Name: Earle Spokane
Title: Chief Financial Officer
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "AGREEMENT"), made and entered into as of
the 28th day of December, 1994, by and between Lamonts Apparel, Inc., a Delaware
corporation (the "COMPANY"), and Loren R. Rothschild ("ROTHSCHILD").
WITNESSETH:
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, including with respect to the Restructuring (as defined
below), 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 Vice Chairman, including managing the legal,
financial and administrative functions of the Company.
The Company and Rothschild agree that part of Rothschild's duties will
be to advise the Company with respect to various restructuring alternatives. If
the Company files a voluntary petition under Chapter 11 of the United States
Bankruptcy Code commencing a Chapter 11 case, the Company and Rothschild shall
enter into the agreement attached hereto as Exhibit A and upon the effectiveness
thereof, such agreement shall supersede this Agreement (and if such agreement
does not become effective, Rothschild may, in his sole discretion, terminate
this Agreement).
2. TERM. Unless terminated at an earlier date in accordance with
Section 7, the term of this Agreement (the "Term") shall commence as of the date
hereof and shall continue until the consummation of the Restructuring. The
"RESTRUCTURING" shall be deemed to occur on the first date on which (a) the
Company shall have refinanced the facility outstanding under the Loan and
Security Agreement, between the Company and Foothill Capital Corporation, dated
as of January 13, 1994, as amended as of the date hereof (which refinancing may
be pursuant to an amendment of such agreement), in a manner sufficient, in the
reasonable opinion of the Board of Directors, to provide working capital to the
Company as may be necessary for the foreseeable future and (b) new shares of
common stock have been issued in exchange for substantially all of the Company's
currently outstanding funded debt as contemplated by that certain letter
agreement dated October 18, 1994, between the Company and the holders of the
Company's 10-1/4% Senior Notes due 1999.
3. COMPENSATION. Subject to Section 7 hereof, as compensation for
Rothschild's services hereunder, the Company shall pay to Rothschild (a) a
signing bonus of $125,0000, payable on the date hereof, (b) 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 Term, commencing January 31, 1995
and (c) if the Restructuring is consummated, a fee of $125,000, payable upon
final consummation of the Restructuring.
4. 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. 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).
<PAGE>
5. 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 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) 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.
6. 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 6.
(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.
7. 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) 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
<PAGE>
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.
(i) If this Agreement is terminated pursuant to Section
7(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(b) 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 Restructuring is consummated prior to the 270th day following
the date of termination, $125,000, upon final consummation of the
Restructuring, plus (C) any unreimbursed expenses payable pursuant to
Section 5, 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 on the earlier of (x) the one-year anniversary of such date
and (y) the date of the consummation of the Restructuring.
(ii) If this Agreement is terminated pursuant to Section
7(a)(ii) or (iii), Rothschild shall be entitled to receive only (A)
his base salary payable pursuant to Section 3(b), 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 5, 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 7(a)(ii) or (iii) on or prior to June 21, 1995, Rothschild
shall repay to the Company one-half of the signing bonus paid pursuant
to Section 3(a), 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 7 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:
(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 7
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.
<PAGE>
8. 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 6. 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.
9. 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.
10. 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 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.
<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).
IN WITNESS WHEREOF, the Company and Rothschild have executed this
Agreement as of the date set forth in the first paragraph.
LAMONTS APPAREL, INC.
By:
-------------------------------
Name: Alan Schlesinger
Title: Chairman and
Chief Executive Officer
----------------------------
LOREN R. ROTHSCHILD
<PAGE>
RESIGNATION AGREEMENT
This Resignation Agreement ("Agreement") is made and entered into this
14th day of November, 1994 by and between Lamonts Apparel, Inc., a Delaware
corporation ("Lamonts"), and Leonard M. Snyder ("Snyder"), with reference to the
following facts:
A. Snyder is Chairman and Chief Executive Officer and a member of
the Board of Directors of Lamonts. Snyder and Lamonts have mutually decided
that Snyder will resign from such positions and from his employment with
Lamonts.
B. Snyder and Lamonts are parties to an Executive Employment
Agreement ("Employment Agreement") entered into as of October 30, 1992.
C. Snyder and Lamonts wish to set forth the terms and conditions
upon which Snyder will resign from his employment with Lamonts.
NOW, THEREFORE, the parties hereto agree as follows:
1. RESIGNATION.
Effective January 31, 1995 (the "Resignation Date"), Snyder hereby
submits his resignation from his employment with Lamonts, from his position as a
member of the Board of Directors of Lamonts, and from all offices held by him at
Lamonts and at any and all subsidiary corporations of Lamonts. Lamonts hereby
accepts such resignations on its own behalf and on behalf of all its
subsidiaries. From the date of this Agreement until the Resignation Date,
Snyder shall, upon the request and direction of the new Chief Executive Officer
or the Board of Directors, use his reasonable best efforts to assist Lamonts and
its new Chief Executive Officer in meeting Lamonts' business objectives. Snyder
shall continue to hold the position of Chief Executive Officer and Chairman of
the Board until Lamonts' new Chief Executive Officer assumes his duties in full.
Thereafter, and continuing until the Resignation Date, Snyder shall have the
title of Special Advisor to the Chief Executive Officer and Board of Directors,
and shall have such responsibilities, if any, as are reasonably determined by
the new Chief Executive Officer and the Board of Directors of Lamonts, and as
are reasonably within Snyder's expertise and experience. During this period,
Snyder will be provided with his present office and support staff or comparable
facilities and support. On the Resignation Date, Snyder's employment by Lamonts
and all of Lamonts' subsidiaries shall be terminated.
