<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-15542
LAMONTS APPAREL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware #75-2076160
(State of Incorporation) (I.R.S. Employer Identification Number)
12413 Willows Road N.E., Kirkland, Washington 98034
(Address of Principal Executive Offices)
(206) 814-5700
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
--- ---
As of December 11, 1996, there were 17,900,053 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
Exhibit Index on Page 16
Page 1
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<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
FORM 10-Q
NOVEMBER 2, 1996
INDEX
Part I. Financial Information Page
Item 1 Consolidated Financial Statements ----
- Consolidated Balance Sheets - November 2, 1996 and 3
February 3, 1996
- Consolidated Statements of Operations and Accumulated
Deficit for the three months ended November 2, 1996 and 4
October 28, 1995
- Consolidated Statements of Operations and Accumulated
Deficit for the nine months ended November 2, 1996 and 5
October 28, 1995
- Consolidated Statements of Cash Flows for the nine months
ended November 2, 1996 and October 28, 1995 6
- Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 1 - Legal Proceedings 16
Item 3 - Defaults Upon Senior Securities 16
Item 6 - Exhibits and Reports on Form 8-K 16
2
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 2, FEBRUARY 3,
1996 1996
------------ -----------
<S> <C> <C>
Current Assets:
Cash $2,694 $1,581
Receivables - net 2,478 2,458
Inventories 52,770 30,401
Prepaid expenses and other 2,315 2,076
Restricted cash 1,217 1,058
----------- -----------
Total current assets 61,474 37,574
Property and equipment - net of accumulated depreciation and amortization
$26,656 and $23,041 as of November 2 and February 3, respectively 33,789 42,083
Leasehold interests 4,217 4,570
Excess of cost over net assets acquired - net 13,007 13,278
Deferred financing costs - net 2,170 2,713
Restricted cash 1,139 1,278
Other assets 981 865
----------- -----------
Total assets $116,777 $102,361
----------- -----------
----------- -----------
Liabilities not subject to settlement under reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility $29,565 $20,334
Accounts payable 24,400 8,417
Accrued payroll and related costs 2,564 2,396
Accrued taxes 1,187 821
Accrued interest 526 207
Accrued store closure costs 4,244 3,254
Other accrued expenses 5,802 4,393
----------- -----------
Total current liabilities 68,288 39,822
Obligations under capital leases 2,808 --
Other 547 250
----------- -----------
Total liabilities not subject to settlement under reorganization proceedings 71,643 40,072
----------- -----------
Liabilities subject to settlement under reorganization proceedings 103,538 104,845
----------- -----------
Stockholders' Equity (Deficit):
Common stock, $0.01 par value, 40,000,000 shares authorized, 17,900,053 and
17,899,549 shares issued and outstanding as of November 2 and February 3,
respectively 179 179
Additional paid-in capital 62,963 62,921
Minimum pension liability adjustment (250) (250)
Accumulated deficit (121,296) (105,406)
----------- -----------
Total stockholders' equity (deficit) (58,404) (42,556)
---------- ----------
Total liabilities and stockholders' equity (deficit) $116,777 $102,361
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------
NOVEMBER 2, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
Revenues $50,705 $49,802
Cost of merchandise sold 32,283 32,162
--------- ---------
Gross profit 18,422 17,640
--------- ---------
Operating and administrative expenses 16,504 18,172
Depreciation and amortization 2,015 2,300
--------- ---------
Operating costs 18,519 20,472
--------- ---------
Loss from operations before other income (expense)
and reorganization expenses (97) (2,832)
Other income (expense):
Interest expense (contractual interest of $3.5 million
in 1996 and $3.6 million in 1995) (1,318) (1,416)
Other 3 33
--------- ---------
Loss from operations before reorganization expenses (1,412) (4,215)
Reorganization expenses 4,984 728
--------- ---------
Net loss (6,396) (4,943)
Accumulated deficit, beginning of period (114,900) (91,850)
--------- ---------
Accumulated deficit, end of period ($121,296) ($96,793)
--------- ---------
--------- ---------
Net loss per common share ($0.36) ($0.28)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
NOVEMBER 2, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
Revenues $138,284 $134,196
Cost of merchandise sold 88,237 87,658
--------- ----------
Gross profit 50,047 46,538
--------- ----------
Operating and administrative expenses 49,482 51,371
Depreciation and amortization 6,051 7,061
--------- ----------
Operating costs 55,533 58,432
--------- ----------
Loss from operations before other income
(expense) and reorganization expenses (5,486) (11,894)
Other income (expense):
Interest expense (contractual interest of
$10.3 million in 1996 and $10.2 million in 1995) (3,773) (3,729)
Other 8 183
--------- ----------
Loss from operations before reorganization expenses (9,251) (15,440)
Reorganization expenses 6,639 1,968
--------- ----------
Net loss (15,890) (17,408)
Accumulated deficit, beginning of period (105,406) (79,385)
--------- ----------
Accumulated deficit, end of period ($121,296) ($96,793)
--------- ----------
--------- ----------
Net loss per common share ($0.89) ($0.97)
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
NOVEMBER 2, OCTOBER 28,
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($15,890) ($17,408)
Adjustments to reconcile net loss to net cash used in operating
activities before reorganization items:
Depreciation and amortization 6,051 7,061
Reorganization expenses 6,639 1,968
Increase in accounts receivable (43) (461)
Increase in inventories (23,211) (13,949)
Decrease (increase) in prepaid expenses and other (700) 1,668
Increase in accounts payable 15,983 10,487
Increase in accrued interest 319 142
Increase in accrued expenses 1,684 1,022
Other (35) (1,500)
---------- ----------
Net cash used in operating activities before reorganization items (9,203) (10,970)
Operating cash flows used by reorganization items:
Payments for professional fees and other expenses related to the
Chapter 11 proceedings (2,195) (2,059)
---------- ----------
Net cash used in operating activities (11,398) (13,029)
---------- ----------
Cash flows from investing activities:
Capital expenditures (525) (1,088)
Proceeds from sale of land and building 4,459 --
Other 45 (502)
---------- ----------
Net cash provided by (used in) investing activities 3,979 (1,590)
---------- ----------
Cash flows from financing activities:
Post-petition borrowings under working capital facility 187,979 171,204
Post-petition payments under working capital facility (178,748) (161,175)
Principal payments on obligations under capital leases (650) (946)
Other (49) (46)
---------- ----------
Net cash provided by financing activities 8,532 9,037
---------- ----------
Net increase (decrease) in cash 1,113 (5,582)
Cash, beginning of period 1,581 7,972
---------- ----------
Cash, end of period $2,694 $2,390
---------- ----------
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid for interest $3,615 $3,587
---------- ----------
---------- ----------
Supplemental disclosure of noncash investing and financing activities:
Capital lease relating to sale-leaseback of Alderwood store $2,835 --
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1996
NOTE 1 - PETITION FOR RELIEF UNDER CHAPTER 11
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the
"Company") filed a voluntary petition for relief (the "Filing") under Chapter
11 ("Chapter 11") of title 11 of the United States Code (the "Bankruptcy
Code") in the United States Bankruptcy Court (the "Court") for the Western
District of Washington at Seattle. In Chapter 11, the Company has continued
to manage its affairs and operate its business as a debtor-in-possession.
The Company and representatives of the committees that represent Lamonts'
unsecured trade creditors, bondholders and equityholders (the "Committees")
have reached an understanding regarding the material economic terms of a
proposed consensual plan of reorganization designed to enable the Company to
emerge from Chapter 11. On August 23, 1996, that plan was filed with the
Court, along with the proposed disclosure statement relating to that plan.
On October 23, 1996, an amended plan of reorganization (the "Plan") and an
amended disclosure statement (the "Disclosure Statement") were filed with the
court. The Disclosure Statement was approved by the Court on October 24,
1996, and the Plan and Disclosure Statement have been transmitted to all
impaired creditors and equity security holders along with ballots for the
purpose of soliciting acceptances of the Plan. A hearing to consider
confirmation of the Plan has been scheduled by the Court for January 6, 1997.
The Plan provides that the Company's current equity holders will be
substantially diluted. The confirmation and effectiveness of the Plan, the
implementation of the Company's proposed business plan and the Company's
proposed equity distribution are each subject to numerous uncertainties set
forth in detail in the Plan and Disclosure Statement, and the Plan is subject
to modification and/or withdrawal. Accordingly, the value of the Company's
common stock remains highly speculative.
In a Chapter 11 reorganization plan, the rights of the pre-Filing creditors may
be significantly altered. Pre-Filing creditors may receive substantially less
than the full face amount of claims. Certain pre-Filing creditors have filed
claims with the Court substantially in excess of amounts reflected in the
Company's financial statements. The Company continues to analyze and reconcile
the claims filed by pre-Filing creditors with the Company's financial records,
but believes it has made appropriate provision for all claims filed. However,
no estimate of the amount of adjustments, if any, from recorded amounts, to
amounts to be realized by pre-Filing creditors, is available at this time.
These liabilities are included in the balance sheet as "liabilities subject to
settlement under reorganization proceedings."
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. Although the Company is
authorized to operate its business as a 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
Court approval.
As a result of the Filing, the Company is currently in default under the
indentures governing the Company's 10-1/4% Subordinated Notes due November 1999
(the "10-1/4% Notes") and 13-1/2% Senior Subordinated Notes which were due
February 1995 (the "13-1/2% Notes"). As a result, all unpaid principal of, and
accrued pre-petition interest on, such debt became immediately due and payable.
The payment of such debt and accrued but unpaid interest thereon is prohibited
during the pendency of the Company's Chapter 11 case, and these liabilities have
been included in the balance sheet as "liabilities subject to settlement under
reorganization proceedings."
<PAGE>
Pre-petition liabilities subject to settlement under reorganization proceedings
include the following (dollars in thousands):
NOVEMBER 2, FEBRUARY 3,
1996 1996
------------ ------------
Accounts payable and accrued liabilities $23,194 $23,511
Capital lease obligations 11,395 12,321
10-1/4% Notes (including pre-petition
accrued interest) related party 67,576 67,576
13-1/2% Notes (including pre-petition
accrued interest) 838 838
Notes payable 535 599
------------ ------------
$103,538 $104,845
------------ ------------
------------ ------------
The reductions in capital lease obligations since February 3, 1996, consist of
payments to landlords for store locations in the ordinary course of business
operations of the Company.
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 case, a review has been undertaken
of all the Company's obligations under its executory contracts. As of November
2, 1996, the Company has rejected 10 real property leases and certain executory
contracts and assumed 5 leases (with certain conditions and limitations).
The Company has filed with the Court a motion for approval of the rejection
of four additional leases for stores the Company is currently in the process of
closing. A hearing on the motion is scheduled for December 20, 1996. The
Plan provides for the assumption or rejection of other executory contracts and
leases which have not been previously assumed or rejected.
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
accompanying financial statements do not include any adjustments that might
result from the outcome of these matters or adjustments that might result should
the Company be unable to continue as a going concern. Generally if a debtor-in-
possession is unable to emerge from Chapter 11, such debtor-in-possession could
be required to liquidate its assets.
Costs associated with the reorganization of the Company are charged to expense
as incurred. Under the requirements of the Chapter 11 Filing, the Company is
required to pay certain expenses of the Committees. The amounts charged to
reorganization expense by the Company have consisted and will continue to
consist primarily of write-off of property and equipment, professional fees,
lease related costs and severance costs.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries, of which
all are inactive. All significant intercompany transactions and account
balances have been eliminated in consolidation. The financial statements
included herein should be read in conjunction with the audited, annual financial
statements for the fiscal year ended February 3, 1996, included in the Company's
Annual Report on Form 10-K. The year-end condensed balance sheet was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles.
The accompanying consolidated financial statements of the Company have been
prepared on a going concern basis of accounting, and, for the periods subsequent
to the Filing, in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE. Recurring losses from operations and
the matters discussed herein related to the Filing raise substantial doubt about
the Company's ability to continue on a going concern. The ability of the
Company to continue as a going concern is dependent upon, among other things,
(i) the ability to comply with its debtor-in-possession financing agreement,
(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.
8
<PAGE>
The financial statements presented herein reflect all adjustments that are, in
the opinion of management, necessary to present fairly the operating results for
the periods reported. Except as discussed in Note 1, all such adjustments are
normal and recurring in nature. The results of operations for the quarterly
periods are not necessarily indicative of results for the entire year.
OTHER
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("Statement No. 121"). Statement No. 121 requires that long-lived assets and
certain intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If impairment has occurred, an impairment loss must be recognized.
Implementation of Statement No. 121 is required in the Company's fiscal year
ending February 1, 1997. Based on estimates by management as of November 2,
1996, the adoption of this standard has not had a material effect on the
financial position, results of operations, or liquidity of the Company.
However, if the Company is not successful in implementing it's plans as
discussed in Note 1, future application of statement 121 could have a material
impact on the Company.
NOTE 3 - LOAN AND SECURITY AGREEMENTS
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement (the "Old DIP Facility") with Foothill Capital
Corporation ("Foothill"). The Old DIP Facility provided for a borrowing
capacity of up to $32.0 million in revolving loans, including up to $15.0
million of letters of credit, subject to borrowing base limitations based upon,
among other things, the value of inventory and certain real property. The Old
DIP Facility provided that interest would accrue at the rate of 3% per annum in
excess of the Reference Rate (as defined therein), payable monthly in arrears.
The Old DIP Facility also provided that in the event of a default in the payment
of any amount due thereunder, the interest rate on such defaulted amount would
be 4.5% per annum in excess of the Reference Rate, payable on demand. At June
4, 1996, the date the Company ended its financing agreement with Foothill, the
Reference Rate was 8.25%.
The Old DIP Facility had been extended from its initial maturity date of May 17,
1996 to the earlier of August 17, 1996 (with provisions for two additional
quarterly renewals) or the effective date of the Company's plan of
reorganization. However, on June 4, 1996, the Company entered into a loan and
security agreement (the "FNBB Facility") with the First National Bank of
Boston ("FNBB") replacing the Old DIP Facility, after a hearing by the Court
and the entering of an order approving such financing. Although Foothill had
taken no action to declare the Company in default as of the date on which the
Old DIP Facility was terminated, the Company was in violation of the net
worth maintenance covenant in the Old DIP Facility.
Pursuant to the FNBB Facility the Company is able to borrow up to $32 million
in revolving loans (including $3 million of letters of credit), subject to
borrowing base limitations based upon, among other things, the value of
inventory and certain real property, during the pendency of the Company's
Chapter 11 proceeding or until June 30, 1997, whichever is sooner. Effective
November 8, 1996, the agreement was amended to increase the Company's
borrowing limit from $32 million to $35 million to accommodate seasonal
requirements for the Company's holiday season purchases. The borrowing limit
will revert to $32 million on December 15, 1996. In addition, during the
period beginning on December 15, 1996 and ending on January 31, 1997, the
Company is required to maintain the aggregate amount of outstanding
borrowings under the FNBB Facility at no more than $21.5 million for a period
of 30 consecutive days. Subject to FNBB's approval of a plan of
reorganization and other specified conditions, the FNBB Facility will
continue for a two year period following the effective date of a plan of
reorganization.
The FNBB Facility provides that for Base Rate (as defined therein), loans
interest will accrue at the rate of 1.5% per annum in excess of the Base Rate
payable monthly in arrears. For Eurodollar loans, the interest rate will be the
Eurodollar Rate (as defined therein) plus 2.75% (adjusted as provided therein).
The FNBB Facility also provides that in the event of a default in the payment of
any amount due thereunder, the interest rate on such default shall be the
greater of (i) 3.0% per annum in excess of the Base Rate and (ii) the applicable
rate on the loan, payable on demand. The interest rates for both Base Rate loans
and Eurodollar loans are subject to adjustment after the Plan is approved and
other conditions described in the FNBB Facility have occurred based on financial
ratios of the Company specified in the FNBB Facility. At November 2, 1996, the
Base Rate was 8.25% and the Eurodollar Rates ranged from 5.25% to 5.75%.