2. COMPENSATION.
In consideration of the agreements and obligations of Snyder
hereunder, and in complete satisfaction of any obligations Lamonts has or may
have under the Employment Agreement, including, but not limited to, Sections 1,
2(a), 3, 4, 5, 6 and 7, Snyder shall receive from Lamonts the following:
(a) Continued payment through the Resignation Date of Snyder's
current Base Salary and the benefits (excluding any severance benefits) to which
Snyder is currently entitled under Section 7 of the Employment Agreement.
(b) A performance bonus ("Performance Bonus") for the current
fiscal year of Lamonts ending October 31, 1994, in the amount of $50,000. The
Performance Bonus shall be paid within 60 days after the end of the current
fiscal year.
(c) A lump sum payment of $600,000, payable on January 31, 1995.
Snyder shall also receive on January 31, 1995, a payment equal to the lesser of
$20,000 or the value of Snyder's accrued but unused vacation benefits as of that
date. Snyder agrees that he will voluntarily use sufficient vacation days
during the month of January 1995 to reduce the value of his accrued but unused
vacation benefits to no more than $20,000. The value of Snyder's vacation
benefits will not be reduced for any time off taken by Snyder at the direction
of the new Chief Executive Officer or the Board of Directors.
(d) A continuation of the benefits (excluding any vacation and
severance benefits) to which Snyder is currently entitled under Section 7 of the
Employment Agreement for a period of one year following the Resignation Date
(including benefits under Lamonts' qualified and non-qualified deferred benefit
<PAGE>
plans; benefits under Lamonts' qualified and non-qualified "TRIP Plans";
Lamonts' employee discount card and executive committee benefit; the
continuation of Snyder's athletic club membership, converted to an individual
membership in Snyder's name; and the payment of Snyder's annual membership fee
for the Columbia Tower Club); provided, however, that Lamonts shall continue to
pay the employer's portion of the applicable monthly premium for Snyder's
current coverage under Lamonts' term life and MDDV comprehensive health
insurance plans through November 30, 1997, at which time Snyder may elect to
continue his health insurance coverage, at Snyder's sole expense, under the
Consolidated Omnibus Budget Reconciliation Act ("COBRA"). In the event Snyder's
post-resignation participation in any applicable benefit plan is barred by the
terms of the plan or by applicable law, Snyder shall be entitled to receive the
reasonable economic equivalent of any such benefits.
(e) Any stock options of Lamonts held by Snyder under Lamonts'
Incentive and Nonstatutory Option Plan dated August 27, 1992 ("the Plan"), and
the Nonstatutory Stock Option Agreement dated September 14, 1992 ("the Stock
Option Agreement"), shall fully vest and shall be exercisable immediately upon
the Resignation Date. Snyder's rights and obligations concerning his stock
options shall continue to be governed by the terms of the Plan and the Stock
Option Agreement, which, subject to shareholder and Stock Option Committee
approval, shall be amended prior to March 29, 1995, to the extent necessary to
provide that any and all vested but unexercised stock options held by Snyder
shall become null and void on the earlier of their maturity date or
September 14, 2002. In the event Lamonts is unable to obtain approval to amend
the Plan as set forth herein, such that Snyder is required to exercise his
options under the unamended terms of the Plan, at the time any taxes are due and
payable by Snyder solely as a result of Snyder's exercise of his options,
Lamonts will provide Snyder with a no-interest loan in the amount of Snyder's
tax liability incurred by reason of his exercise of the options. The loan shall
be repaid in full by Snyder to Lamonts one year after it is made.
(f) Snyder shall be entitled to reimbursement for his ordinary
and necessary business expenses reasonably incurred in the performance of his
duties under this Agreement through the Resignation Date if supported by
reasonable documentation as required by Lamonts in accordance with its usual
practices for members of the Board of Directors.
(g) Snyder shall be entitled to payment for his reasonable
attorneys' fees incurred in connection with the negotiation of his resignation
from Lamonts, including the negotiation of this Agreement. In addition, on
January 31, 1995, Lamonts shall pay to Snyder a maximum of $2,500 for documented
expenses reasonably incurred by Snyder for tax, pension and profit sharing, and
investment planning relating to this Agreement.
3. CONSULTING.
Subsequent to the Resignation Date, in the event Lamonts' Chief
Executive Officer or Board of Directors requests Snyder to perform consulting
services in connection with Lamonts' business, Snyder shall be compensated at
the rate of $200 per hour for all such services performed by Snyder. Snyder
shall not be entitled to compensation for any services performed in connection
with matters for which Snyder is being indemnified by Lamonts pursuant to the
Indemnification Agreement entered into between Lamonts and Snyder as of
October 30, 1992 (the "Indemnification Agreement"), unless other current or
former Directors being indemnified by Lamonts in connection with the same matter
are generally being compensated by Lamonts for their services performed in
connection with the matter. In this event, Snyder shall be compensated for such
services at the rate specified in this Paragraph 3. Snyder shall also be
entitled to reimbursement for all ordinary and necessary business and travel
expenses incurred in connection with his consulting services consistent with
Lamonts' reimbursement guidelines established for the Board of Directors.
4. PUBLICITY.
Lamonts and Snyder agree that the publicly-stated reasons for Snyder's
resignation from Lamonts, and the timing of any such statements, shall be
mutually agreed to by Lamonts and Snyder. The terms of this Agreement will be
kept confidential and will not be disclosed to any other person except the
parties' legal and tax advisors and Snyder's immediate family, and except as
disclosure may be required by applicable law.
5. MUTUAL RELEASE OF CLAIMS.
(a) In consideration of the payments and other benefits
furnished by Lamonts to Snyder as set forth herein, Snyder hereby voluntarily
releases, agrees not to sue and discharges Lamonts, its parents, subsidiaries,
affiliates, and its and their respective directors, officers, employees,
stockholders,
<PAGE>
bondholders and their representatives, agents, attorneys, successors and assigns
(the "Released Parties") of and from any and all causes of action, suits,
claims, charges, complaints, contracts, agreements and promises whatsoever, in
law or equity, against the Released Parties which Snyder, his heirs, executors
or administrators may now have or hereafter can, shall or may have for, upon, or
by reason of any matter, cause or thing whatsoever, including, but not limited
to any and all matters arising out of Snyder's employment by any of the Released
Parties and/or the cessation of said employment, including, but not limited to,
any alleged breach of the Employment Agreement by any of the Released Parties or
alleged violation of Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Employee Retirement Income
Security Act, and any other federal, state or local law, regulation or ordinance
and/or public policy, having any bearing whatsoever on the terms and conditions
and/or cessation of Snyder's employment with Lamonts; provided, however, that
Snyder does not waive, release or relinquish any rights set forth in this
Agreement or the Indemnification Agreement (which shall continue in full force
and effect after the Resignation Date according to its terms), or the right to
enforce such rights. Lamonts shall include Snyder as a covered party in any
directors and officers insurance coverage procured from time to time, if any,
for its current officers and directors, for a six-year period running from the
Resignation Date (unless during that time Lamonts elects not to procure such
coverage for its current officers and directors).
(b) In consideration of the promises furnished by Snyder to
Lamonts as set forth herein, Lamonts hereby voluntarily releases, agrees not to
sue and discharges Snyder of and from any and all causes of action, suits,
claims, charges, complaints, contracts, agreements, and promises whatsoever, in
law or equity, against Snyder which Lamonts, its successors or assigns may now
have or hereafter can, shall or may have for, upon, or by reason of any matter,
cause or thing whatsoever, including, but not limited to any and all matters
arising out of Snyder's employment by Lamonts and/or the cessation of said
employment and his services as an officer and director of Lamonts, including,
but not limited to, any alleged breach of any federal, state or local law,
regulation or ordinance and/or public policy, having any bearing whatsoever on
the terms and conditions and/or cessation of Snyder's employment with Lamonts;
provided, however, that Lamonts does not waive, release or relinquish any rights
set forth in this Agreement or Section 2(d) of the Employment Agreement or the
right to enforce such rights (including by injunctive relief), nor does Lamonts
waive any rights or claims against Snyder which may arise out of facts presently
unknown to Lamonts which would constitute a willful (as defined in Section 5(d)
of the Employment Agreement) breach of fiduciary duty by Snyder or a crime under
any federal or state law. Provided, however, that nothing herein shall preclude
Snyder from using for his personal benefit his general expertise and knowledge
of the apparel industry.
6. ENTIRE AGREEMENT.
This Agreement constitutes the complete agreement of the parties with
respect to the subject matter referred to herein and supersedes, terminates and
extinguishes all prior or contemporaneous negotiations, agreements, obligations,
rights and representations of every nature with respect thereto, including but
not limited to Sections 1, 2(a), (b) and (c), 3, 4, 5, 6, 7, 8 and 10 of the
Employment Agreement, and Snyder's rights and obligations under the
Stockholders' Voting Agreement dated October 30, 1992, entered into among
Lamonts and certain of its stockholders. This Agreement shall not alter or
extinguish Snyder's obligations and Lamonts' rights under Section 2(d) of the
Employment Agreement. This Agreement may be amended only by a subsequent
writing signed by both parties hereto.
7. BINDING EFFECT.
This Agreement shall be binding upon and shall inure to the benefit of
the respective parties hereto and Snyder's heirs and Lamonts' successors and
assigns.
8. GOVERNING LAW.
This Agreement shall be construed and governed by the laws of the
State of Washington.
9. REPRESENTATIONS BY SNYDER.
(a) Snyder acknowledges that he has been advised by Lamonts that
he is entitled to a period of up to twenty-one (21) days within which to
consider this Agreement before signing
it, if he wishes. Snyder expressly acknowledges that he has taken sufficient
time to consider this Agreement before signing it.
(b) Snyder acknowledges and agrees that he is fully aware of his
right to discuss any and all aspects of this matter with an attorney of his
choice, that Lamonts has advised him of that right, that
<PAGE>
he has carefully read and fully understands all of the provisions of this
Agreement, and that he is voluntarily entering into this Agreement.
10. REPRESENTATIONS BY LAMONTS.
This Agreement has been approved by Lamonts' Board of Directors, and
will be executed by a duly authorized member of the Board of Directors.
11. REVOCATION.
This Agreement will not become effective or binding on the parties
until seven (7) days after it is signed, during which time Snyder may revoke
this Agreement if he wishes to do so. Any revocation must be in writing and
directed to ________________.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
LAMONTS APPAREL, INC.
By:
-------------------------------
Title:
----------------------------
LEONARD M. SNYDER
-----------------------------------
<PAGE>
RESIGNATION AGREEMENT
This Resignation Agreement ("Agreement") is made and entered into this
14th day of November, 1994 by and between Lamonts Apparel, Inc., a Delaware
corporation ("Lamonts"), and Frank E. Kulp ("Kulp"), with reference to the
following facts:
A. Kulp is President and Chief Operating Officer and a member of the
Board of Directors of Lamonts. Kulp and Lamonts have mutually decided that Kulp
will resign from such positions and from his employment with Lamonts.
B. Kulp and Lamonts are parties to an Executive Employment Agreement
("Employment Agreement") entered into as of October 30, 1992.
C. Kulp and Lamonts wish to set forth the terms and conditions upon
which Kulp will resign from his employment with Lamonts.