The Company has paid FNBB $ 235,000 in fees for the FNBB Facility as of November
2, 1996. Fees payable under the FNBB Facility consist primarily of monthly
payments equal to 0.5% (adjusted as provided therein) of the average unused
borrowing capacity and monthly payments equal to 0.125% of the borrowing
capacity. There will be an additional fee after
9
<PAGE>
the effective date of a plan of reorganization and the satisfaction of certain
conditions described in the FNBB Facility in the amount of $560,000 which shall
be payable as follows: (a) if the conditions are satisfied prior to December 31,
1996, $336,000 shall be payable on the date the conditions are satisfied and
$224,000 shall be payable on December 31, 1996 (or, if earlier, the time of
termination of the commitments), or (b) if the conditions are satisfied on or
after December 31, 1996, $336,000 shall be payable on the date the conditions
are satisfied and $224,000 shall be payable on December 31, 1997 (or, if
earlier, the time of termination of the commitments).
Borrowings under the FNBB Facility, together with cash flow from operations,
may be used by the Company to finance general working capital requirements,
including purchases of inventory and other expenditures permitted under the
FNBB Facility. The FNBB Facility is secured by inventory and substantially
all other assets and is an allowed administrative expense claim with super
priority over other administrative expenses in the Chapter 11 case. The FNBB
Facility imposes limitations on the Company with respect to, among other
things, (i) consolidations, mergers, and sales of assets, (ii) capital
expenditures in excess of specified levels and (iii) the prepayment of
certain indebtedness. Additionally, the Company must comply with certain
operating and financial covenants (as described therein). Although the
Company failed to comply with certain covenants related to inventory levels
for the months ending July 6, 1996 and August 3, 1996, the Company requested
and received a waiver relating to such breaches.
NOTE 4 - LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss by the weighted
average number of common shares outstanding during the period. The common stock
equivalents, represented by stock options and warrants were not considered in
the calculation as they either have an exercise price greater than the
applicable market price, or the effect of assuming their exercise or conversion
would be anti-dilutive. The weighted average number of shares outstanding for
the quarter and nine months ended November 2, 1996 were 17,900,053 and
17,899,857, respectively.
The weighted average number of shares outstanding for the quarter and nine
months ended October 28, 1995 were 17,896,363 and 17,891,566, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various 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 adverse effect upon the distribution under the Plan by
increasing the total amount of allowed general unsecured claims and could
have a material adverse effect upon the Company's operating results during
the period in which the litigation is resolved. (See also Part II, Item 1.)
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain information and statements included in management's Discussion and
Analysis of Financial Condition and Results of Operations including, without
limitation, statements containing the words "believes", "anticipates",
"expects" and words of a similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause the actual results,
performance, or achievements of the Company, to be materially different from
any future results, performance, or achievements expressed or implied by such
forward-looking statements. Although it is no possible to itemize all the
factors and specific events that could affect the outlook of the Company,
factors that could significantly impact the expected results include, among
others, (i) national and local general economic and market conditions, (ii)
demographic changes, (iii) liability and other claims asserted against the
Company, (iv) competition, (v) the loss of significant customers or
suppliers, (vi) fluctuations in operating results, (vii) changes in business
strategy or development plans, (viii) business disruptions, (ix) the ability
to attract and retain qualified personnel, and (x) the confirmation of the
Plan and the terms thereof. The Company disclaims any obligations to update
any such factors or to announce publicly the result of any revisions to any
forward-looking statements contained or incorporated by reference herein to
reflect untrue events or developments.
BACKGROUND
Lamonts Apparel, Inc. (the "Company") retails brand-name apparel and accessories
for the entire family through its 42 full-line apparel stores. Lamonts
currently operates in malls and regional shopping centers located in the states
of Alaska, Idaho, Montana, Oregon, Utah and Washington. However, the Company
expects that four stores will be closed by year end, including the Montana
store.
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 (the "Court") for the Western
District of Washington at Seattle. In Chapter 11, the Company has continued
to manage its affairs and operate its business as a debtor-in-possession.
The Company and representatives of the committees that represent Lamonts'
unsecured trade creditors, bondholders and equityholders (the "Committees")
have reached an understanding regarding the material economic terms of a
proposed consensual plan of reorganization designed to enable the Company to
emerge from Chapter 11. On August 23, 1996, that plan was filed with the
Court, along with the proposed disclosure statement relating to that plan.
On October 23, 1996, an amended plan of reorganization (the "Plan") and an
amended disclosure statement (the "Disclosure Statement") were filed with the
court. The Disclosure Statement was approved by the Court on October 24,
1996, and the Plan and Disclosure Statement have been transmitted to all
impaired creditors and equity security holders along with ballots for the
purpose of soliciting acceptances of the Plan. A hearing to consider
confirmation of the Plan has been scheduled by the Court for January 6, 1997.
The Plan provides that the Company's current equity holders will be
substantially diluted. The confirmation and effectiveness of the Plan, the
implementation of the Company's proposed business plan and the Company's
proposed equity distribution are each subject to numerous uncertainties set
forth in detail in the Plan and Disclosure Statement, and the Plan is subject
to modification and/or withdrawal. Accordingly, the value of the Company's
common stock remains highly speculative.
In a Chapter 11 reorganization plan, the rights of the pre-Filing creditors may
be significantly altered. Pre-Filing creditors may receive substantially less
than the full face amount of claims. Certain pre-Filing creditors have filed
claims with the Court substantially in excess of amounts reflected in the
Company's financial statements. The Company continues to analyze and reconcile
the claims filed by pre-Filing creditors with the Company's financial records,
but believes it has made appropriate provision for all claims filed. However,
no estimate of the amount of adjustments, if any, from recorded amounts, to
amounts to be realized by pre-Filing creditors, is available at this time.
These liabilities are included in the balance sheet as "liabilities subject to
settlement under reorganization proceedings."
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. Although the Company is
authorized to operate its business as a 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
Court approval.
11
<PAGE>
As a result of the Filing, the Company is currently in default under the
indentures governing the Company's 10-1/4% Subordinated Notes due November
1999 (the "10 1/4% Notes") and 13-1/2% Senior Subordinated Notes
which were due February 1995 (the "13 1/2% Notes"). As a result, all unpaid
principal of, and accrued pre-petition interest on, such debt became
immediately due and payable. The payment of such debt and accrued but unpaid
interest thereon is prohibited during the pendency of the Company's Chapter
11 case.
Since February 3, 1996, the Company has closed one store and is in the process
of closing four additional under-performing stores, with the approval of the
Court. In connection with the closing of these four stores, located in Spokane,
Washington; Twin Falls, Idaho; Missoula, Montana; and Hillsboro, Oregon; a
reserve in the amount of $4.2 million has been established for the anticipated
costs associated with closing these stores. The reserve was established in the
quarter ended November 2, 1996, and is included in Reorganization expenses.
Management is continually evaluating store locations and operations to determine
whether to close, downsize or relocate stores that do not meet performance
objectives.
Management believes that Lamonts has made substantial progress in the period
since the Filing. The Company has closed unprofitable stores, eliminated
unprofitable merchandise lines, added a home decor line, replaced its shoe
licensee and reduced operating expenses. In addition, management implemented
new merchandising strategies designed to: (i) improve the quality of
merchandise offered while maintaining price points geared to the Company's
customer base, (ii) reduce cash operating expenses, and (iii) increase inventory
turns to improve the Company's performance. The Company also has initiated a
policy to mark-down and clear out any unsold merchandise within its respective
season. As a result, the age and quality of inventory has been improved
significantly.
On June 4, 1996, the Company entered into a new loan and security agreement (the
"FNBB Facility") with the First National Bank of Boston ("FNBB") replacing the
Company's existing loan agreement (the "Old DIP Facility") with Foothill Capital
Corporation ("Foothill"), after a hearing by the Court and the entering of an
order approving such financing. See "Liquidity and Capital Resources" herein.
RESULTS OF OPERATIONS
The following discussion and analysis provides information with respect to the
results of operations for the quarter ("3rd Quarter 1996") and nine month period
("YTD 1996") ended November 2, 1996 compared to the quarter ("3rd Quarter 1995")
and nine month period ("YTD 1995") ended October 28, 1995.
REVENUES. Revenues of $50.7 million for the 3rd Quarter 1996 increased 1.8% on
a total store basis from $49.8 million for the 3rd Quarter 1995. Comparable
store revenues (i.e., stores open for at least a year) increased 3.3% for the
3rd Quarter 1996 as compared to 3rd Quarter 1995. Revenues of $138.3 million
for YTD 1996 increased 3.0% on a total store basis from $134.2 million for YTD
1995. Comparable store revenues increased 4.7% for YTD 1996 as compared to YTD
1995. Management believes that revenues have increased due to increased levels
of inventory and overall improvement in the quality of the merchandise offered
in the stores compared to the prior year periods. In addition, the Company's
new merchandising strategy has resulted in quicker turnover of certain
categories of merchandise, and the strength of the home decor department has
resulted in increased sales.
GROSS PROFIT. Gross profit, as a percentage of revenues, increased to 36.3%
during the 3rd Quarter 1996 compared to 35.4% during the 3rd Quarter 1995.
Gross profit, as a percentage of revenues, increased to 36.2% for YTD 1996
compared to 34.7% for YTD 1995. The increase in gross profit resulted primarily
from (i) policies implemented to establish more competitive pricing strategies
and (ii) management's purchasing strategies, which have decreased the cost of
merchandise sold.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
of $16.5 million for the 3rd Quarter 1996 decreased 9.2% from $18.2 million
for the 3rd Quarter 1995. The decrease of $1.7 million primarily relates to
(i) a decrease in advertising expense of $0.3 million (ii) a decrease in
credit card fees of $0.3 million due to a decrease in the reserve for
doubtful accounts (iii) a reduction in payroll costs of $0.6 million due to a
reduction in employees and (iv) a reduction in operating costs attributable
to closed stores operating in the 3rd Quarter 1995, accounting for
approximately $0.4 million.
Operating and administrative expenses of $49.5 million for YTD 1996 decreased
3.7% from $51.4 million for YTD 1995. The decrease of $1.9 million primarily
relates to (i) a reduction in operating costs attributable to closed stores
operating in the YTD 1995, accounting for approximately $1.2 million and (ii)
lower payroll costs of $1.8 million due to a reduction in employees, offset by
an increase in advertising expense of $1.2 million.
12
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $2.0
million for the 3rd Quarter 1996 decreased $0.3 million as compared to $2.3
million for the 3rd Quarter 1995. Depreciation and amortization expense of $6.0
million for YTD 1996 decreased $1.1 million as compared to $7.1 million for YTD
1995. The decrease primarily relates to assets retired as a result of store
closures and assets becoming fully depreciated or amortized.
INTEREST EXPENSE. Interest expense of $1.3 million for the 3rd Quarter 1996
decreased $0.1 million from $1.4 million for the 3rd Quarter 1995. Interest
expense of $3.8 million for YTD 1996 increased $0.1 million from $3.7 million
for YTD 1995. This primarily relates to increased borrowing levels under the
Company's working capital facility, offset by lower interest rates.
REORGANIZATION EXPENSES. Reorganization expenses of $5.0 million for the 3rd
Quarter 1996 increased $4.3 million from $0.7 million for the 3rd Quarter 1995.
The YTD 1996 expense of $6.6 million increased $4.6 million from $2.0 million
for the YTD 1995. The reorganization expenses represent costs directly related
to the Company's Chapter 11 case and consist primarily of professional fees,
store closure costs and severance costs. The increase from the prior periods
consists of a $4.2 million store closure reserve established during the 3rd
Quarter 1996 in anticipation of the costs to close four stores by year end and
higher professional fees related to the preparation and filing of the Plan and
related proposed disclosure statement and the FNBB Facility.
NET LOSS. The Company reported a net loss of $6.4 million for the 3rd Quarter
1996 as compared to a net loss of $4.9 million for the 3rd Quarter 1995. The
loss for the 3rd Quarter 1996 increased $1.5 million from the prior period
primarily due to an increase of $4.3 million in reorganization expenses for
store closure reserve offset by (i) an increase of $0.8 million in gross profit,
(ii) a decrease of $0.3 million in depreciation and amortization expense and
(iii) a decrease of $1.7 million in operating expenses.
The YTD 1996 loss of $15.9 million decreased $1.5 million from the loss of $17.4
million for YTD 1995. The reduction for YTD 1996 resulted primarily from (i)
$3.5 million increase in gross profit, (ii) $1.9 million decrease in operating
and administrative expenses, and (iii) $1.0 million decrease in depreciation and
amortization expense, offset by $4.7 million increase in reorganization expenses
and $0.2 million increase in net other income (expense).
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company used $9.2 million of cash for operating activities before
reorganization items for YTD 1996, a decrease of $1.8 million as compared to
$11.0 million used for YTD 1995. Decreases in funds used was primarily due to a
decrease in net loss, offset by funds used to pay down trade payables and to
increase inventory levels.
The Company received $4.0 million of cash in investing activities for YTD 1996
as compared to using $1.6 million for YTD 1995. The increase of $5.6 million
results primarily from net sale proceeds of $4.5 million received from the sale-
leaseback of the Company's Alderwood store during YTD 1996 and less capital
expenditures.
The $0.5 million decrease in cash provided by financing activities is primarily
due to decreased borrowings of $0.8 million under the Company's working capital
facilities during YTD 1996 as compared to YTD 1995, offset by decreased payments
of capital leases of $0.3 million.
As of November 2, 1996, the Company had $2.7 million of cash and an additional
$1.2 million of current restricted cash, representing the prefunding of payroll
and taxes in connection with the Filing.
CAPITAL RESOURCES
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement with Foothill. The Old DIP Facility provided for a
borrowing capacity of up to $32.0 million in revolving loans, including up to
$15.0 million of letters of credit ("borrowing capacity"), subject to borrowing
base limitations based upon, among other things, the value of inventory and
certain real property. The Old DIP Facility had been extended from its initial
maturity date of May 17, 1996 to the earlier of August 17, 1996 (with provisions
for two additional quarterly renewals) or the effective date of the Company's
plan of reorganization. However, on June 4, 1996, the Company entered into the
FNBB Facility with FNBB replacing the Old DIP Facility, after a hearing by the
Court and the entering of an order approving such financing.
13
<PAGE>
Although Foothill had taken no action to declare the Company in default as of
the date on which the Old DIP Facility was terminated, the Company was in
violation of the net worth maintenance covenant in Old DIP Facility.
Pursuant to the FNBB Facility, the Company is able to borrow up to $32
million in revolving loans (including $3 million of letters of credit),
subject to borrowing base limitations based upon, among other things, the
value of inventory and certain real property, during the pendency of the
Company's Chapter 11 proceeding or until June 30, 1997. Effective November
8, 1996, the agreement was amended to increase the Company's borrowing limit
from $32 million to $35 million to accommodate seasonal requirements for the
Company's holiday season purchases. The borrowing limit will revert to $32
million on December 15, 1996. In addition, during the period beginning on
December 15, 1996 and ending on January 31, 1997, the Company is required to
maintain the aggregate amount of outstanding borrowings under the FNBB
Facility at no more than $21.5 million for a period of 30 consecutive days.
Subject to FNBB's approval of a plan of reorganization and other specified
conditions, the FNBB Facility will continue for a two year period following
the effective date of a plan of reorganization.
The FNBB Facility provides that for Base Rate loans interest will accrue at the
rate of 1.5% per annum in excess of the Base Rate (as defined therein), payable
monthly in arrears. For Eurodollar loans, the interest rate will be the
Eurodollar Rate (as defined therein) plus 2.75% (adjusted as provided therein).
The FNBB Facility also provides that in the event of a default in the payment of
any amount due thereunder, the interest rate on such default shall be the
greater of (i) 3.0% per annum in excess of the Base Rate and (ii) the applicable
rate on the loan, payable on demand. The interest rates for both Base Rate loans
and Eurodollar loans are subject to adjustment after the plan of reorganization
is approved and other conditions described in the FNBB Facility have occurred
based on financial ratios of the Company specified in the FNBB Facility. At
November 2, 1996, the Base Rate was 8.25% and the Eurodollar Rates ranged from
5.25% to 5.75%.
The Company has paid FNBB $235,000 in fees for the FNBB Facility as of November
2, 1996. Fees payable under the FNBB Facility consist primarily of monthly
payments equal to 0.5% (adjusted as provided therein) of the average unused
borrowing capacity and monthly payments equal to 0.125% of the borrowing
capacity. There will be an additional fee after the effective date of a plan of
reorganization and the satisfaction of certain conditions described in the FNBB
Facility in the amount of $560,000 which shall be payable as follows: (a) if the
conditions are satisfied prior to December 31, 1996, $336,000 shall be payable
on the date the conditions are satisfied and $224,000 shall be payable on
December 31, 1996 (or, if earlier, the time of termination of the commitments),
or (b) if the conditions are satisfied on or after December 31, 1996, $336,000
shall be payable on the date the conditions are satisfied and $224,000 shall be
payable on December 31, 1997 (or, if earlier, the time of termination of the
commitments).