NOW, THEREFORE, the parties hereto agree as follows:
1. RESIGNATION.
Effective January 31, 1995 (the "Resignation Date"), Kulp hereby
submits his resignation from his employment with Lamonts. Effective
November 30, 1994, Kulp hereby submits his resignation from his position as a
member of the Board of Directors of Lamonts, and from all offices held by him at
Lamonts and at any and all subsidiary corporations of Lamonts. Lamonts hereby
accepts such resignations on its own behalf and on behalf of all its
subsidiaries. From the date of this Agreement until November 30, 1994, Kulp
shall use his reasonable best efforts to assist Lamonts and its new Chief
Executive Officer in meeting Lamonts' business objectives. Kulp shall continue
to hold the position of Chief Operating Officer until November 30, 1994. Kulp
shall have such responsibilities as are reasonably determined by the new Chief
Executive Officer and the Board of Directors of Lamonts. On the Resignation
Date, Kulp's employment by Lamonts and all of Lamonts' subsidiaries shall be
terminated.
2. COMPENSATION.
In consideration of the agreements and obligations of Kulp hereunder,
and in complete satisfaction of any obligations Lamonts has or may have under
the Employment Agreement, including, but not limited to, Sections 1, 2(a), 3, 4,
5, 6 and 7, Kulp shall receive from Lamonts the following:
(a) Continued payment through January 31, 1995, of Kulp's
current Base Salary and the benefits (excluding any severance benefits) to which
Kulp is currently entitled under Section 7 of the Employment Agreement.
(b) A performance bonus ("Performance Bonus") for the current
fiscal year of Lamonts ending October 31, 1994, in the amount of $20,000. The
Performance Bonus shall be paid within 60 days after the end of the current
fiscal year.
(c) A lump sum payment of $324,583, payable on January 31, 1995.
Kulp shall also receive on January 31, 1995, a payment equal to the lesser of
$21,153.85 or the value of Kulp's accrued but unused vacation benefits as of
that date.
(d) A continuation of the benefits (excluding any vacation and
severance benefits) to which Kulp is currently entitled under Section 7 of the
Employment Agreement for a period of one year following January 31, 1995
(including benefits under Lamonts' qualified and non-qualified deferred benefit
plans; benefits under Lamonts' qualified and non-qualified "TRIP Plans";
Lamonts' employee discount card and executive committee benefit; provided,
however, that Lamonts shall continue to pay the employer's portion of the
applicable monthly premium for Kulp's current coverage under Lamonts' term life
and MDDV comprehensive health insurance plans through November 30, 1997, at
which time Kulp may elect to continue his health insurance coverage, at Kulp's
sole expense, under the Consolidated Omnibus Budget Reconciliation Act
("COBRA"). In the event Kulp's post-resignation participation in any applicable
benefit plan is barred by the terms of the plan or by applicable law, Kulp shall
be entitled to receive the reasonable economic equivalent of
<PAGE>
any such benefits. Lamonts shall transfer the athletic club membership used by
Kulp to an individual membership in Kulp's name, but Kulp will be solely
responsible for the payment of any membership fees. Lamonts will pay any fees
charged in connection with the transfer of the membership to Kulp's name.
(e) Any stock options of Lamonts held by Kulp under Lamonts'
Incentive and Nonstatutory Option Plan dated August 27, 1992 ("the Plan"), and
the Nonstatutory Stock Option Agreement dated September 14, 1992 ("the Stock
Option Agreement"), shall fully vest and shall be exercisable immediately upon
the Resignation Date. Kulp's rights and obligations concerning his stock
options shall continue to be governed by the terms of the Plan and the Stock
Option Agreement, which, subject to shareholder and Stock Option Committee
approval, shall be amended prior to March 29, 1995, to the extent necessary to
provide that any and all vested but unexercised stock options held by Kulp shall
become null and void on the earlier of their maturity date or September 14,
2002. In the event Lamonts is unable to obtain approval to amend the Plan as
set forth herein, such that Kulp is required to exercise his options under the
unamended terms of the Plan, at the time any taxes are due and payable by Kulp
solely as a result of Kulp's exercise of his options, Lamonts will provide Kulp
with a no-interest loan in the amount of Kulp's tax liability incurred by reason
of his exercise of the options. The loan shall be repaid in full by Kulp to
Lamonts one year after it is made.
(f) Kulp shall be entitled to reimbursement for his ordinary and
necessary business expenses reasonably incurred in the performance of his duties
under this Agreement through November 30, 1994, if supported by reasonable
documentation as required by Lamonts in accordance with its usual practices for
members of the Board of Directors.
(g) Kulp shall be entitled to payment for his reasonable
attorneys' fees incurred in connection with the negotiation of his resignation
from Lamonts, including the negotiation of this Agreement. In addition, no
earlier than January 31, 1995, Lamonts shall pay to Kulp a maximum of $2,500 for
documented expenses reasonably incurred by Kulp for tax, pension and profit
sharing, and investment planning relating to this Agreement.
3. CONSULTING.
Subsequent to the Resignation Date, in the event Lamonts' Chief
Executive Officer or Board of Directors requests Kulp to perform consulting
services in connection with Lamonts' business, Kulp shall be compensated at the
rate of $100 per hour for all such services performed by Kulp. Kulp shall not
be entitled to compensation for any services performed in connection with
matters for which Kulp is being indemnified by Lamonts pursuant to the
Indemnification Agreement entered into between Lamonts and Kulp as of
October 30, 1992 (the "Indemnification Agreement"), unless other current or
former Directors being indemnified by Lamonts in connection with the same matter
are generally being compensated by Lamonts for their services performed in
connection with the matter. In this event, Kulp shall be compensated for such
services at the rate specified in this Paragraph 3. Kulp shall also be entitled
to reimbursement for all ordinary and necessary business and travel expenses
incurred in connection with his consulting services consistent with Lamonts'
reimbursement guidelines established for the Board of Directors.
4. PUBLICITY.
Lamonts and Kulp agree that the publicly-stated reasons for Kulp's
resignation from Lamonts, and the timing of any such statements, shall be
mutually agreed to by Lamonts and Kulp. The terms of this Agreement will be
kept confidential and will not be disclosed to any other person except the
parties' legal and tax advisors and Kulp's immediate family, and except as
disclosure may be required by applicable law.