Borrowings under the FNBB Facility, together with cash flow from operations,
may be used by the Company to finance general working capital requirements,
including purchases of inventory and expenditures permitted under the FNBB
Facility. The FNBB Facility is secured by inventory and substantially all
other assets and is an allowed administrative expense claim with super
priority over other administrative expenses in the Chapter 11 case. The FNBB
Facility imposes limitations on the Company with respect to, among other
things, (i) consolidations, mergers, and sales of assets, (ii) capital
expenditures in excess of specified levels and (iii) the prepayment of
certain indebtedness. Additionally, the Company must comply with certain
operating and financial covenants (as described therein). Although the
Company failed to comply with certain covenants related to inventory levels
for the months ending July 6, 1996 and August 3, 1996, the Company requested
and received a waiver relating to such breaches.
As of December 10, 1996, the Company had $27.2 million of borrowings
outstanding under the FNBB Facility with additional borrowing availability
thereunder of $7.8 million.
The Company's primary cash requirement is the procurement of inventory which
is currently funded through (i) borrowings under the FNBB Facility (ii) trade
credit and (iii) cash generated from operations. Like other apparel
retailers, the Company is highly 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.
If the Company is able to obtain its expected trade credit terms, the Company
believes that borrowings under the FNBB Facility and cash generated from
operations will provide the cash necessary to fund the Company's immediate
cash requirements. The adequacy of the Company's long-term capital resources
and liquidity will depend on whether and when the Plan is confirmed, as well
as other factors.
In addition, on October 11, 1996, the Company retained an investment banking
firm, with the approval of the Court, to raise additional equity capital to meet
the Company's long-term liquidity requirements. However, there can be no
assurances that the Company will be able to raise such equity capital, or
regarding the terms on which such capital may be available.
14
<PAGE>
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 and the financial condition of the Company. The ability of the
Company to pay dividends is restricted under the terms of the FNBB 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 (during the pendency of the Company's Chapter 11 case).
SEASONALITY
The Company's revenues are seasonal, with the Christmas season (included in the
Quarter ending the Saturday closest to January 31) being its strongest period.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Other than as set forth herein, no material change has occurred in the
litigation described in "Item 3 - Legal Proceedings" on pages 7 through 9 of the
Company's Annual Report on Form 10-K for the Year ended February 3, 1996, which
is incorporated herein by reference.
In addition to matters mentioned elsewhere in this Quarterly Report, in
connection with the Filing, the following has been filed in the Court:
- - On August 23, 1996, a plan of reorganization was filed with the Court,
along with the proposed disclosure statement relating to that plan.
On October 23, 1996, an amended plan of reorganization (the "Plan")
and an amended disclosure statement (the "Disclosure Statement") were
filed with the court. The Disclosure Statement was approved by the Court
on October 24, 1996, and the Plan and Disclosure Statement have been
transmitted to all impaired creditors and equity security holders along
with ballots for the purpose of soliciting acceptances of the Plan. A
hearing to consider confirmation of the Plan has been scheduled by the
court for January 6, 1997.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
As a result of the Filing, the Company is currently in default under the
indentures governing the 10-1/4% Notes ($67.6 million in principal and
prepetition accrued interest as of November 2, 1996) and 13-1/2% Notes ($0.8
million in principal and prepetition accrued interest as of November 2, 1996)
(see Note 1 of the Notes to the Consolidated Financial Statements contained
elsewhere in this document).
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
10.1 - First Amendment dated November 8, 1996 to Loan and
Security Agreement dated June 4, 1996 between First
National Bank of Boston and Lamonts Apparel, Inc.
27.1 - Financial Data Schedule.
99.1 - Debtor's Amended Plan of Reorganization Under Chapter
11 of the Bankruptcy Code
99.2 - Amended Disclosure Statement re Debtor's Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code
99.3 - Plan Documentary Supplement to Debtor's Amended Plan of
Reorganization under Chapter 11 of the Bankruptcy Code.
(b) Reports filed on Form 8-K:
None
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Registrant: LAMONTS APPAREL, INC.
--------------------------------
Date: December 10, 1996 By: /s/ Debbie Brownfield
--------------------------------
Debbie Brownfield
Senior Vice President - Finance
Chief Financial Officer
17
<PAGE>
FIRST AMENDMENT
FIRST AMENDMENT dated as of November 8, 1996 (this "AMENDMENT"),
by and among LAMONTS APPAREL, INC., a Delaware corporation and a debtor and
debtor in possession under Chapter 11 of the Bankruptcy Code ("BORROWER"),
having its principal place of business at 12413 Willows Road N.E., Kirkland,
WA 98034, THE FIRST NATIONAL BANK OF BOSTON, a national banking association
with its head office at 100 Federal Street, Boston, Massachusetts 02110 (the
"BANK"), and THE FIRST NATIONAL BANK OF BOSTON, as Agent (the "AGENT")
amending certain provisions of the Debtor in Possession and Exit Financing
Loan Agreement by and among the Borrower, the Bank, and the Agent dated as of
June 4, 1996 (the "LOAN AGREEMENT"). Terms not otherwise defined herein
which are defined in the Loan Agreement shall have the respective meanings
herein assigned to such terms in the Loan Agreement.
WHEREAS, the Borrower has requested that the Bank agree to amend
the terms of the Loan Agreement in certain respects; and
WHEREAS, the Bank is willing to amend the terms of the Loan
Agreement in such respects, upon the terms and subject to the conditions
contained herein; and
NOW, THEREFORE, in consideration of the mutual agreements
contained in the Loan Agreement, herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
Section 1. AMENDMENT OF PREAMBLE TO THE LOAN AGREEMENT. The
third "WHEREAS" clause of the Loan Agreement is hereby amended by deleting
the figure "$32,000,000".
Section 2. AMENDMENT OF SECTION 1.1 OF THE LOAN AGREEMENT; DIP
NOTE.
(a) Section 1.1 of the Loan Agreement is hereby amended by
deleting clauses (a) and (b) appearing in the definition of "DIP Commitment",
and substituting therefor the following:
"(a) $32,000,000 during the period commencing on the
Effective Date and ending on November 7, 1996, $35,000,000 during the
period commencing November 8, 1996, and ending on December 15, 1996,
and $32,000,000 during the period commencing December 16, 1996 and at
all applicable times thereafter; and (b) the amount approved in the
Financing Order, as such amount may be reduced from time to time or
terminated hereunder."
<PAGE>
-2-
(b) From and after the effectiveness of this Amendment, the term
"Financing Order" as referred to in the Loan Documents shall refer to the
Financing Order as in effect immediately prior to this Amendment, as
supplemented by the interim order (the "Interim Amendment Order") and final
order of the Bankruptcy Court approving this Amendment, each to be
satisfactory in form and substance to the Agent.
(c) In furtherance of the foregoing, each DIP Note is hereby
amended by changing the amount "$32,000,000" to "$35,000,000" in each place
such amount appears, and by changing the phrase "Thirty-Two Million" to
"Thirty-Five Million", in each place such amount appears, in each DIP Note.
(d) The following new definitions are added to Section 1.1 of the
Loan Agreement in the appropriate location in the alphabetical sequence:
"FINAL AMENDMENT ORDER: See Section 11(a)(xxi)."
"INTERIM AMENDMENT ORDER: See the First Amendment, dated as of
November 8, 1996, to this Agreement."
Section 3. AMENDMENT OF SECTION 8 OF THE LOAN AGREEMENT.
Section 8 of the Loan Agreement is amended by deleting subsection
(t) thereof in its entirety and substituting therefor the following:
"(t) On and after the Effective Date, the Financing Order
has been entered, has not been reversed, stayed, or (except as
provided in the Interim Amendment Order and the Final Amendment Order,
or with the written approval of the Agent) modified, amended or
supplemented, and remains in full force and effect."
Section 4. AMENDMENT OF SECTION 11.1(a) OF THE LOAN AGREEMENT.
Section 11.1(a) of the Loan Agreement is amended by deleting
subsection (xxi) thereof in its entirety and substituting therefore the
following:
"(xxi) in the case of the Interim Amendment Order having
been initially entered on an interim basis by the Bankruptcy Court,
the Interim Amendment Order does not, within 15 days after the date of
entry of the Interim Amendment Order, become or constitute a final
order in the Case ("Final Amendment Order") (pursuant to an order of
the Bankruptcy Court, entered upon requisite and proper prior notice
of at least fifteen (15) days to the required parties in interest in
the Case and a related final hearing in the Case, if required by the
Bankruptcy Court, with respect to the matters set
<PAGE>
-3-
forth in the Interim Amendment Order, held under Section 364(c) of the
Bankruptcy Code and Bankruptcy Rule 4001(c)(2)), authorizing
extensions of credit under this Agreement in the full maximum amount
of the Total DIP Commitment, authorizing and approving all matters
initially set forth in the Interim Amendment Order without any
modifications or amendments thereto or reversal thereof, otherwise in
form and substance satisfactory to the Agent and the Agent's Special
Counsel, and in full force and effect."
Section 5. REPRESENTATIONS, WARRANTIES AND COVENANTS; NO DEFAULT;
AUTHORIZATION. The Borrower hereby represents, warrants and covenants to the
Agent as follows:
(a) Each of the representations and warranties of the Borrower
contained in the Loan Agreement or in any other Loan Documents was true and
correct as of the date as of which it was made and is true and correct in all
material respects as of the date of this Amendment except to the extent such
representations and warranties expressly related to a prior date (in which
case they shall be true and correct as of such earlier date); and no Default
or Event of Default has occurred and is continuing as of the date of this
Amendment;
(b) This Amendment has been duly authorized, executed and
delivered by the Borrower and is in full force and effect;
(c) On and after the date hereof, the Interim Amendment Order has
been entered, has not (except for modifications approved by the Agent) been
reversed, modified, amended or stayed, and remains in full force and effect;
and
(d) Upon entry of the Interim Amendment Order, and the execution
and delivery of this Amendment by the respective parties hereto, this
Amendment shall constitute the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
Section 6. CONDITIONS TO EFFECTIVENESS. The effectiveness of
this Amendment shall be subject to satisfaction of the following conditions:
(a) This Amendment shall have been duly executed and delivered by
the Borrower, the Banks, and the Agent.
(b) The Agent shall have received copies, certified by a duly
authorized officer of the Borrower as of the date hereof, of the resolution
of the board of directors of the Borrower approving the transactions
contemplated hereby and the execution and delivery of this Amendment, and as
to the titles, incumbency, and specimen signatures of the officers signing
this Amendment and the documents relating thereto.
<PAGE>
-4-
(c) The Agent shall have received a certificate of a duly
authorized officer of the Borrower (i) certifying that no amendments to the
certificate or articles of incorporation or organization of the Borrower have
been undertaken since such documents were last delivered to the Agent on the
Effective Date, and (ii) certifying that no amendments to the by-laws of the
Borrower have been undertaken since such documents were last delivered to the
Agent on the Effective Date.
(d) The Agent shall have received evidence that the Bankruptcy
Court shall have entered the Interim Amendment Order, which must be
satisfactory in all respects to the Agent and the Agent's Special Counsel,
and such Interim Amendment Order shall be in full force and effect and shall
not have been reversed, modified, amended or stayed in any respect. If the
Interim Amendment Order is the subject of a pending appeal in any respect,
none of such Interim Amendment Order, the making of the Loans, the issuance,
extension or renewal of any Letters of Credit, or the performance by the
Borrower of any of its obligations under any of the Loan Documents shall be
the subject of a presently effective stay pending appeal. The Borrower, the
Agent and the Banks shall be entitled to rely in good faith upon the Interim
Amendment Order notwithstanding any objection thereto or appeal therefrom by
any interested party. The Borrower, the Agent and the Banks shall be
permitted and required to perform their respective obligations in compliance
with this Amendment and the Loan Agreement notwithstanding any such objection
or appeal unless the Interim Amendment Order has been stayed by a court of
competent jurisdiction.
(e) The Agent shall have received from Borrower the most recently
required Borrowing Base Report.
(f) The Agent shall have received a favorable legal opinion
addressed to the Banks and the Agent, dated as of the date hereof, in form
and substance satisfactory to the Agent, from Ryan, Swanson & Cleveland,
counsel to the Borrower.
(g) The Agent shall have received such other documents or
instruments relating hereto as the Agent shall have reasonably requested.
Section 7. RATIFICATION, ETC. Except as expressly amended hereby,
the Loan Agreement, the other Loan Documents, and all documents, instruments
and agreements related thereto are hereby ratified and confirmed in all
respects. All references in the Loan Agreement or any related agreement or
instrument to the Loan Agreement or the DIP Notes shall hereafter refer to
the Loan Agreement or the DIP Notes as amended hereby.
Section 8. NO OTHER CHANGES; NO IMPLIED WAIVER. Except as
expressly provided herein, the Loan Agreement and the other Loan Documents
shall be unaffected hereby and shall continue in full force and effect, and
nothing contained herein
<PAGE>
-5-
shall constitute a waiver by the Agent or any Bank of any right, remedy,
Default, or Event of Default, or impair or otherwise affect any Obligations,
any other obligations of the Borrower, or any right of the Agent or any Bank
consequent thereon.
Section 9. COUNTERPARTS. This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
Section 10. GOVERNING LAW. THIS AMENDMENT SHALL FOR ALL PURPOSES
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF LAW), AND,
PRIOR TO THE EXIT FACILITY DATE, BUT ONLY TO THE EXTENT APPLICABLE, THE
PROVISIONS OF THE BANKRUPTCY CODE.
<PAGE>
-6-
IN WITNESS WHEREOF, the undersigned have duly executed this
Amendment as a sealed instrument as of the date first above written.
LAMONTS APPAREL, INC.
debtor and debtor in possession
By: /s/ Loren Rothschild
----------------------------
Name: Loren Rothschild
Title: Vice Chairman
THE FIRST NATIONAL BANK
OF BOSTON, for itself and as Agent
By: /s/ William J. Sherald Jr.
----------------------------
Name: William J. Sherald Jr.
Title: Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> NOV-02-1996
<CASH> 2,694
<SECURITIES> 0
<RECEIVABLES> 2,478
<ALLOWANCES> 0
<INVENTORY> 52,770
<CURRENT-ASSETS> 61,474
<PP&E> 33,789
<DEPRECIATION> 0
<TOTAL-ASSETS> 116,777
<CURRENT-LIABILITIES> 68,288<F1>
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> (58,583)
<TOTAL-LIABILITY-AND-EQUITY> 116,777
<SALES> 138,284
<TOTAL-REVENUES> 138,284
<CGS> 88,237
<TOTAL-COSTS> 88,237
<OTHER-EXPENSES> 62,172<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,773
<INCOME-PRETAX> (15,890)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,890)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,890)
<EPS-PRIMARY> (0.89)
<EPS-DILUTED> 0
<FN>
<F1>Excludes liabilities subject to compromise under reorganization proceeding.
<F2>Includes: Operating + Administration expenses of $49,482, Depreciation and
amortization of $6,051; and reorganization expenses of $6,639.