5. MUTUAL RELEASE OF CLAIMS.
(a) In consideration of the payments and other benefits
furnished by Lamonts to Kulp as set forth herein, Kulp hereby voluntarily
releases, agrees not to sue and discharges Lamonts, its parents, subsidiaries,
affiliates, and its and their respective directors, officers, employees,
stockholders, bondholders and their representatives, agents, attorneys,
successors and assigns (the "Released Parties") of and from any and all causes
of action, suits, claims, charges, complaints, contracts, agreements and
promises whatsoever, in law or equity, against the Released Parties which Kulp,
his heirs, executors or administrators may now have or hereafter can, shall or
may have for, upon, or by reason of any matter, cause or thing whatsoever,
including, but not limited to any and all matters arising out of Kulp's
employment by any of the Released Parties and/or the cessation of said
employment, including, but not limited to, any alleged breach of the Employment
Agreement by any of the Released Parties or alleged violation of Title VII of
the Civil Rights Act of 1964, the Age Discrimination
<PAGE>
in Employment Act of 1967, the Employee Retirement Income Security Act, and any
other federal, state or local law, regulation or ordinance and/or public policy,
having any bearing whatsoever on the terms and conditions and/or cessation of
Kulp's employment with Lamonts; provided, however, that Kulp does not waive,
release or relinquish any rights set forth in this Agreement or the
Indemnification Agreement (which shall continue in full force and effect after
the Resignation Date according to its terms), or the right to enforce such
rights. Lamonts shall include Kulp as a covered party in any directors and
officers insurance coverage procured from time to time, if any, for its current
officers and directors, for a six-year period running from the Resignation Date
(unless during that time Lamonts elects not to procure such coverage for its
current officers and directors).
(b) In consideration of the promises furnished by Kulp to
Lamonts as set forth herein, Lamonts hereby voluntarily releases, agrees not to
sue and discharges Kulp of and from any and all causes of action, suits, claims,
charges, complaints, contracts, agreements, and promises whatsoever, in law or
equity, against Kulp which Lamonts, its successors or assigns may now have or
hereafter can, shall or may have for, upon, or by reason of any matter, cause or
thing whatsoever, including, but not limited to any and all matters arising out
of Kulp's employment by Lamonts and/or the cessation of said employment and his
services as an officer and director of Lamonts, including, but not limited to,
any alleged breach of any federal, state or local law, regulation or ordinance
and/or public policy, having any bearing whatsoever on the terms and conditions
and/or cessation of Kulp's employment with Lamonts; provided, however, that
Lamonts does not waive, release or relinquish any rights set forth in this
Agreement or Section 2(d) of the Employment Agreement, or the right to enforce
such rights (including by injunctive relief), nor does Lamonts waive any rights
or claims against Kulp which may arise out of facts presently unknown to Lamonts
which would constitute a willful (as defined in Section 5(d) of the Employment
Agreement) breach of fiduciary duty by Kulp or a crime under any federal or
state law. Provided, however, that nothing herein shall preclude Kulp from
using for his personal benefit his general expertise and knowledge of the
apparel industry.
6. ENTIRE AGREEMENT.
This Agreement constitutes the complete agreement of the parties with
respect to the subject matter referred to herein and supersedes, terminates and
extinguishes all prior or contemporaneous negotiations, agreements, obligations,
rights and representations of every nature with respect thereto, including but
not limited to Sections 1, 2(a), (b) and (c), 3, 4, 5, 6, 7, 8 and 10 of the
Employment Agreement. This Agreement shall not alter or extinguish Kulp's
obligations and Lamonts' rights under Section 2(d) of the Employment Agreement.
This Agreement may be amended only by a subsequent writing signed by both
parties hereto.
7. BINDING EFFECT.
This Agreement shall be binding upon and shall inure to the benefit of
the respective parties hereto and Kulp's heirs and Lamonts' successors and
assigns.
8. GOVERNING LAW.
This Agreement shall be construed and governed by the laws of the
State of Washington.
9. REPRESENTATIONS BY KULP.
(a) Kulp acknowledges that he has been advised by Lamonts that
he is entitled to a period of up to twenty-one (21) days within which to
consider this Agreement before signing it, if he wishes. Kulp expressly
acknowledges that he has taken sufficient time to consider this Agreement before
signing it.
(b) Kulp acknowledges and agrees that he is fully aware of his
right to discuss any and all aspects of this matter with an attorney of his
choice, that Lamonts has advised him of that right, that he has carefully read
and fully understands all of the provisions of this Agreement, and that he is
voluntarily entering into this Agreement.
10. REPRESENTATIONS BY LAMONTS.
This Agreement has been approved by Lamonts' Board of Directors, and
will be executed by a duly authorized member of the Board of Directors.
<PAGE>
11. REVOCATION.
This Agreement will not become effective or binding on the parties
until seven (7) days after it is signed, during which time Kulp may revoke this
Agreement if he wishes to do so. Any revocation must be in writing and directed
to ________________.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
LAMONTS APPAREL, INC.
By:
-------------------------------
Title:
----------------------------
FRANK E. KULP
-----------------------------------
<PAGE>
VIA FEDERAL EXPRESS
October 13, 1994
Lamonts Apparel, Inc.
3650 131st Avenue SE
Bellevue, WA. 98006
Attn: Mr. Earl Spokane
RE: LAMONTS APPAREL, INC. ("BORROWER")
Gentlemen:
Reference is hereby made to that certain Loan And Security Agreement by and
between FOOTHILL CAPITAL CORPORATION ("Foothill") and LAMONTS APPAREL, INC.
("Borrower") dated as of January 13, 1994 (as amended and supplemented, the
"Agreement").
Foothill is in receipt of your request for it to grant, and hereby grants, a
temporary increase in the "Maximum Amount" that may be advanced under the
Agreement during the period from October 1, 1994, through December 31, 1994,
from $28,000,000 to $31,000,000.