</FN>
</TABLE>
<PAGE>
Judge: The Honorable Thomas T. Glover
Chapter: 11
Hearing Location: Park Place Building
1200 Sixth Avenue
Seattle, Washington
Room 416
Confirmation Hearing Date: January 6, 1997
Confirmation Hearing Time: 3:00 PM
Objection Date: December 2, 1996
UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
In re ) Case No. 95-00100
)
LAMONTS APPAREL, INC., )
a Delaware corporation, dba )
LAMONTS, LAMONTS FOR KIDS, fka )
TEXSTYRENE CORPORATION, a )
Delaware corporation, ARIS )
CORPORATION, a Delaware )
corporation, LAMONTS ) DEBTOR'S AMENDED PLAN OF
CORPORATION, a Delaware ) REORGANIZATION UNDER
corporation, and LAMONTS ) CHAPTER 11 OF THE
APPAREL, INC., a Washington ) BANKRUPTCY CODE
corporation, )
)
Debtor. )
)
Taxpayer Identification )
No. 75-2076160 )
)
DEBTOR'S FORMER ADDRESS: )
3650 131st Avenue S.E. )
Bellevue, WA 98006 )
)
DEBTOR'S CURRENT ADDRESS: )
12413 Willows Road N.E. )
Kirkland, WA 98034 )
________________________________)
)
)
)
)
DEBTOR'S AMENDED PLAN OF REORGANIZATION STUTMAN, TREISTER & GLATT
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE PROFESSIONAL CORPORATION
3699 Wilshire Blvd., Suite 900
Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
<PAGE>
TABLE OF CONTENTS
PAGE
----
I. DEFINITIONS AND RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . 2
A. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . 2
B. Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
C. Plan Documentary Supplement. . . . . . . . . . . . . . . . . . . 13
D. Exhibits.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
II. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY
INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
A. Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
B. Administrative Expenses. . . . . . . . . . . . . . . . . . . . . 14
C. Priority Tax Claims. . . . . . . . . . . . . . . . . . . . . . . 17
D. Classification and Treatment.. . . . . . . . . . . . . . . . . . 18
III. ACCEPTANCE OR REJECTION OF THE PLAN . . . . . . . . . . . . . . . . 21
A. Voting Classes.. . . . . . . . . . . . . . . . . . . . . . . . . 21
B. Voting Rights of Holders of Disputed Claims. . . . . . . . . . . 21
C. Acceptance by Impaired Classes.. . . . . . . . . . . . . . . . . 22
D. Presumed Acceptance of Plan. . . . . . . . . . . . . . . . . . . 22
E. Nonconsensual Confirmation.. . . . . . . . . . . . . . . . . . . 22
IV. PROVISIONS FOR TREATMENT OF DISPUTED, CONTINGENT,
OR UNLIQUIDATED CLAIMS, EQUITY INTERESTS, AND
ADMINISTRATIVE EXPENSES . . . . . . . . . . . . . . . . . . . . . . 23
A. Reserve for Disputed Other Priority Claims,
Disputed Priority Tax Claims, and Disputed
Administrative Expenses. . . . . . . . . . . . . . . . . . . . 23
B. Allowance of Claims of Holders of Record
of Old 10 1/4% Notes and of Holders of Record of
Old 13 1/2% Notes; Reserve for Disputes. . . . . . . . . . . . 24
C. Allowance of Interests of Holders of Record
of Old Common Stock; Reserve for Disputes. . . . . . . . . . . 25
D. Reserve for Disputed General Unsecured Claims. . . . . . . . . . 25
E. Resolution of Disputed Claims,
Disputed Equity Interests, and
Disputed Administrative Expenses.. . . . . . . . . . . . . . . 27
<PAGE>
V. IMPLEMENTATION OF THE PLAN. . . . . . . . . . . . . . . . . . . . . 27
A. Funding of Cash Payments.. . . . . . . . . . . . . . . . . . . . 27
B. Issuance of New Common Stock and New Warrants. . . . . . . . . . 28
C. Cancellation of Existing Securities
and Rejection of Related Agreements. . . . . . . . . . . . . . 28
D. Surrender of Existing Securities.. . . . . . . . . . . . . . . . 28
E. Compromise of Subordination Disputes.. . . . . . . . . . . . . . 29
1. Subordination Provisions of Old 10 1/4%
Notes.. . . . . . . . . . . . . . . . . . . . . . . . . . 29
2. Subordination Provisions of Old 13 1/2%
Notes.. . . . . . . . . . . . . . . . . . . . . . . . . . 31
F. Certificate of Incorporation and Bylaws. . . . . . . . . . . . . 33
G. Management of the Reorganized Debtor.. . . . . . . . . . . . . . 33
H. Corporate Action.. . . . . . . . . . . . . . . . . . . . . . . . 36
I. Method of Distribution Under the Plan. . . . . . . . . . . . . . 36
1. In General. . . . . . . . . . . . . . . . . . . . . . . . . 36
2. Investment of Cash. . . . . . . . . . . . . . . . . . . . . 36
3. Manner of Payment Under the Plan. . . . . . . . . . . . . . 37
4. Manner of Distribution of Other Property. . . . . . . . . . 37
5. Setoffs.. . . . . . . . . . . . . . . . . . . . . . . . . . 37
6. Distribution of Unclaimed Property. . . . . . . . . . . . . 37
7. DE MINIMIS Distributions. . . . . . . . . . . . . . . . . . 38
8. Fractional Shares.. . . . . . . . . . . . . . . . . . . . . 38
9. Record Date.. . . . . . . . . . . . . . . . . . . . . . . . 39
10. Saturday, Sunday, or Legal Holiday.. . . . . . . . . . . . 39
J. Revesting of Assets. . . . . . . . . . . . . . . . . . . . . . . 39
K. Continuation of FNBB Claim and FNBB Liens. . . . . . . . . . . . 40
VI. EXECUTORY CONTRACTS AND UNEXPIRED LEASES . . . . . . . . . . . . . . 41
A. Assumption.. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
B. Rejection. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
<PAGE>
VII. EFFECTIVENESS OF THE PLAN . . . . . . . . . . . . . . . . . . . . . 44
A. Conditions Precedent.. . . . . . . . . . . . . . . . . . . . . . 44
B. Waiver of Conditions.. . . . . . . . . . . . . . . . . . . . . . 45
C. Notice of Effective Date.. . . . . . . . . . . . . . . . . . . . 45
VIII. RETENTION OF JURISDICTION. . . . . . . . . . . . . . . . . . . . . 45
IX. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 47
A. Payment of Statutory Fees. . . . . . . . . . . . . . . . . . . . 47
B. Discharge of Debtor and Injunction.. . . . . . . . . . . . . . . 48
C. No Liability for Solicitation or Participation.. . . . . . . . . 50
D. Limitation of Liability. . . . . . . . . . . . . . . . . . . . . 50
E. Rights of Action.. . . . . . . . . . . . . . . . . . . . . . . . 51
F. Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
G. Binding Effect.. . . . . . . . . . . . . . . . . . . . . . . . . 52
H. Revocation or Withdrawal.. . . . . . . . . . . . . . . . . . . . 52
1. Right to Revoke.. . . . . . . . . . . . . . . . . . . . . . 52
2. Effect of Withdrawal or Revocation. . . . . . . . . . . . . 52
I. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 52
J. Withholding, Reporting, and Payment of Taxes.. . . . . . . . . . 53
K. Other Documents and Actions. . . . . . . . . . . . . . . . . . . 53
L. Modification of the Plan.. . . . . . . . . . . . . . . . . . . . 53
M. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
N. Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . 54
<PAGE>
LIST OF EXHIBITS
Exhibit A Summary of Certain Principal Terms and Conditions of New Class A
Warrants
Exhibit B Summary of Certain Principal Terms and Conditions of New Class B
Warrants
Exhibit C Summary of Certain Principal Terms and Conditions of New Employee
Stock Options
Exhibit D List of Deferred Payment Tax Claims
Exhibit E Quantity of Shares of New Common Stock to be Received as of the
Effective Date by Holders of Allowed Senior Claims
Exhibit F Members of Initial Board of Directors of Reorganized Debtor
Exhibit G List of Executory Contracts Assumed
Exhibit H List of Executory Contracts Rejected
<PAGE>
LAMONTS APPAREL, INC., a Delaware corporation, as debtor and debtor in
possession, proposes the following chapter 11 plan pursuant to section 1121(a)
of the Bankruptcy Code. The Disclosure Statement which accompanies the Plan
discusses the Debtor's history, business, properties, and results of operations
and contains a summary and discussion of the Plan. Holders of Claims and Equity
Interests are encouraged to read the Disclosure Statement before voting to
accept or reject the Plan.
I.
DEFINITIONS AND RULES OF CONSTRUCTION
A. DEFINED TERMS.
As used herein, the following terms have the respective meanings
specified below, unless the context otherwise requires (such meanings to be
equally applicable to both the singular and plural, and masculine and feminine,
forms of the terms defined):
1. "ALLOWED ADMINISTRATIVE EXPENSE" means any cost or expense of
administration of the Chapter 11 Case allowed under sections 503(b) and
507(a)(1) of the Bankruptcy Code, including, without limitation, any actual and
necessary postpetition expenses of preserving the estate of the Debtor, any
actual and necessary postpetition expenses of operating the business of the
Debtor in Possession, all compensation or reimbursement of expenses to the
extent allowed by the Bankruptcy Court under section 330, 331, or 503 of the
Bankruptcy Code, and any fees or charges assessed against the estate of the
Debtor under
<PAGE>
section 1930 of title 28 of the United States Code.
2. "ALLOWED CLAIM" and "ALLOWED EQUITY INTEREST" mean, respectively,
except as otherwise provided herein, a Claim or an Equity Interest, proof of
which was timely and properly filed or, if no proof of claim or proof of
interest was filed, which has been or hereafter is listed by the Debtor on its
Schedules as liquidated in amount and not disputed or contingent, and, in either
case, as to which no objection to the allowance thereof has been interposed on
or before the later of (i) the sixtieth day after the Effective Date, or
(ii) the sixtieth day after proof of such Claim or Equity Interest is filed, or
(iii) such other applicable period of limitation as may be fixed or extended by
the Bankruptcy Court, or as to which any objection has been determined by a
Final Order to the extent such objection is determined in favor of the
respective holder. Unless otherwise specified herein or by order of the
Bankruptcy Court, "Allowed Claim" shall not include interest on such Claim
accruing after the Petition Date.
3. "AMENDED AND RESTATED CERTIFICATE OF INCORPORATION" means the
Amended and Restated Certificate of Incorporation of the Reorganized Debtor
which shall be substantially in the form set forth in the Plan Documentary
Supplement.
4. "AMENDED AND RESTATED BYLAWS" means the Amended and Restated
Bylaws of the Reorganized Debtor which shall be substantially in the form set
forth in the Plan Documentary
<PAGE>
Supplement.
5. "BANKRUPTCY CODE" means Title I of the Bankruptcy Reform Act of
1978, as amended, set forth in sections 101 et seq. of title 11 of the United
States Code, as applicable to the Chapter 11 Case.
6. "BANKRUPTCY COURT" means the United States District Court for the
Western District of Washington, at Seattle, having jurisdiction over the
Chapter 11 Case and, to the extent of any reference made pursuant to section 157
of title 28 of the United States Code, the unit of such District Court pursuant
to section 151 of title 28 of the United States Code; or, in the event such
court ceases to exercise jurisdiction over the Chapter 11 Case, such court or
unit thereof that exercises jurisdiction over the Chapter 11 Case in lieu
thereof.
7. "BANKRUPTCY RULES" means, collectively, (i) the Federal Rules of
Bankruptcy Procedure, as amended from time to time, as applicable to the
Chapter 11 Case, and (ii) the Local Bankruptcy Rules applicable to cases pending
before the Bankruptcy Court, as now in effect or hereafter amended.
8. "BUSINESS DAY" means any day which is not a Saturday, a Sunday,
or a "legal holiday" as defined in Bankruptcy Rule 9006(a).
9. "CASH" means cash or cash equivalents.
10. "CASH RESERVE" means the bank account or accounts referred to in
Section V.A of the Plan.
11. "CHAPTER 11 CASE" means the case under chapter 11
<PAGE>
of the Bankruptcy Code, commenced by the Debtor on the Petition Date, styled "In
re Lamonts Apparel, Inc.", and assigned Case No. 95-00100.
12. "CLAIM" means (a) any right to payment from the Debtor, whether
or not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured,
or unsecured, or (b) any right to an equitable remedy for breach of performance
if such breach gives rise to a right of payment from the Debtor, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
13. "CLOSING PRICE" has the meaning referred to in Section II.B of
the Plan.
14. "COMMITTEES" means, collectively, the Official Committee of
Creditors Holding Unsecured Claims, the Official Committee of Bondholders, and
the Official Committee of Equity Security Holders, each as appointed by the
Office of the United States Trustee pursuant to section 1102 of the Bankruptcy
Code to serve in the Chapter 11 Case.
15. "CONFIRMATION DATE" means the date on which the Clerk of the
Bankruptcy Court enters the Confirmation Order on its docket.
16. "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan in accordance with the provisions of chapter 11 of the
Bankruptcy Code.
<PAGE>
17. "CURE PAYMENT" has the meaning referred to in Section VI.A of the
Plan.
18. "DEBTOR" means Lamonts Apparel, Inc., a Delaware corporation.
19. "DEBTOR IN POSSESSION" means the Debtor when acting in the
capacity of representative of the estate in the Chapter 11 Case.
20. "DEFERRED PAYMENT TAX CLAIM" has the meaning referred to in
Section II.C of the Plan.
21. "DISBURSING AGENT" means the Reorganized Debtor in its fiduciary
capacity as the agent to hold and distribute the consideration to be distributed
to holders of Allowed Administrative Expenses, Allowed Claims, and Allowed
Equity Interests pursuant to the Plan, the Confirmation Order, or such other
order as may be entered by the Bankruptcy Court. The Disbursing Agent may
employ or contract with other entities to assist in or perform the distribution
of property. The Disbursing Agent will serve without bond.
22. "DISPUTED ADMINISTRATIVE EXPENSE", "DISPUTED CLAIM", AND
"DISPUTED EQUITY INTEREST" mean any Administrative Expense, Claim, or Equity
Interest, as the case may be, (i) which is listed in the Schedules as
unliquidated, disputed, contingent, and/or unknown, or (ii) as to which the
Debtor, any of the Committees, or any other party in interest has interposed a
timely objection or request for estimation in accordance with the Bankruptcy
Code and the Bankruptcy Rules, which objection or
<PAGE>
request for estimation has not been withdrawn or determined by a Final Order.
23. "DISTRIBUTION RESERVE" means the reserve referred to in
Section IV.A of the Plan.
24. "EFFECTIVE DATE" means the later of (i) the first Business Day
(a) on which no stay of the Confirmation Order is and remains in effect and
(b) that is at least one business day after the date on which the conditions
specified in Section VII.A of the Plan have been satisfied or waived, and (ii)
February 1, 1997.
25. "EQUITY INTEREST" means any equity interest in the Debtor
represented by the Old Common Stock.
26. "FINAL ORDER" means an order or judgment of the Bankruptcy Court
or other applicable court as to which the time to appeal, petition for
certiorari, or move for reargument or rehearing has expired and as to which no
appeal, petition for certiorari, or other proceedings for reargument or
rehearing shall then be pending or as to which any right to appeal, petition for
certiorari, reargue, or rehear shall have been waived in writing in form and
substance satisfactory to the Debtor or, in the event that an appeal, writ of
certiorari, or reargument or rehearing thereof has been sought, such order or
judgment of the Bankruptcy Court shall have been affirmed by the highest court
to which such order or judgment was appealed, or certiorari has been denied, or
from which reargument or rehearing was sought, and the time to take any further
appeal, petition for
<PAGE>
certiorari or move for reargument or rehearing shall have expired.
27. "FNBB" means, collectively, The First National Bank of Boston and
certain other financial institutions specified as the lenders under the FNBB
Facility.
28. "FNBB CLAIM" means all "Obligations" to FNBB as defined in and
arising under the FNBB Facility, including without limitation any unpaid accrued
interest, fees, costs, and charges.
29. "FNBB FACILITY" means that certain "Debtor in Possession and Exit
Financing Loan Agreement", dated as of June 4, 1996, as it may be amended from
time to time, by and among the Debtor and FNBB, and all ancillary documents,
instruments, and agreements referred to therein, and the orders with respect
thereto entered in the Chapter 11 Case.
30. "FNBB LIENS" has the meaning referred to in Section V.K of the
Plan.
31. "GENERAL UNSECURED CLAIM" means any Claim that is not a Secured
Claim, Administrative Expense, Priority Tax Claim, or Other Priority Claim.
32. "GORDIAN" has the meaning referred to in Section II.B of the
Plan.
33. "GORDIAN STIPULATION" has the meaning referred to in Section II.B
of the Plan.
34. "GORDIAN WARRANTS" has the meaning referred to in Section II.B of
the Plan.
35. "NEW BOARD" has the meaning referred to in Section
<PAGE>
V.G of the Plan.
36. "NEW CLASS A WARRANTS" means certain warrants exercisable for the
purchase of 2,203,320 shares of New Common Stock, in the aggregate, to be issued
and distributed pursuant to Section V.B of the Plan as of the Effective Date. A
summary of certain of the principal terms and conditions of the New Class A
Warrants is set forth in Exhibit A to the Plan. The certificates for the New
Class A Warrants shall be substantially in the form set forth in the Plan
Documentary Supplement. The New Class A Warrants shall be governed in all
respects by the New Warrant Agreement substantially in the form set forth in the
Plan Documentary Supplement.