This facility shall be available to Borrower as an accommodation by Foothill
from October 1, 1994 through December 31, 1994 only. Borrower agrees to pay
Foothill an Overline fee in the amount of $30,000 upon execution of the
acknowledgment copy of this letter, and said fee shall be earned at the time of
payment and shall be non-refundable.
<PAGE>
Lamonts Apparel, Inc.
October 13, 1994
Page Two
Foothill's granting of said accommodation does not affect or diminish Foothill's
rights hereafter to require strict performance by Borrower of each provision of
the Agreement. Foothill's rights and remedies under the Agreement shall
continue in full force and effect and the consequences of any act or failure to
act on the part of Borrower which would constitute an Event of Default as
defined in the Agreement are not waived, except as contemplated by that certain
waiver executed concurrently herewith.
If all the foregoing correctly and accurately sets forth our understanding,
please acknowledge by signing in the space provided below.
Sincerely, Agreed to this ___ day of October, 1994.
FOOTHILL CAPITAL CORPORATION LAMONTS APPAREL, INC.
Lisa M. Gonzales By
Assistant Vice President -------------------------
Its
-------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
by and between
LAMONTS APPAREL, INC., DEBTOR-IN-POSSESSION
and
FOOTHILL CAPITAL CORPORATION
Dated as of January 12, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . 9
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . 9
1.5 Schedules and Exhibits.. . . . . . . . . . . . . . . . . . . 9
2. LOAN AND TERMS OF PAYMENT. . . . . . . . . . . . . . . . . . . . . 10
2.1 Revolving Advances.. . . . . . . . . . . . . . . . . . . . . 10
2.2 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . 10
2.3 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4 Interest: Rates, Payments, and Calculations . . . . . . . . 10
2.5 Crediting Payments; Application of Collections . . . . . . . 11
2.6 Statements of Obligations. . . . . . . . . . . . . . . . . . 12
2.7 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. CONDITIONS; TERM OF AGREEMENT. . . . . . . . . . . . . . . . . . . 13
3.1 Conditions Precedent to Initial Advance. . . . . . . . . . . 13
3.2 Conditions Precedent to All Advances.. . . . . . . . . . . . 14
3.3 Term; Automatic Renewal. . . . . . . . . . . . . . . . . . . 14
3.4 Effect of Termination. . . . . . . . . . . . . . . . . . . . 14
4. CREATION OF SECURITY INTEREST. . . . . . . . . . . . . . . . . . . 14
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . 14
4.2 Negotiable Collateral. . . . . . . . . . . . . . . . . . . . 15
4.3 Collection of Accounts, General Intangibles,
Negotiable Collateral. . . . . . . . . . . . . . . . . . . . 15
4.4 Delivery of Additional Documentation Required. . . . . . . . 15
4.5 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . 15
4.6 Right to Inspect . . . . . . . . . . . . . . . . . . . . . . 16
5. REPRESENTATIONS AND WARRANTIES.. . . . . . . . . . . . . . . . . . 16
5.1 No Prior Encumbrances. . . . . . . . . . . . . . . . . . . . 16
5.2 Eligible Inventory . . . . . . . . . . . . . . . . . . . . . 16
5.3 Location of Inventory. . . . . . . . . . . . . . . . . . . . 16
5.4 Inventory Records. . . . . . . . . . . . . . . . . . . . . . 16
5.5 Location of Chief Executive Office; FEIN . . . . . . . . . . 16
5.6 Due Organization and Qualification . . . . . . . . . . . . . 16
5.7 Due Authorization; No Conflict . . . . . . . . . . . . . . . 17
5.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.9 No Material Adverse Change in Financial Condition. . . . . . 17
5.10 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . 17
5.11 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . 17
5.12 Environmental Condition. . . . . . . . . . . . . . . . . . . 18
5.13 Reliance by Foothill; Cumulative . . . . . . . . . . . . . . 18
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Accounting System. . . . . . . . . . . . . . . . . . . . . . 18
6.2 Monthly Reports. . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Financial Statements, Reports, Certificates. . . . . . . . . 19
6.4 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . 20
6.5 Designation of Inventory . . . . . . . . . . . . . . . . . . 20
6.6 Store Openings and Closings. . . . . . . . . . . . . . . . . 20
6.7 Inventory Audits . . . . . . . . . . . . . . . . . . . . . . 20
6.8 Real Property Leases . . . . . . . . . . . . . . . . . . . . 21
6.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.10 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.11 Change Name. . . . . . . . . . . . . . . . . . . . . . . . . 22
<PAGE>
6.12 No Setoffs or Counterclaims. . . . . . . . . . . . . . . . . 22
6.13 Location of Inventory. . . . . . . . . . . . . . . . . . . . 22
6.14 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 22
6.15 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . 22
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 23
7.1 Distributions. . . . . . . . . . . . . . . . . . . . . . . . 23
7.2 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 23
7.3 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.4 Restrictions on Fundamental Changes. . . . . . . . . . . . . 24
7.5 Maintenance of Net Worth . . . . . . . . . . . . . . . . . . 24
7.6 Extraordinary Transactions and Disposal of Assets. . . . . . 25
7.7 Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.8 Restructure. . . . . . . . . . . . . . . . . . . . . . . . . 25
7.9 Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . 25
7.10 Change of Control. . . . . . . . . . . . . . . . . . . . . . 25
7.11 Capital Expenditures . . . . . . . . . . . . . . . . . . . . 25
7.12 Accounting Methods . . . . . . . . . . . . . . . . . . . . . 25
7.13 Investments. . . . . . . . . . . . . . . . . . . . . . . . . 26
7.14 Transactions with Affiliates . . . . . . . . . . . . . . . . 26
7.15 Suspension . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.16 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 26
8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . 26
9. FOOTHILL'S RIGHTS AND REMEDIES.. . . . . . . . . . . . . . . . . . 28
9.1 Rights and Remedies. . . . . . . . . . . . . . . . . . . . . 28
9.2 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . 30
10. TAXES AND EXPENSES REGARDING THE COLLATERAL. . . . . . . . . . . . 30
11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . 31
11.1 Demand; Protest; etc.. . . . . . . . . . . . . . . . . . . . 31
11.2 Foothill's Liability for Collateral. . . . . . . . . . . . . 31
11.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . 31
12. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.. . . . . . . . . . . . 32
14. DESTRUCTION OF BORROWER'S DOCUMENTS. . . . . . . . . . . . . . . . 33
15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 33
15.1 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . 33
15.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . 33
15.3 Section Headings . . . . . . . . . . . . . . . . . . . . . . 33
15.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 33
15.5 Severability of Provisions . . . . . . . . . . . . . . . . . 34
15.6 Amendments in Writing. . . . . . . . . . . . . . . . . . . . 34
15.7 Counterparts; Telefacsimile Execution. . . . . . . . . . . . 34
15.8 Revival and Reinstatement of Obligations . . . . . . . . . . 34
15.9 Integration. . . . . . . . . . . . . . . . . . . . . . . . . 34
15.10 Credit Card Agreements.. . . . . . . . . . . . . . . . . . . 34
15.11 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . 35
<PAGE>
SCHEDULES
Schedule P-1 Permitted Liens
Schedule 5.8 Litigation
Schedule 5.12 Environmental Conditions
Schedule 6.13 Inventory Locations
Schedule 7.13 Investments
Schedule 7.14 Affiliate Transactions
EXHIBITS
Exhibit B Blocked Account Agreement
<PAGE>
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT, is entered into as of January 12, 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; and
C. Borrower has requested Foothill to provide 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 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.