37. "NEW CLASS B WARRANTS" means certain warrants exercisable for the
purchase of 800,237 shares of New Common Stock, in the aggregate, to be issued
and distributed pursuant to Section V.B of the Plan as of the Effective Date. A
summary of certain of the principal terms and conditions of the New Class B
Warrants is set forth in Exhibit B to the Plan. The certificates for the New
Class B Warrants shall be substantially in the form set forth in the Plan
Documentary Supplement. The New Class B Warrants shall be governed in all
respects by the New Warrant Agreement substantially in the form set forth in the
Plan Documentary Supplement.
38. "NEW COMMON STOCK" means shares of the common stock of the
Reorganized Debtor, par value $.01 per share, authorized pursuant to the Amended
and Restated Certificate of
<PAGE>
Incorporation. 9,000,000 of such authorized shares of New Common Stock shall be
issued and distributed pursuant to Section V.B of the Plan as of the Effective
Date. The certificates for the New Common Stock shall be substantially in the
form set forth in the Plan Documentary Supplement.
39. "NEW EMPLOYEE STOCK OPTIONS" means those options to purchase New
Common Stock to be issued to certain employees of the Reorganized Debtor
pursuant to Section V.G of the Plan. A summary of certain principal terms and
conditions of the New Employee Stock Options is set forth in Exhibit C to the
Plan. The New Employee Stock Options shall be governed in all respects by the
Employee Stock Option Plan substantially in the form set forth in the Plan
Documentary Supplement.
40. "NEW WARRANTS" means, collectively, the New Class A Warrants and
the New Class B Warrants.
41. "NORMALIZED SHARE PRICE" has the meaning referred to in Section
II.B of the Plan.
42. "OLD COMMON STOCK" means the issued and outstanding shares of
common stock of the Debtor, par value $.01 per share, prior to the Effective
Date, and all rights and interests arising thereunder.
43. "OLD EMPLOYEE STOCK OPTIONS" means those options to purchase Old
Common Stock of the Debtor which were previously granted by the Debtor and are
outstanding as of the Effective Date, and all rights and interests arising
thereunder.
44. "OLD 10 1/4% NOTES" means the Debtor's 10 1/4% Subordi-
<PAGE>
nated Notes due 1999, and all rights and Claims arising thereunder.
45. "OLD 13 1/2% NOTES" means the Debtor's 13 1/2% Senior
Subordinated Guaranteed Notes due 1995, and all rights and Claims arising
thereunder.
46. "OLD WARRANTS" means warrants for the purchase of Old Common
Stock which were previously issued by the Debtor and are outstanding as of the
Effective Date, and all rights and interests arising thereunder.
47. "OTHER PRIORITY CLAIM" means any Claim accorded priority in right
of payment under section 507(a) of the Bankruptcy Code, other than a Priority
Tax Claim or an Administrative Expense.
48. "OTHER SECURED CLAIM" means any Secured Claim other than the FNBB
Claim.
49. "PETITION DATE" means January 6, 1995, the date on which the
Debtor filed its voluntary petition commencing the Chapter 11 Case.
50. "PLAN" means this chapter 11 plan of reorganization, including
all exhibits thereto and all documents incorporated by reference to the Plan
Documentary Supplement, either in their present form or as they may be altered,
amended, or modified from time to time in accordance with the Bankruptcy Code
and Bankruptcy Rules.
51. "PLAN DOCUMENTARY SUPPLEMENT" means the compilation of the forms
of certain documents referred to herein
<PAGE>
as specified in Section I.C of the Plan, as amended.
52. "PRIORITY TAX CLAIM" means a Claim of a governmental unit of the
kind specified in section 507(a)(8) of the Bankruptcy Code.
53. "PRO RATA SHARE" means a proportionate share, so that the ratio
of the consideration distributed on account of an Allowed Claim or Allowed
Equity Interest to the amount of the Allowed Claim or Allowed Equity Interest is
the same as the ratio of the amount of the consideration distributed on account
of all Allowed Claims or Allowed Equity Interests in such class to the amount of
all Allowed Claims or Allowed Equity Interests in that class.
54. "REORGANIZED DEBTOR" means the Debtor and Debtor in Possession,
or any successor thereto by merger, consolidation, or otherwise, on and after
the Effective Date.
55. "SCHEDULES" means the schedules of assets and liabilities and
list of equity security holders filed by the Debtor as required by
section 521(1) of the Bankruptcy Code, Bankruptcy Rules 1007(a)(3) and (b)(1),
and Official Bankruptcy Form No. 6, as amended from time to time.
56. "SECURED CLAIM" means (i) an Allowed Claim against the Debtor to
the extent of the value, as determined by the Bankruptcy Court pursuant to
section 506(a) of the Bankruptcy Code, of any interest in property of the estate
securing such Allowed Claim, and (ii) the FNBB Claim.
57. "SENIOR CLAIM" has the meaning referred to in
<PAGE>
Section V.E.1 of the Plan.
58. "SENIOR INDEBTEDNESS" has the meaning referred to in Section
V.E.2 of the Plan.
B. OTHER TERMS.
The words "herein," "hereof," "hereto," "hereunder," and others of
similar import refer to the Plan as a whole and not to any particular section,
subsection, or clause contained in the Plan. A term used herein that is not
defined herein shall have the meaning ascribed to that term, if any, in the
Bankruptcy Code or Bankruptcy Rules and shall be construed in accordance with
the rules of construction thereunder.
C. PLAN DOCUMENTARY SUPPLEMENT.
Forms of certain documents referred to herein are contained in a
separate Plan Documentary Supplement, as amended, which is on file with the
Clerk of the Bankruptcy Court. The Plan Documentary Supplement may be inspected
in the office of the Clerk of the Bankruptcy Court during normal court hours.
Holders of Claims or Equity Interests may obtain a copy of the Plan Documentary
Supplement or excerpts therefrom upon written request to the Debtor.
D. EXHIBITS.
All exhibits to the Plan and all documents contained in the Plan
Documentary Supplement are incorporated into and are a part of the Plan as if
set forth in full herein.
<PAGE>
II.
CLASSIFICATION AND TREATMENT OF
CLAIMS AND EQUITY INTERESTS
A. SUMMARY.
The categories of Claims and Equity Interests listed below classify
Allowed Claims and Allowed Equity Interests for all purposes, including voting,
confirmation, and distribution pursuant to the Plan:
CLASS STATUS
----- ------
CLASS 1: Other Priority Claims Impaired - entitled to vote.
CLASS 2: FNBB Claim Unimpaired - not entitled to vote.
CLASS 3: Other Secured Claims Unimpaired - not entitled to vote.
CLASS 4: General Unsecured Claims Impaired - entitled to vote.
CLASS 5: Equity Interests Impaired - entitled to vote.
B. ADMINISTRATIVE EXPENSES.
The Disbursing Agent shall pay each Allowed Administrative Expense in
full, in Cash, on the later of the Effective Date or the date such
Administrative Expense becomes an Allowed Administrative Expense or as soon
thereafter as is practicable, except to the extent that the holder of an Allowed
Administrative Expense agrees to a different treatment; provided, however, that
Allowed Administrative Expenses representing obligations incurred in the
ordinary course of postpetition business by the Debtor in Possession (including
without limitation postpetition trade obligations, routine postpetition payroll
obligations, and
<PAGE>
postpetition tax obligations) shall be paid in full or performed by the
Reorganized Debtor in the ordinary course of business.
All applications for final compensation of professional persons for
services rendered and for reimbursement of expenses incurred on or before the
Effective Date and all other requests for payment of Administrative Expenses
incurred before the Effective Date under sections 507(a)(1) or 507(b) of the
Bankruptcy Code (except only for (i) postpetition trade obligations and routine
postpetition payroll obligations incurred in the ordinary course of the Debtor's
postpetition business and (ii) obligations under section 1930 of title 28 of the
United States Code) shall be filed no later than 60 days after the Effective
Date, unless such date is extended by the Bankruptcy Court after notice to the
Reorganized Debtor. Any such request for Administrative Expense that is not
filed within this deadline shall be forever barred; and any holders of
Administrative Expenses who are required to file a request for payment of such
Administrative Expenses who do not file such requests by such deadline shall be
forever barred from asserting such Administrative Expenses against the Debtor,
the Reorganized Debtor, the estate, or any of their property.
In accordance with the "Stipulation re Employment of Gordian Group,
L.P.; and Order Thereon" (the "Gordian Stipulation") which was approved by the
Bankruptcy Court on October 11, 1996, Gordian Group, L.P. ("Gordian") will be
issued, on the 120th calendar day following the Effective Date, in exchange for
its Administrative Expense Claim for compensation
<PAGE>
for services rendered as investment banker for the Debtor in Possession,
warrants (the "Gordian Warrants") for the purchase of New Common Stock. The
term of the Gordian Warrants will be 5 years from their issuance date. The
number of shares of New Common Stock for which the Gordian Warrants will be
exercisable in the aggregate will be equal to 200,000 divided by the "Normalized
Share Price". The exercise price will be the Normalized Share Price per share.
The Normalized Share Price will be equal to the average of the "Closing Prices"
of New Common Stock for the 45 trading days commencing on the 45th calendar day
following the Effective Date. For purposes of determining the Normalized Share
Price, the Closing Price will mean (i) the closing sales price per share on the
national securities exchange on which the New Common Stock is principally
traded, or (ii) if the shares are then traded in an over-the-counter market, the
average of the closing bid and asked prices on such market, or (iii) if the
shares are not then traded on a national securities exchange or in an over-the-
counter market, then such value as the Board of Directors of the Reorganized
Debtor shall in good faith reasonably determine; if Gordian disagrees with such
determination, then an investment banking firm shall be mutually agreed upon,
engaged, and compensated by the Reorganized Debtor for a definitive
determination of the Normalized Share Price. The securities law exemption of
section 1145 of the Bankruptcy Code will apply to the Gordian Warrants and the
securities issued upon exercise thereof. The Gordian
<PAGE>
Warrants shall be governed in all respects by the Gordian Warrant Agreement
substantially in the form set forth in the Plan Documentary Supplement and by
the Gordian Stipulation. The obligations of the Debtor and Gordian under the
Gordian Stipulation shall survive confirmation of the Plan and shall continue in
effect after the Effective Date.
Any professional fees or reimbursement of expenses incurred by the
Reorganized Debtor subsequent to the Effective Date may be paid by the
Reorganized Debtor without application to the Bankruptcy Court.
C. PRIORITY TAX CLAIMS.
The Disbursing Agent shall pay each Allowed Priority Tax Claim, except
those Allowed Priority Tax Claims listed on Exhibit D to the Plan, in full, in
Cash, on the Effective Date or as soon thereafter as is practicable, except to
the extent that the holder of an Allowed Priority Tax Claim agrees to a
different treatment. Each holder of an Allowed Priority Tax Claim listed on
Exhibit D to the Plan (a "Deferred Payment Tax Claim") shall instead receive on
account of such Claim deferred Cash payments over a period not exceeding six
years after the date of assessment of such Claim, of a value, as of the
Effective Date, equal to the amount of such Allowed Priority Tax Claim, as
provided in section 1129(a)(9)(C) of the Bankruptcy Code. The Deferred Payment
Tax Claims shall be paid in equal installments of principal, with the first of
such installments to be made three months after the later of (i) the Effective
Date and (ii)
<PAGE>
the date on which an order allowing such Claim becomes a Final Order, and with
each successive installment to be made at three month intervals thereafter.
Interest will accrue on the unpaid principal balance of such Claim from and
after the Effective Date at the simple interest rate specified by the applicable
tax law for delay in the payment of taxes, without penalty, unless a different
rate is specified by the Bankruptcy Court after notice thereof to the claimant
and a hearing, and will be payable in arrears at the time of payment of each
principal installment. Any Deferred Payment Tax Claim may be prepaid at any
time without penalty or premium, and any such prepayments shall be applied to
future principal installments in order of maturity. Allowed Priority Tax Claims
shall not include any interest accruing subsequent to the Petition Date or any
penalties, and all postpetition interest and all penalties shall be disallowed.
D. CLASSIFICATION AND TREATMENT.
CLASS 1: OTHER PRIORITY CLAIMS.
1. CLASSIFICATION: Class 1 consists of all Claims entitled to
priority in right of payment under section 507(a) of the Bankruptcy Code, except
Priority Tax Claims and Administrative Expenses.
2. TREATMENT: The Disbursing Agent shall pay all Allowed Claims in
this class in full, in Cash, on the Effective Date or as soon thereafter as is
practicable, except to the extent that the holder of any such Claim agrees to a
different treatment. Class 1 is impaired, and the holders of Claims in
<PAGE>
Class 1 are entitled to vote to accept or reject the Plan.
CLASS 2: FNBB CLAIM.
1. CLASSIFICATION: Class 2 consists of the FNBB Claim.
2. TREATMENT: The FNBB Claim, including without limitation any
unpaid accrued interest, fees, costs, and charges, shall be paid in accordance
with all of the provisions of the FNBB Facility, and all of the legal,
equitable, and contractual rights to which FNBB is entitled under the FNBB
Facility shall be left unaltered. Class 2 is unimpaired, and the holder of the
Class 2 Claim is not entitled to vote to accept or reject the Plan. However,
under the terms of the FNBB Facility, the Debtor is required to obtain FNBB's
approval of the Plan.
CLASS 3: OTHER SECURED CLAIMS.
1. CLASSIFICATION: Class 3 consists of Other Secured Claims.
2. TREATMENT: Any defaults with respect to an Allowed Other Secured
Claim, other than defaults of a kind specified in section 365(b)(2) of the
Bankruptcy Code, shall be cured on the Effective Date; the maturity of each such
Claim shall be reinstated as the maturity existed before any defaults; the
holder of each such Claim shall be compensated on the Effective Date for any
damages incurred as a result of any reasonable reliance by such holder on any
contractual provision or applicable law that entitled the holder to accelerate
maturity of the Claim; and the other legal, equitable, and contractual
<PAGE>
rights of the holder of such Allowed Other Secured Claim shall not be otherwise
altered. Class 3 is unimpaired, and the holders of Claims in Class 3 are not
entitled to vote to accept or reject the Plan.
CLASS 4: GENERAL UNSECURED CLAIMS.
1. CLASSIFICATION: Class 4 consists of General Unsecured Claims.
2. TREATMENT: On the Effective Date or as soon thereafter as is
practicable, each holder of an Allowed General Unsecured Claim shall receive, in
exchange for and satisfaction of such Claim, all of the following: (i) its Pro
Rata Share of 8,800,000 shares of New Common Stock, (ii) its Pro Rata Share of
New Class A Warrants exercisable for the purchase of 2,203,320 shares of New
Common Stock, and (iii) its Pro Rata Share of New Class B Warrants exercisable
for the purchase of 700,237 shares of New Common Stock. In addition, as of the
Effective Date, the Grant of Registration Rights contained in the Plan
Documentary Supplement shall be deemed an obligation of the Reorganized Debtor.
Class 4 is impaired, and the holders of Allowed Class 4 Claims are entitled to
vote to accept or reject the Plan.
CLASS 5: EQUITY INTERESTS.
1. CLASSIFICATION: Class 5 consists of the Equity Interests in the
Debtor.
2. TREATMENT: On the Effective Date or as soon thereafter as is
practicable, each holder of record as of the Effective Date of an Allowed Equity
Interest shall receive, in
<PAGE>
exchange for and satisfaction of such Equity Interest, both of the following:
(i) its Pro Rata Share of 200,000 shares of New Common Stock, and (ii) its Pro
Rata Share of New Class B Warrants exercisable for the purchase of 100,000
shares of New Common Stock. In addition, as of the Effective Date, the Grant of
Registration Rights contained in the Plan Documentary Supplement shall be deemed
an obligation of the Reorganized Debtor. Class 5 is impaired, and the holders
of Allowed Class 5 Interests are entitled to vote to accept or reject the Plan.
III.
ACCEPTANCE OR REJECTION OF THE PLAN
A. VOTING CLASSES.
Each holder of an Allowed Claim or Allowed Equity Interest in Class 1,
4, or 5 shall be entitled to vote to accept or reject the Plan.
B. VOTING RIGHTS OF HOLDERS OF DISPUTED CLAIMS.
Pursuant to Bankruptcy Rule 3018(a), a Disputed Claim will not be
counted for purposes of voting on the Plan to the extent it is disputed, unless
an order of the Bankruptcy Court is entered after notice and a hearing
temporarily allowing the Disputed Claim for voting purposes under Bankruptcy
Rule 3018(a). Such disallowance for voting purposes is without prejudice to the
claimant's right to seek to have its Disputed Claim allowed for purposes of
distribution under the Plan.
<PAGE>
C. ACCEPTANCE BY IMPAIRED CLASSES.
An impaired class of Claims shall have accepted the Plan if (i) the
holders (other than any holder designated under section 1126(e) of the
Bankruptcy Code) of at least two-thirds in dollar amount of the Allowed Claims
actually voting in such class have voted to accept the Plan and (ii) more than
one-half in number of the holders (other than any holder designated under
section 1126(e) of the Bankruptcy Code) of such Allowed Claims actually voting
in such class have voted to accept the Plan. An impaired class of Equity
Interests shall have accepted the Plan if the holders (other than any holder
designated under section 1126(e) of the Bankruptcy Code) of at least two-thirds
in amount of the Allowed Equity Interests actually voting in such class have
voted to accept the Plan.
D. PRESUMED ACCEPTANCE OF PLAN.
Class 2 and Class 3 are unimpaired under the Plan and, therefore, are
conclusively presumed by the Bankruptcy Code to accept the Plan. However, to
comply with the terms of the FNBB Facility, the Debtor is required to obtain
FNBB's written approval of the Plan.
E. NONCONSENSUAL CONFIRMATION.
In the event that any impaired class of Claims or Equity Interests
shall fail to accept the Plan in accordance with section 1129(a)(8) of the
Bankruptcy Code, the Debtor reserves the right to (i) request that the
Bankruptcy Court confirm the Plan in accordance with section 1129(b) of the
Bankruptcy Code,
<PAGE>
and/or (ii) modify the Plan in accordance with section 1127(a) of the Bankruptcy
Code.
IV.
PROVISIONS FOR TREATMENT OF
DISPUTED, CONTINGENT, OR UNLIQUIDATED CLAIMS,
EQUITY INTERESTS, AND ADMINISTRATIVE EXPENSES
A. RESERVE FOR DISPUTED OTHER PRIORITY CLAIMS,
DISPUTED PRIORITY TAX CLAIMS, AND DISPUTED
ADMINISTRATIVE EXPENSES.
On the Effective Date or as soon thereafter as is practicable, the
Disbursing Agent shall establish such reserve (the "Distribution Reserve"), if
any, as the Bankruptcy Court may require after notice and a hearing, on account
of particular Disputed Other Priority Claims, Disputed Priority Tax Claims, and
Disputed Administrative Expenses. Any such Distribution Reserve shall be held
in trust for the benefit of holders of such Disputed Other Priority Claims,
Disputed Priority Tax Claims, Disputed Administrative Expenses, and the
Reorganized Debtor, as their respective interests may appear, pending
determination of their respective entitlement thereto. No reserve shall be
required for any Disputed Claim or Disputed Administrative Expenses to the
extent of any effective insurance coverage therefor. Any Distribution Reserve
shall be distributed in accordance with the Plan by the Disbursing Agent to the
holder of any Disputed Other Priority Claim, Disputed Priority Tax Claim, or
Disputed Administrative Expense for which a reserve has been required by the
Bankruptcy Court to the extent that such Disputed
<PAGE>
Other Priority Claim, Disputed Priority Tax Claim, or Disputed Administrative
Expense becomes an Allowed Claim or an Allowed Administrative Expense pursuant
to a Final Order. To the extent that such a Disputed Other Priority Claim,
Disputed Priority Tax Claim, or Disputed Administrative Expense ultimately is
disallowed or allowed in an amount less than the amount of the Disputed Other
Priority Claim, Disputed Priority Tax Claim, or Disputed Administrative Expense,
any resulting surplus in the Distribution Reserve shall be transferred from the
Distribution Reserve to the Reorganized Debtor by the Disbursing Agent.
B. ALLOWANCE OF CLAIMS OF HOLDERS OF RECORD
OF OLD 10 1/4% NOTES AND OF HOLDERS OF RECORD OF OLD
13 1/2% NOTES; RESERVE FOR DISPUTES.
Each beneficial owner of Old 10 1/4% Notes or of Old 13 1/2% Notes of
record as of the Effective Date shall, for purposes of distributions under the
Plan, be deemed to have an Allowed Class 4 Claim for the principal amount
thereof and pre-Petition Date interest thereon and need not file a proof of
claim with respect thereto. In the event any entity that is neither the record
holder as of the Effective Date of an Old 10 1/4% Note or of an Old 13 1/2% Note
nor the beneficial owner with respect thereto shall file a proof of right to
record status pursuant to Bankruptcy Rule 3003(d), the Disbursing Agent shall
establish such reserve, if any, as may be ordered by the Bankruptcy Court on
account of any objection thereto. Such reserve shall be held in trust for the
holder of such Disputed Class 4 Claim. To the extent such Disputed Class 4
Claim is disallowed, any reserve pertaining to
<PAGE>
such Disputed Class 4 Claim shall be distributed to all holders of Allowed Class
4 Claims on a Pro Rata Basis, subject to redistribution pursuant to Section V.E
of the Plan.
C. ALLOWANCE OF INTERESTS OF HOLDERS OF RECORD OF OLD COMMON STOCK;
RESERVE FOR DISPUTES.
Each beneficial owner of Old Common Stock of record as of the
Effective Date shall be deemed to have an Allowed Class 5 Interest for the
number of such shares of record for purposes of distributions under the Plan and
need not file a proof of interest with respect thereto. In the event any entity
that is neither the record holder as of the Effective Date of Old Common Stock
nor the beneficial owner with respect thereto shall file a proof of right to
record status pursuant to Bankruptcy Rule 3003(d), the Disbursing Agent shall
establish such reserve, if any, as may be ordered by the Bankruptcy Court on
account of any objection thereto. Such reserve shall be held in trust for the
holder of such Disputed Class 5 Interest. To the extent such Disputed Class 5
Interest is disallowed, any reserve pertaining to such disputed Class 5 Interest
shall be distributed to all holders of Allowed Class 5 Interests on a Pro Rata
Basis.
D. RESERVE FOR DISPUTED GENERAL UNSECURED CLAIMS.
Shares of New Common Stock and New Warrants which would otherwise be
issued and distributed on account of Disputed General Unsecured Claims pursuant
to Section II.D of the Plan shall instead be issued in the name of the
Disbursing Agent. Such shares, together with any dividends and distributions
<PAGE>
thereon, shall be held in trust by the Disbursing Agent and reserved for the
benefit of holders of such Disputed General Unsecured Claims pending
determination of their entitlement thereto, but shall not be voted by the
Disbursing Agent. The Debtor or any of the Committees shall have the right to
seek an order of the Bankruptcy Court, after notice and a hearing, estimating or
limiting the amount of such Claims for which shares must be so reserved. No
reserve shall be required for any Disputed General Unsecured Claim to the extent
of any effective insurance coverage therefor. Shares so reserved shall be
distributed by the Disbursing Agent to a holder of a Disputed General Unsecured
Claim to the extent that such Disputed General Unsecured Claim becomes an
Allowed General Unsecured Claim pursuant to a Final Order. To the extent that
such a Disputed General Unsecured Claim ultimately is disallowed or allowed in
an amount less than the amount for which shares have been reserved, the
resulting surplus shares of New Common Stock shall be distributed by the
Disbursing Agent from time to time to holders of Allowed General Unsecured
Claims as their respective interests appear. Pending the resolution of
objections to Disputed General Unsecured Claims, the Disbursing Agent shall,
from time to time and to the extent practicable under the circumstances, make
distributions to holders of Allowed General Unsecured Claims of shares of New
Common Stock and New Warrants which are not reserved for holders of Disputed
General Unsecured Claims.
<PAGE>
E. RESOLUTION OF DISPUTED CLAIMS,
DISPUTED EQUITY INTERESTS, AND
DISPUTED ADMINISTRATIVE EXPENSES.
The Reorganized Debtor and each of the Committees shall have the right
to make and file objections to Claims, to Equity Interests, and to
Administrative Expenses, and shall serve a copy of each objection upon the
holder of the Claim, Equity Interest, or Administrative Expense to which the
objection is made, on or before the later of (i) the sixtieth day after the
Effective Date, or (ii) the sixtieth day after proof of such Claim or Equity
Interest or request for payment of such Administrative Expense is filed, or
(iii) such other applicable period of limitation as may be fixed or extended by
the Bankruptcy Court.
V.
IMPLEMENTATION OF THE PLAN
A. FUNDING OF CASH PAYMENTS.
On the Effective Date or as soon thereafter as is practicable, the
Debtor shall deposit into a cash reserve an amount, in Cash, equal to the
aggregate amount of Cash to be distributed as of the Effective Date under the
Plan (the "Cash Reserve"). All distributions of Cash under the Plan shall be
made by the Disbursing Agent from the Cash Reserve, except as otherwise required
to be made from the Distribution Reserve as set forth in Section IV hereof. Any
surplus funds in the Cash Reserve shall be transferred from the Cash Reserve to
the Reorganized Debtor by the Disbursing Agent.
<PAGE>
B. ISSUANCE OF NEW COMMON STOCK AND NEW WARRANTS.
On the Effective Date or as soon thereafter as is practicable, the
Reorganized Debtor shall be deemed empowered to issue and shall issue (i)
9,000,000 shares of New Common Stock, (ii) New Class A Warrants exercisable for
the purchase of 2,203,320 shares of New Common Stock, and (iii) New Class B
Warrants exercisable for the purchase of 800,237 shares of New Common Stock; and
on the 120th day following the Effective Date, the Reorganized Debtor shall be
deemed empowered to issue and shall issue the Gordian Warrants. All such
securities shall be distributed in accordance with the provisions of this Plan.
C. CANCELLATION OF EXISTING SECURITIES AND REJECTION OF RELATED
AGREEMENTS.
On the Effective Date, (i) the Old 10 1/4% Notes, the Old 13 1/2%
Notes, and the Old Common Stock shall each be deemed canceled, and (ii) the Old
Employee Stock Options, the Old Warrants, and the obligations of the Debtor
under the respective indentures governing the Old 10 1/4% Notes and the Old
13 1/2% Notes and under the agreements governing the Old Employee Stock Options
and the Old Warrants shall be rejected.
D. SURRENDER OF EXISTING SECURITIES.
Each holder of an Old 10 1/4% Note, of an Old 13 1/2% Note, or of
Old Common Stock shall surrender such note or stock certificate to the
Disbursing Agent in exchange for the distribution under this Plan. No
distributions under this Plan shall be made to or on behalf of any holder of an
Old 10 1/4% Note, Old
<PAGE>
13 1/2% Note, or Old Common Stock unless and until such note or stock
certificate is received by the Disbursing Agent or the unavailability of such
note or certificate is reasonably established to the satisfaction of the
Disbursing Agent. Any such holder that fails to surrender such note or
certificate or to execute and deliver an affidavit of loss and indemnity
reasonably satisfactory to the Disbursing Agent and, if so requested by the
Disbursing Agent, fails to furnish a bond in form and substance (including,
without limitation, with respect to amount) reasonably satisfactory to the
Disbursing Agent, within five years after the Confirmation Date shall be deemed
to have forfeited all rights, Claims, and interests and shall not participate in
any distribution under this Plan, and all property in respect of such forfeited
distribution shall revert to the Reorganized Debtor.
E. COMPROMISE OF SUBORDINATION DISPUTES.
1. SUBORDINATION PROVISIONS OF OLD 10 1/4% NOTES.
In full settlement and satisfaction of all subordination rights
claimed by holders of all Claims which constitute "Senior Claims" (as defined in
the indenture, as amended, for the Old 10 1/4% Notes), (i) a portion of the New
Common Stock otherwise distributable as of the Effective Date to the holders of
Old 10 1/4% Notes absent this compromise will instead be distributed on a pro
rata basis to holders of Allowed Senior Claims to the extent that holders of
Allowed Senior Claims will receive, in the aggregate, the number of shares of
New
<PAGE>
Common Stock set forth in Exhibit E to the Plan, and (ii) all New Class A
Warrants and New Class B Warrants otherwise distributable to the holders of
Senior Claims absent this compromise will instead be distributed on a pro rata
basis to holders of Old 10 1/4% Notes. This compromise takes fully into account
the relative priorities of the Claims affected in connection with the
contractual subordination provisions relating to the Old 10 1/4% Notes.
Accordingly, all holders of Claims shall be deemed, as of the Effective Date, to
have waived any and all contractual subordination rights which they might
otherwise have with respect to the Old 10 1/4% Notes and shall be deemed, as of
the Effective Date, permanently enjoined from enforcing or attempting to enforce
any such rights with respect to the distributions under the Plan to the holders
of the Old 10 1/4% Notes. In addition, this compromise takes fully into account
the Debtor's right, if any, under the indenture for the Old 10 1/4% Notes to
exercise any option to exchange preferred and common stock for the Old 10 1/4%
Notes.
For purposes of the implementation of the compromise set forth in this
Section V.E.1, Annex C to the Disclosure Statement specifies those Claims that
have been filed or are deemed filed in the Chapter 11 Case which will, to the
extent ultimately allowed, be treated as Allowed Senior Claims. If any party in
interest contends that Annex C to the Disclosure Statement is incorrect or
incomplete, such party must file with the Bankruptcy Court and serve upon
counsel for the Debtor and each of the Committees a written statement and an
accompanying
<PAGE>
declaration in support thereof specifying the alleged error or omission in Annex
C, no later than 31 calendar days before the date scheduled for the commencement
of the Confirmation Hearing. Failure timely to file and serve such statement
shall result in the determination that those Claims specified in Annex C to the
Disclosure Statement as Senior Claims constitute all of the Senior Claims and
will, to the extent allowed, be treated as Allowed Senior Claims under Section
V.E.1 of the Plan. The Debtor and the Committees reserve the right to object to
any response filed by any party in interest, and any disputes with respect to
whether a Claim constitutes an Allowed Senior Claim shall be resolved by the
Bankruptcy Court.
2. SUBORDINATION PROVISIONS OF OLD 13 1/2% NOTES.
In full settlement and satisfaction of all subordination rights
claimed by holders of all Claims which constitute "Senior Indebtedness" (as
defined in the indenture, as amended, for the Old 13 1/2% Notes), (i) only
16,500 shares of New Common Stock distributable as of the Effective Date to
the holders of Old 13 1/2% Notes shall be retained by the holders of Old 13
1/2% Notes, (ii) all other shares of New Common Stock otherwise distributable
as of the Effective Date to the holders of Old 13 1/2% Notes absent this
compromise will instead be distributed on a pro rata basis to holders of
Allowed Senior Indebtedness, (iii) all New Class A Warrants otherwise
distributable to the holders of Old 13 1/2% Notes absent this compromise will
instead be distributed
<PAGE>
on a pro rata basis to holders of Allowed Senior Indebtedness, and (iv) all New
Class B Warrants otherwise distributable to the holders of Old 13 1/2% Notes
absent this compromise will instead be distributed on a pro rata basis to
holders of Allowed Senior Indebtedness. This compromise takes fully into
account the relative priorities of the Claims affected in connection with the
contractual subordination provisions relating to the Old 13 1/2% Notes.
Accordingly, all holders of Claims shall be deemed, as of the Effective Date, to
have waived any and all contractual subordination rights which they might
otherwise have with respect to the Old 13 1/2% Notes and shall be deemed, as of
the Effective Date, permanently enjoined from enforcing or attempting to enforce
any such rights with respect to the distributions under the Plan to the holders
of the Old 13 1/2% Notes.
For purposes of the implementation of the compromise set forth in this
Section V.E.2, only the Allowed Claims of the holders of Old 10 1/4% Notes will
be treated as Allowed Senior Indebtedness. If any party in interest contends
that such treatment is incorrect or that any other Claims constitute Allowed
Senior Indebtedness, such party must file with the Bankruptcy Court and serve
upon counsel for the Debtor and each of the Committees a written statement and
an accompanying declaration in support thereof specifying the alleged error or
omission, no later than 31 calendar days before the date scheduled for the
commencement of the Confirmation Hearing. Failure timely to file and serve such
statement shall result in
<PAGE>
the determination that only the Allowed Claims of holders of Old 10 1/4% Notes
constitute Senior Indebtedness and will be treated as Allowed Senior
Indebtedness under Section V.E.2 of the Plan. The Debtor and the Committees
reserve the right to object to any response filed by any party in interest, and
any disputes with respect to whether a Claim constitutes Allowed Senior
Indebtedness shall be resolved by the Bankruptcy Court.