"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) the average Daily Balance of advances made
by Foothill under SECTION 2.1 that were outstanding during the immediately
preceding month.
"BANKRUPTCY CASE" means Borrower's Chapter 11 case (No. 95-00100) in
the Bankruptcy Court.
<PAGE>
"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.
"BLOCKED ACCOUNT AGREEMENT" means that certain Depository Account
Agreement substantially in the form of EXHIBIT B 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 on which all of the conditions precedent
set forth in SECTION 3.1 are met.
"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 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 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.
<PAGE>
"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.
"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.
"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
<PAGE>
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 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.
<PAGE>
"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 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.
"LIEN" means a mortgage, pledge, lien, charge, encumbrance or security
interest.
"LOAN DOCUMENTS" means this Agreement, the Blocked Account Agreement,
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" has the meaning set forth in SECTION 2.1(B).
"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), premiums, liabilities (including all amounts charged to
Borrower's loan account pursuant to any agreement authorizing Foothill to charge
Borrower's loan account), obligations, fees, 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.
"ORIGINAL LOAN AGREEMENT" has the meaning set forth in RECITAL A.
"OVERADVANCE" has the meaning set forth in SECTION 2.3.
"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.
<PAGE>
"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.
"PREPETITION OBLIGATIONS" means Borrower's obligations to Foothill
under the Original Loan Agreement as of the date of filing of the Bankruptcy
Case together with interest thereon and additional fees relating to outstanding
letter of credit guarantees thereunder.
"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 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.
"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.
"MATURITY 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.
"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.
"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
<PAGE>
"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 (i) 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, LESS (ii) the amount of the Prepetition Obligations. 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) Foothill shall have no obligation to make advances
hereunder to the extent they would cause the outstanding Obligations to exceed
Five Million Dollars ($5,000,000) (the "Maximum Amount").
2.2 [INTENTIONALLY OMITTED]
2.3 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to SECTION 2.1 is greater than
either the dollar or percentage limitations set forth in SECTION 2.1 (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.
2.4 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. All Obligations 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, 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.
(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
eight and one-half percent (8.5%) 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.
<PAGE>
(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 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 Twenty-Five
Thousand Dollars ($25,000) which is earned, in full, and payable on the Closing
Date;
(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) 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; and
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(d) Loan Servicing Fee. On the first day of each month
during the term of this Agreement, commencing February 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.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of
Foothill to make the initial advance 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 January 20,
1995;
(b) The Bankruptcy Court Order shall have been entered;
(c) To the extent Foothill deems them necessary, Foothill
shall have received amendments to or replacements of each of the following
documents, duly executed, and each such document shall be in full force and
effect:
i) the Blocked Account Agreement; and
ii) a warehouseman's letter from Assembly
Transportation Distribution Systems, Inc., the
manager of Borrower's distribution center in Kent,
Washington.
(d) 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;
(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.
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3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The following shall be
conditions precedent to all advances 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, 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, 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
shall have been issued and remain in force by any governmental authority against
Borrower, Foothill, or any of their Affiliates.
3.3 TERM. 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 February 28, 1995 (the "Maturity Date"). 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 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 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.
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 documents that Foothill may reasonably
request, in form
<PAGE>
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.
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
<PAGE>
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.
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 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.
<PAGE>
5.13 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and
representation contained in this Agreement automatically shall be deemed
repeated with each advance 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 (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 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
<PAGE>
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 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 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
<PAGE>
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 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.
6.15 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
<PAGE>
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.
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, including Indebtedness under the Original Loan Agreement;
(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;
(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).
<PAGE>
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 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 during the
fiscal year ending January 31, 1996, where the aggregate amount of such capital
expenditures (net of any landlord reimbursements) in such fiscal year of
Borrower is in excess of Two Million Dollars ($2,000,000).
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.
<PAGE>
7.16 USE OF PROCEEDS. Use the proceeds of the advances made
hereunder for any purpose other than: (a) to pay transactional fees, costs and
expenses incurred in connection with this Agreement; and (b) 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;
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 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
<PAGE>
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) 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 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;
<PAGE>
(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;
(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
<PAGE>
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.