F. CERTIFICATE OF INCORPORATION AND BYLAWS.
As of the Effective Date, the certificate of incorporation of the
Reorganized Debtor shall be the Amended and Restated Certificate of
Incorporation substantially in the form set forth in the Plan Documentary
Supplement. The Amended and Restated Certificate of Incorporation will, among
other provisions, prohibit the issuance of non-voting equity securities to the
extent required by section 1123(a)(6) of the Bankruptcy Code. As of the
Effective Date, the bylaws of the Reorganized Debtor shall be the Amended and
Restated Bylaws substantially in the form set forth in the Plan Documentary
Supplement. The Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws shall be deemed effective as of the Effective Date by virtue
of the Confirmation Order without the need for any corporate action.
G. MANAGEMENT OF THE REORGANIZED DEBTOR.
On the Effective Date, the operation of the Reorganized Debtor shall
become the general responsibility of the Reorganized Debtor's newly-constituted
Board of Directors (the "New Board"),
<PAGE>
who shall thereafter have the responsibility for the management and control of
the Reorganized Debtor. As of the Effective Date, the New Board shall consist
of the individuals to be designated as set forth in Exhibit F to the Plan. The
initial senior officers of the Reorganized Debtor as of the Effective Date shall
consist of the individuals whose names are set forth in the Disclosure Statement
filed in connection with the Plan. All such directors and senior officers shall
be deemed appointed pursuant to the Confirmation Order without the need for any
corporate action. Those directors and senior officers not continuing in office
shall be deemed removed therefrom pursuant to the Confirmation Order without the
need for any corporate action. The initial rates of compensation for directors
and senior officers of the Reorganized Debtor shall be as set forth in the
Disclosure Statement. The existing employment agreements between the Debtor and
each of Alan Schlesinger, Loren Rothschild, and Peter Aaron shall be deemed
assumed pursuant to the Plan, and the Reorganized Debtor shall be deemed to
exercise its option to extend the term of Loren Rothschild's employment pursuant
to his employment agreement. As of and after the Effective Date, the
Reorganized Debtor shall, from time to time, issue New Employee Stock Options
exercisable for the purchase of 1,000,000 shares (subject to adjustment pursuant
to the employment agreements to prevent dilution upon any exercise of the New
Class A Warrants or New Class B Warrants) of New Common Stock with an exercise
price of $1,000,000 in the aggregate, allocated and vesting in the manner
<PAGE>
set forth in the Disclosure Statement, for distribution to specified employees
of the Reorganized Debtor. The principal terms and conditions of the New
Employee Stock Options are summarized in Exhibit C to the Plan and described in
detail in the Disclosure Statement. The New Employee Stock Options shall be
governed in all respects by the Employee Stock Option Plan substantially in the
form set forth in the Plan Documentary Supplement. The Employee Stock Option
Plan makes available, in addition to the New Employee Stock Options, an
additional 375,000 shares of New Common Stock for possible grants of additional
stock options from time to time after the Effective Date if, and to the extent,
the disinterested committee administering the Employee Stock Option Plan may
determine that such additional grants would be in the best interest of the
Reorganized Debtor. The Plan and Disclosure Statement as approved by the
Bankruptcy Court shall be deemed to be a solicitation, to persons who hold Old
Common Stock and to persons who will receive New Common Stock or New Warrants
under the Plan, for approval of the Employee Stock Option Plan, and the entry of
the Confirmation Order shall constitute approval of such plan for purposes of
compliance with Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended. Future employee stock plans or grants will be implemented by
the New Board if and as the New Board determines such plans to be appropriate as
a means to provide management with additional incentives.
<PAGE>
H. CORPORATE ACTION.
On the Effective Date, the issuance of securities as provided in the
Plan, the adoption of the Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws pursuant to the Plan, the appointment of the New
Board and initial senior officers of the Reorganized Debtor as specified in the
Plan, the adoption of the Employee Stock Option Plan pursuant to the Plan, and
all other corporate actions called for by the Plan shall be deemed authorized
and approved by virtue of entry of the Confirmation Order, in accordance with
the Bankruptcy Code and section 303 of the Delaware General Corporations Law and
without any requirement of further action by the stockholders or directors of
the Debtor or the Reorganized Debtor. The Amended and Restated Certificate of
Incorporation shall be filed with the Delaware Secretary of State on the
Effective Date or as soon as practicable thereafter.
I. METHOD OF DISTRIBUTION UNDER THE PLAN.
1. IN GENERAL.
All Cash distributions shall be made by the Disbursing Agent from the
Cash Reserve or Distribution Reserve as specified in Sections V.A and IV of this
Plan. Except as set forth herein, the Disbursing Agent shall make all
distributions of Cash and property pursuant to the Plan on the Effective Date or
as soon thereafter as is practicable.
2. INVESTMENT OF CASH.
Cash held in the Distribution Reserve and the Cash
<PAGE>
Reserve shall be invested by the Disbursing Agent in interest-bearing
certificates of deposit and interest-bearing accounts to be established in one
or more depository banks which have qualified to hold deposits of bankruptcy
estates. All interest earned on such Cash shall be disbursed by the Disbursing
Agent to the Reorganized Debtor.
3. MANNER OF PAYMENT UNDER THE PLAN.
Any payment of Cash made by the Disbursing Agent pursuant to the
Plan may be made either by check drawn on a domestic bank or by wire transfer
from a domestic bank, at the option of the Disbursing Agent.
4. MANNER OF DISTRIBUTION OF OTHER PROPERTY.
Any distribution under the Plan of property other than Cash shall
be made by the Reorganized Debtor, its designee, or the Disbursing Agent in
accordance with the terms of the Plan.
5. SETOFFS.
The Debtor may, but shall not be required to, set off against any
Claim, and the payments to be made pursuant to the Plan in respect of such
Claim, any claims of any nature whatsoever the Debtor may have against the
holder of such Claim, but neither the failure to do so nor the allowance of any
Claim hereunder shall constitute a waiver or release by the Debtor of any such
claim the Debtor may have against such holder.
6. DISTRIBUTION OF UNCLAIMED PROPERTY.
Except as otherwise provided in the Plan, any
<PAGE>
distribution of property (Cash or otherwise) under the Plan which is unclaimed
after five years following the Confirmation Date shall be transferred by the
Disbursing Agent to the Reorganized Debtor.
7. DE MINIMIS DISTRIBUTIONS.
No cash payment of less than five dollars shall be made by the
Disbursing Agent to any holder of a Claim unless a request therefor is made in
writing to the Disbursing Agent.
8. FRACTIONAL SHARES.
The calculation of the number of shares of New Common Stock and
the number of New Warrants to be distributed to the holders of Allowed Class 4
Claims and Allowed Class 5 Interests may mathematically entitle some of such
holders to fractional shares of New Common Stock and/or fractional New Warrants.
Notwithstanding such entitlement or anything to the contrary contained in this
Plan, only whole shares of New Common Stock and whole New Warrants shall be
issued and distributed, and no fractional shares of New Common Stock and no
fractional New Warrants shall be issued. The number of shares of New Common
Stock and/or number of New Warrants to be received by a holder of an Allowed
Claim or an Allowed Interest shall be rounded to the next greater or lower whole
number of shares as follows: (a) fractions of 1/2 or greater shall be rounded to
the next greater whole number, and (b) fractions of less than 1/2 shall be
rounded to the next lower whole number. The total number of shares of New
Common Stock and/or New Warrants distributed to a class of
<PAGE>
claims or interests shall be adjusted as necessary to account for the rounding
so provided for. No consideration shall be provided in lieu of the fractional
shares that are rounded down and therefore are not issued.
9. RECORD DATE.
On the Effective Date, the transfer ledgers for the Old 10 1/4%
Notes, the Old 13 1/2% Notes, and the Old Common Stock shall be closed, and
there shall be no further changes in the holders of record of such securities.
The Disbursing Agent shall not recognize any transfer of such securities
occurring after the Effective Date, but shall instead be entitled to recognize
and deal for all purposes with only those holders of record stated on the
applicable transfer ledgers as of the Effective Date.
10. SATURDAY, SUNDAY, OR LEGAL HOLIDAY.
If any payment or act under the Plan is required to be made or
performed on a date that is not a Business Day, then the making of such payment
or the performance of such act may be completed on the next succeeding Business
Day, but shall be deemed to have been completed as of the required date.
J. REVESTING OF ASSETS.
Except as otherwise provided in the Plan, on the Effective Date the
property of the estate of the Debtor shall revest in the Reorganized Debtor.
The Reorganized Debtor may operate its business and may use, acquire, and
dispose of property without supervision by the Bankruptcy Court or the United
States Trustee and free of any restrictions of the
<PAGE>
Bankruptcy Code or the Bankruptcy Rules. As of the Effective Date, all property
of the Reorganized Debtor shall be free and clear of all Claims, liens,
encumbrances, and other interests of creditors and holders of Equity Interests,
except as otherwise provided herein.
K. CONTINUATION OF FNBB CLAIM AND FNBB LIENS.
Notwithstanding the entry of the Confirmation Order and the
implementation of the Plan on the Effective Date, the FNBB Claim shall not be
discharged, and all liens, security interests, and mortgages granted to FNBB
(the "FNBB Liens") pursuant to the FNBB Facility shall continue in full force
and effect. The validity and enforceability of the FNBB Claim and the validity,
enforceability, perfection, and priority of the FNBB Liens shall be
automatically ratified and confirmed in all respects and continue without any
further action by FNBB. Without limiting the foregoing, the FNBB Liens shall
not be subject to any present or future contractual, statutory, or common law
lien, security interest, or mortgage which might be avoided and preserved for
the benefit of the estate pursuant to section 551 of the Bankruptcy Code. In
furtherance of (and without limiting) the foregoing, the FNBB Liens in any of
the Reorganized Debtor's non-fixture personal property shall be superior and
senior in priority to any and all liens arising by operation of law in favor of
lessors and landlords for obligations relating to or arising in connection with
rental agreements for the use of real property.
<PAGE>
VI.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. ASSUMPTION.
Effective upon the Effective Date, the Debtor in Possession hereby
assumes those executory contracts and unexpired leases which are listed in
Exhibit G to the Plan.
Exhibit G specifies the amount ("Cure Payment"), if any, that the
Debtor believes must be tendered on the Effective Date, in order to provide
compensation in accordance with sections 365(b)(1)(A) & (B) of the Bankruptcy
Code. If any party to any executory contract or unexpired lease listed in
Exhibit G contends that the Cure Payment is wrong as to such party's contract or
lease, such party must file with the Bankruptcy Court and serve upon the counsel
for the Debtor and each of the Committees a written statement and an
accompanying declaration in support thereof specifying the amounts allegedly
owing under sections 365(b)(1)(A) & (B) of the Bankruptcy Code no later than 31
calendar days before the date scheduled for the commencement of the Confirmation
Hearing. Failure timely to file and serve such statement shall result in the
determination that the Reorganized Debtor's tender of the Cure Payment, as
specified in Exhibit G, on the Effective Date, shall provide cure and
compensation for any and all defaults and unpaid obligations under such assumed
executory contract or unexpired lease. The Debtor and the Committees reserve
the right to object to any response filed by any party to an executory contract
or unexpired
<PAGE>
lease under this paragraph and/or to reject any executory contract or unexpired
lease or assume such contract or unexpired lease by complying with section
365(b) of the Bankruptcy Code, if the other party to any executory contract or
unexpired lease establishes that the Cure Payment is greater than the amount
specified in Exhibit G. To the extent the Debtor disagrees with any response
filed by any party to an executory contract or unexpired lease under this
paragraph, the Debtor will request that the Bankruptcy Court declare that the
Cure Payment is as stated by the Debtor, and any disputes shall be resolved by
the Bankruptcy Court.
Entry of the Confirmation Order shall constitute approval of the
assumptions under the Plan pursuant to section 365(a) of the Bankruptcy Code.
All Cure Payments which may be required by section 365(b)(1) of the Bankruptcy
Code shall be made on the Effective Date or as soon thereafter as is
practicable.
B. REJECTION.
Effective upon the Effective Date, the Debtor in Possession hereby
rejects all executory contracts and unexpired leases that exist between the
Debtor and any other entity which have not previously been rejected, except the
Debtor in Possession does not reject those executory contracts and unexpired
leases (i) which are listed in Exhibit G hereto and assumed pursuant to Section
VI.A of the Plan, or (ii) which are or have been specifically assumed, or
assumed and assigned, by
<PAGE>
the Debtor in Possession with the approval of the Bankruptcy Court by separate
proceeding in the Chapter 11 Case. The executory contracts and unexpired leases
rejected under the Plan shall include, without limitation, those listed in
Exhibit H to the Plan. Inclusion of a matter in Exhibit H does not constitute
an admission by the Debtor in Possession that an executory contract or unexpired
lease exists or is valid. As a matter of prudence, Exhibit H includes contracts
and leases which may have previously been rejected or canceled or assigned or
which may have expired. Entry of the Confirmation Order shall constitute
approval of the rejections under the Plan pursuant to section 365(a) of the
Bankruptcy Code.
The executory contracts rejected under the Plan shall include, without
limitation, all Old Employee Stock Options and all Old Warrants which, in each
case, are unexercised as of the Effective Date, to the extent that they
constitute executory contracts. Holders of Old Employee Stock Options and
holders of Old Warrants who, in each case, shall have exercised prior to the
Effective Date such holders' rights to purchase Old Common Stock in accordance
with the provisions of such Old Employee Stock Options or Old Warrants, as the
case may be, shall be treated under the Plan with respect to the Old Common
Stock so purchased in the manner specified in Section II.D of the Plan for Class
5.
All Allowed Claims arising from the rejection of executory contracts
or unexpired leases, whether under the Plan or by separate proceeding, shall be
treated as Class 4 Claims
<PAGE>
under the Plan.
All Claims arising from the rejection of executory contracts or
unexpired leases, whether under the Plan or by separate proceeding, must be
filed with the Bankruptcy Court on or before such date as the Bankruptcy Court
has fixed or may fix by express order with respect to Claims arising from the
rejection of specified executory contracts and unexpired leases, or, if no such
date is or has been fixed, on or before the first Business Day which is at least
fifteen calendar days after the date of mailing of notice of entry of the
Confirmation Order. Any such Claims which are not filed within such time will
be forever barred from assertion against the Debtor, its estate, the Reorganized
Debtor, and its property.
VII.
EFFECTIVENESS OF THE PLAN
A. CONDITIONS PRECEDENT.
The Plan shall not become effective unless and until the following
conditions shall have been satisfied or waived:
1. The Confirmation Order shall have been entered on the docket of
the Bankruptcy Court for at least ten days (as calculated in accordance with
Bankruptcy Rule 9006(a)); and
2. All conditions to the occurrence of the "Exit Facility Date" as
defined and set forth in the FNBB Facility shall have been satisfied or waived
and no Event of Default shall have occurred and be continuing thereunder.
<PAGE>
B. WAIVER OF CONDITIONS.
The Debtor, in its sole discretion, may waive by a writing signed by
an authorized representative of the Debtor and filed with the Bankruptcy Court
the condition to effectiveness of the Plan set forth in Section VII.A.1 of the
Plan.
C. NOTICE OF EFFECTIVE DATE.
As soon as practicable after the Effective Date has occurred, the
Reorganized Debtor shall file with the Bankruptcy Court an informational notice
specifying the Effective Date, as a matter of record.
VIII.