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
With copy to: JOSEPH E. MEYERS
Warnaco, Inc.
325 Lafayette Street
Bridgeport, Connecticut 06601
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn.: Business Finance Division Manager
<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.
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.
<PAGE>
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 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
---------------------------------------------------
Title:
------------------------------------------------
LAMONTS APPAREL, INC.,
a Delaware corporation, Debtor-In-Possession
By:
---------------------------------------------------
Title:
------------------------------------------------
<PAGE>
November 2, 1994
Earle J. Spokane
Lamonts Apparel, Inc.
3650 131st Avenue SE
Bellevue, WA 98006
Dear Earle:
I would like to apologize for the time that it has taken for us to reply to you.
After carefully going through all of the numbers we have come up with the
following proposed amendment to the Credit Card Plan Agreement dated September
30, 1992, as amended (the "Agreement") between Lamonts Apparel, Inc. ("you") and
National City Bank, Columbus ("we").
For the remaining 1994 year end, we feel that the amount that has been
projected should be achieved. If the amount is not achieved, we will
adjust the 1994 calendar year minimum level as provided in 3.6(E) of the
Agreement for the impact of the closed stores for 1994.
Effective beginning with the 1995 calendar year, we will adjust the
Minimum Level provided for in Section 3.6(e) of the Agreement from
$51,000,000.00 to $48,000,000.00 In the event that you close additional
Company Stores, we may further decrease the Minimum Level. However, in
the event that you open Company Stores, you agree that we can increase the
Minimum Level to provide for credit's normal proportional share of the new
store sales.
The Amendment contained in this letter is limited precisely as written and
should not be considered to be a consent or waiver of any term or
condition of the Plan Agreement or any other document referred to thereon.
Except as expressly provided herein, the terms and provisions of the
Agreement shall remain in full force and effect.
If you agree to the terms of this amendment to the Agreement please have an
authorized represented sign and return the enclosed copy of this amendment.
Sincerely,
NATIONAL CITY BANK
By:
--------------
Its:
--------------
<PAGE>
November 2, 1994
Earle J. Spokane
Page 2
Acknowledged and agreed this ___ day of November, 1994, by Lamonts
Apparel, Inc.
Lamonts Apparel, Inc.
By:
--------------
Its:
--------------
<PAGE>
LAMONTS APPAREL, INC.
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 WEEKS ENDED
-------------------------------------------------------------------------------------------
OCTOBER 29, 1994 OCTOBER 30, 1993 OCTOBER 31, 1992
------------------------------ --------------------------- ----------------------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
-------------- --------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS (LOSS)
Net earnings (loss) ($44,525) ($44,525) ($10,871) ($10,871) $4,277 $4,277
-------------- --------------- ------------- ------------ ------------ -------------
-------------- --------------- ------------- ------------ ------------ -------------
NUMBER OF SHARES
Weighted average shares:
Outstanding:
Common stock 14,583,038 14,583,038 8,917,624 8,917,624 233,791 233,791
Preferred stock 2,527,578
Incremental shares for
outstanding stock options 400,221 428,027 2,548 (2,803)
Incremental shares for
outstanding warrants:
1992 Warrants (2,272,465) (459,145) 1,670
1994 Warrants (98,298)
Incremental shares for conversion
of preferred stock 58,720
-------------- --------------- ------------- ------------ ------------ -------------
14,583,038 15,140,074 8,917,624 8,886,506 236,339 291,378
-------------- --------------- ------------- ------------ ------------ -------------
-------------- --------------- ------------- ------------ ------------ -------------
Net earnings (loss) per share ($3.05) ($2.94) ($1.22) ($1.22) $18.10 $14.68
-------------- --------------- ------------- ------------ ------------ -------------
-------------- --------------- ------------- ------------ ------------ -------------
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to incorporation by reference in the Registration Statement of
Lamonts Apparel, Inc. on Form S-8 (File No. 33-68720) of our report, which
includes an explanatory paragraph concerning the substantial doubt which exists
about the Company's ability to continue as a going concern, dated January 26,
1995, on our audits of the consolidated financial statements of Lamonts Apparel,
Inc. as of October 29, 1994 and October 30, 1993, and for the 52 weeks ended
October 29, 1994, October 30, 1993 and October 31, 1992, which report is
included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Seattle, Washington
January 26, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-29-1994
<PERIOD-START> OCT-31-1993
<PERIOD-END> OCT-29-1994
<CASH> 2,694
<SECURITIES> 0
<RECEIVABLES> 1,994
<ALLOWANCES> 0
<INVENTORY> 61,713
<CURRENT-ASSETS> 72,325
<PP&E> 70,338
<DEPRECIATION> (15,677)
<TOTAL-ASSETS> 152,589
<CURRENT-LIABILITIES> 62,387<F1>
<BONDS> 66,026
<COMMON> 179
0
0
<OTHER-SE> 7,381
<TOTAL-LIABILITY-AND-EQUITY> 152,589
<SALES> 237,922
<TOTAL-REVENUES> 237,922
<CGS> 163,697
<TOTAL-COSTS> 163,697
<OTHER-EXPENSES> 107,530<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,620<F3>
<INCOME-PRETAX> (44,925)
<INCOME-TAX> (400)
<INCOME-CONTINUING> (44,525)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44,525)
<EPS-PRIMARY> (3.05)
<EPS-DILUTED> 0
<FN>
<F1>Includes $3.6 million accrual for store closure costs.
<F2>Includes operating & administrative expense of $88,520, depreciation and
amortization of $11,411, other costs of $369 and store closure costs of
$7,200.
<F3>Includes cash interest expense of $8,130 and non-cash interest expense of
$3,490.
</FN>
</TABLE>