RETENTION OF JURISDICTION
Following the Confirmation Date, the Bankruptcy Court shall retain
jurisdiction of all matters arising out of, or related to, the Chapter 11 Case
and the Plan pursuant to, and for the purposes of, sections 105(a) and 1142 of
the Bankruptcy Code and for, among other things, the following purposes:
A. To hear and determine pending motions for the assumption,
assumption and assignment, or rejection of executory contracts or unexpired
leases, if any are pending as of the Effective Date, the determination of any
cure payments related thereto, and the allowance or disallowance of Claims
resulting therefrom;
B. To determine any and all adversary proceedings, applications,
motions, and contested matters instituted prior to
<PAGE>
the closing of the Chapter 11 Case;
C. To ensure that distributions to holders of Allowed Administrative
Expenses, Allowed Claims, and Allowed Equity Interests are accomplished as
provided herein;
D. To hear and determine any objections to Administrative Expenses,
to Proofs of Claims, and to Proofs of Equity Interests filed both before and
after the Confirmation Date, and to allow or disallow any Disputed
Administrative Expense, Disputed Claim, or Disputed Equity Interest, in whole or
in part;
E. To enter and implement such orders as may be appropriate in the
event the Confirmation Order is for any reason stayed, revoked, modified, or
vacated;
F. To issue orders in aid of execution of the Plan and to issue
injunctions or take such other actions or make such other orders as may be
necessary or appropriate to restrain interference with this Plan or its
execution or implementation by any entity;
G. To consider any modifications of the Plan, to cure any defect or
omission, or to reconcile any inconsistency in the Plan or any order of the
Bankruptcy Court, including, without limitation, the Confirmation Order;
H. To hear and determine all applications for compensation and
reimbursement of expenses of professionals under sections 330, 331, and 503(b)
of the Bankruptcy Code;
I. To hear and determine any disputes arising in connection with the
interpretation, implementation, execution, or
<PAGE>
enforcement of the Plan, the Confirmation Order, or any other order of the
Bankruptcy Court;
J. To recover all assets of the Debtor and property of the estate,
wherever located;
K. To hear and determine any matters concerning state, local, and
federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy
Code;
L. To hear any other matter not inconsistent with the Bankruptcy
Code; and
M. To enter a final decree closing the Chapter 11 Case.
Notwithstanding the foregoing, the Bankruptcy Court's retention of jurisdiction
shall not govern the enforcement of the FNBB Facility or any rights or remedies
relating thereto, except to the extent expressly provided or preserved for the
benefit of FNBB in the Plan.
IX.
MISCELLANEOUS PROVISIONS
A. PAYMENT OF STATUTORY FEES.
All quarterly fees due and payable to the Office of the United States
Trustee pursuant to section 1930(a)(6) of title 28 of the United States Code
shall be duly paid in full on or before the Effective Date, as required by
section 1129(a)(12) of the Bankruptcy Code. Lamonts projects that $5,000 will
be payable to the Office of the United States Trustee for the quarter including
<PAGE>
the Effective Date. The Reorganized Debtor shall remain responsible for timely
payment of such quarterly fees due and payable after the Effective Date pursuant
to section 1930(a)(6) of title 28 of the United States Code. After the
Effective Date and until the Chapter 11 Case is closed, the Reorganized Debtor
shall file with the Office of the United States Trustee required monthly
financial reports including a statement of all disbursements, whether or not
pursuant to the Plan.
B. DISCHARGE OF DEBTOR AND INJUNCTION.
The rights afforded in the Plan and the treatment of all Claims and
Equity Interests therein shall be in exchange for and in complete satisfaction,
discharge, and release of any and all Claims and Equity Interests of any nature
whatsoever, including any interest accrued on such Claims from and after the
Petition Date, against the Debtor and the Debtor in Possession, or any of their
assets or properties. Except as otherwise provided herein, (i) on the Effective
Date, the Debtor shall be deemed discharged and released to the fullest extent
permitted by section 1141 of the Bankruptcy Code from all Claims and Equity
Interests, including, but not limited to, demands, liabilities, Claims, and
interests that arose before the Confirmation Date and all debts of the kind
specified in sections 502(g), 502(h), or 502(i) of the Bankruptcy Code, whether
or not: (a) a proof of claim or proof of interest based on such debt or interest
is filed or deemed filed pursuant to section 501 of the Bankruptcy Code, (b) a
Claim or Equity Interest based on such debt or
<PAGE>
interest is Allowed pursuant to section 502 of the Bankruptcy Code, or (c) the
holder of a Claim or Equity Interest based on such debt or interest has accepted
the Plan; and (ii) all persons and entities shall be deemed precluded from
asserting against the Reorganized Debtor, its successors, or its assets or
properties any other or further Claims or Equity Interests based upon any act or
omission, transaction, or other activity of any kind or nature that occurred
prior to the Confirmation Date. The Confirmation Order shall act as a discharge
of any and all claims against and all debts and liabilities of the Debtor, as
provided in sections 524 and 1141 of the Bankruptcy Code, and such discharge
shall void any judgment against the Debtor at any time obtained to the extent
that it relates to a Claim discharged.
Except as otherwise provided in the Plan, the documents executed
pursuant to the Plan, or the Confirmation Order, on and after the Effective
Date, all persons and entities who have held, currently hold, or may hold a
debt, Claim, or interest discharged pursuant to the terms of the Plan shall be
deemed permanently enjoined from taking any of the following actions on account
of any such discharged debt, Claim, or interest: (1) commencing or continuing in
any manner any action or other proceeding against the Debtor, the Reorganized
Debtor, its successors, or its property; (2) enforcing, attaching, executing,
collecting, or recovering in any manner any judgment, award, decree, or order
against the Debtor, the Reorganized Debtor, its successors, or its property;
(3) creating, perfecting, or enforcing any lien or
<PAGE>
encumbrance against the Debtor, the Reorganized Debtor, its successors, or its
property; (4) asserting any setoff, right of subrogation, or recoupment of any
kind against any obligation due to the Debtor, the Reorganized Debtor, its
successors, or its property; and (5) commencing or continuing any action, in any
manner, in any place that does not comply with or is inconsistent with the
provisions of this Plan. Any person or entity injured by any willful violation
of such injunction shall recover actual damages, including costs and attorneys'
fees, and, in appropriate circumstances, may recover punitive damages, from the
willful violator.
The provisions of this Section IX.B will not apply to the FNBB Claim
or the FNBB Liens, which shall survive and continue and be governed by the FNBB
Facility.
C. NO LIABILITY FOR SOLICITATION OR PARTICIPATION.
As specified in section 1125(e) of the Bankruptcy Code, persons that
solicit acceptances or rejections of the Plan and/or that participate in the
offer, issuance, sale, or purchase of securities offered or sold under the Plan,
in good faith and in compliance with the applicable provisions of the Bankruptcy
Code, are not liable, on account of such solicitation or participation, for
violation of any applicable law, rule, or regulation governing the solicitation
of acceptances or rejections of the Plan or the offer, issuance, sale, or
purchase of securities.
D. LIMITATION OF LIABILITY.
Neither the Debtor, nor the Reorganized Debtor, nor any
<PAGE>
of their employees, officers, directors, agents, or representatives, nor the
Committees or their members, nor any professional persons employed by the
Debtor, the Debtor in Possession, the Reorganized Debtor, or the Committees,
shall have or incur any liability to any person or entity for any act taken or
omission made in good faith in connection with or related to negotiating,
formulating, implementing, confirming, or consummating the Plan, the Disclosure
Statement, or any contract, instrument, security, release, or other agreement,
instrument, or document created in connection with the Plan.
E. RIGHTS OF ACTION.
Any and all rights and causes of action accruing to the Debtor or its
estate shall remain assets of and vest in the Reorganized Debtor, whether or not
litigation relating thereto is pending on the Effective Date. The Reorganized
Debtor may pursue all rights and causes of action in its sole discretion in
accordance with what is in the best interests, and for the benefit, of the
Reorganized Debtor. Neither the Debtor nor the Reorganized Debtor waives,
relinquishes, or abandons any right or cause of action which constitutes
property of the Debtor's Estate, whether or not such right or cause of action
has been listed or referred to in the Schedules or in the Disclosure Statement
and whether or not such right or cause of action is currently known to the
Debtor. Notwithstanding the foregoing, the Reorganized Debtor shall not pursue
any preference causes of action arising under section 547 of the Bankruptcy
Code.
<PAGE>
F. HEADINGS.
Headings are used in the Plan for convenience and reference only, and
shall not constitute a part of the Plan for any other purpose.
G. BINDING EFFECT.
The Plan shall be binding upon and inure to the benefit of the Debtor,
the Reorganized Debtor, holders of Claims, holders of Equity Interests, and
their respective successors or assigns.
H. REVOCATION OR WITHDRAWAL.
1. RIGHT TO REVOKE.
The Debtor reserves the right to revoke or withdraw the Plan
prior to the Confirmation Date.
2. EFFECT OF WITHDRAWAL OR REVOCATION.
If the Debtor revokes or withdraws the Plan prior to the
Confirmation Date, or if the Confirmation Date or the Effective Date does not
occur, then the Plan shall be deemed null and void. In such event, nothing
contained herein shall be deemed to constitute a waiver or release of any claims
by or against the Debtor or any other person or to prejudice in any manner the
rights of the Debtor or any person in any further proceedings involving the
Debtor.
I. GOVERNING LAW.
Unless a rule of law or procedure is supplied by federal law
(including the Bankruptcy Code and Bankruptcy Rules), the laws of the State of
Washington (without reference to its conflict of law rules) shall govern the
construction and
<PAGE>
implementation of the Plan and any agreements, documents, and instruments
executed in connection with the Plan, unless otherwise specifically provided in
such agreements, documents, or instruments.
J. WITHHOLDING, REPORTING, AND PAYMENT OF TAXES.
In connection with the Plan and all instruments issued in connection
therewith and distributions thereon, the Disbursing Agent shall comply with all
withholding and reporting requirements imposed by any federal, state, local, or
foreign taxing authority and all distributions hereunder shall be subject to any
such withholding and reporting requirements. The Disbursing Agent shall report
and pay taxes on the income of the Distribution Reserve or the Cash Reserve as
required by applicable law. In addition, to the extent required by applicable
law, reported distributions from such reserves shall include any and all
interest and investment income attributable to the Cash or property being
distributed net of taxes which are, or are estimated to be, due and payable
thereon.
K. OTHER DOCUMENTS AND ACTIONS.
The Reorganized Debtor may execute such other documents and take such
other actions as may be necessary or appropriate to effectuate the transactions
contemplated under this Plan.
L. MODIFICATION OF THE PLAN.
The Debtor or Reorganized Debtor may alter, amend, or modify the Plan
pursuant to section 1127 of the Bankruptcy Code.
<PAGE>
M. NOTICES.
Any notice to the Debtor or Reorganized Debtor required or permitted
to be provided under the Plan shall be in writing and served by either (a)
certified mail, return receipt requested, postage prepaid, (b) hand delivery, or
(c) reputable overnight delivery service, freight prepaid, to be addressed as
follows:
Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, WA 98034
Attn.: Chief Financial Officer
N. SUCCESSORS AND ASSIGNS.
The rights, benefits, and obligations of any entity named or referred
to in the Plan shall be binding on, and shall inure to the benefit of, the
heirs, executors, administrators, successors, and assigns of such entity.
DATED: October 23, 1996 LAMONTS APPAREL, INC.,
a Delaware corporation
By /s/ Loren R. Rothschild
--------------------------------------
LOREN R. ROTHSCHILD,
Vice-Chairman of the
Board of Directors
SUBMITTED BY:
/s/ Jeffrey Davidson
- ------------------------------------
JEFFREY H. DAVIDSON and
MICHAEL H. GOLDSTEIN, Members of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
Special Reorganization Counsel
for Debtor and Debtor in Possession
<PAGE>
-and-
/s/ Richard J. Hyatt
- -----------------------------------
RICHARD J. HYATT (WSBA No. 14048)
RYAN SWANSON & CLEVELAND
1201 Third Avenue, Suite 3400
Seattle, WA 98101
(206) 464-4224
Counsel for Debtor and
Debtor in Possession
<PAGE>
SUMMARY OF CERTAIN PRINCIPAL TERMS
AND CONDITIONS OF NEW CLASS A WARRANTS
The New Class A Warrants will be issued pursuant to a Warrant
Agreement between the Reorganized Debtor and a Warrant Agent to be determined,
the form of which is included in the Plan Documentary Supplement (the "New
Warrant Agreement").
The New Class A Warrants will initially be exercisable for an
aggregate of 2,203,320 shares of New Common Stock. The New Class A Warrants
will be exercisable at any time after the first date on which the Aggregate
Equity Trading Value (as defined in the New Warrant Agreement) equals or exceeds
$20,000,000 and will expire on the tenth anniversary of the Effective Date. The
exercise price for the New Class A Warrants will initially be $0.01 per share.
The number and type of securities issuable upon exercise of the New
Class A Warrants and the exercise price payable upon exercise thereof are
subject to customary anti-dilution protection as provided in the New Warrant
Agreement for (i) stock dividends, subdivisions, combinations, and
reclassifications affecting the New Common Stock, (ii) certain issuances of New
Common Stock or rights, options, or warrants to purchase New Common Stock, and
(iii) certain distributions on the New Common Stock.
EXHIBIT A TO PLAN
<PAGE>
SUMMARY OF CERTAIN PRINCIPAL TERMS
AND CONDITIONS OF NEW CLASS B WARRANTS
The New Class B Warrants will be issued pursuant to a Warrant
Agreement between the Reorganized Debtor and a Warrant Agent to be determined,
the form of which is included in the Plan Documentary Supplement (the "New
Warrant Agreement").
The New Class B Warrants will initially be exercisable for an
aggregate of 800,237 shares of New Common Stock. The New Class B Warrants will
be exercisable at any time after the first date on which the Aggregate Equity
Trading Value (as defined in the New Warrant Agreement) equals or exceeds
$25,000,000 and will expire on the tenth anniversary of the Effective Date. The
exercise price for the New Class B Warrants will initially be $0.01 per share.
The number and type of securities issuable upon exercise of the New
Class B Warrants and the exercise price payable upon exercise thereof are
subject to customary anti-dilution protection as provided in the New Warrant
Agreement for (i) stock dividends, subdivisions, combinations, and
reclassifications affecting the New Common Stock, (ii) certain issuances of New
Common Stock or rights, options, or warrants to purchase New Common Stock, and
(iii) certain distributions on the New Common Stock.
EXHIBIT B TO PLAN
<PAGE>
SUMMARY OF CERTAIN PRINCIPAL TERMS AND
CONDITIONS OF NEW EMPLOYEE STOCK OPTIONS
The New Employee Stock Options will be exercisable for the purchase of
1,000,000 shares (subject to adjustment to prevent dilution upon certain events,
including among other things any exercise of the New Warrants) of New Common
Stock. The aggregate exercise price will be $1,000,000. The term will be 10
years. The New Employee Stock Options will be governed by the Employee Stock
Option Plan in substantially the form set forth in the Plan Documentary
Supplement.
600,000 of the New Employee Stock Options will be granted to Alan
Schlesinger, with 50% vesting on the Effective Date, 25% on the first
anniversary of the Effective Date, and 25% on the second anniversary of the
Effective Date. 150,000 of the New Employee Stock Options will be granted to
Loren R. Rothschild, with 50% vesting on the Effective Date and 50% vesting on
the first anniversary of the Effective Date. The remaining 250,000 New Employee
Stock Options will be allocated to other employees from time to time in such
amounts and on such terms as management shall determine.
EXHIBIT C TO PLAN
<PAGE>
LIST OF DEFERRED PAYMENT TAX CLAIMS
The following Claims will, to the extent allowed, be treated as
Deferred Payment Tax Claims in the manner specified in Section II.C of the Plan:
1. Department of the Treasury - Internal Revenue Service
2. State of Washington Department of Revenue
EXHIBIT D TO PLAN
<PAGE>
QUANTITY OF SHARES OF NEW COMMON STOCK TO
BE RECEIVED AS OF THE EFFECTIVE DATE BY
HOLDERS OF ALLOWED SENIOR CLAIMS
Upon the implementation of the compromise regarding the subordination
provisions of the indenture, as amended, for the Old 10-1/4% Notes, pursuant to
Section V.E.1 of the Plan, holders of Allowed Senior Claims (as defined in such
indenture) shall receive, as of the Effective Date, in the aggregate, the number
of shares specified in the following table that corresponds to the total amount
of such Senior Claims actually allowed in the Chapter 11 Case:
Total Senior Claims Allowed Number of Shares
- --------------------------- ----------------
Less than $14,000,000 4,050,000
$14,000,000 -- $15,399,999 4,800,000
$15,400,000 -- $16,999,999 4,970,000
$17,000,000 or greater 5,670,000
EXHIBIT E TO PLAN
<PAGE>
MEMBERS OF INITIAL BOARD OF DIRECTORS
OF REORGANIZED DEBTOR
The initial Board of Directors of the Reorganized Debtor as of the
Effective Date will consist of Alan Schlesinger, Loren R. Rothschild, and three
additional individuals who are not insiders or employees of the Debtor and who
will be designated by the Debtor, with the approval of the Committees, at or
before the hearing on confirmation of the Plan.
EXHIBIT F TO PLAN
<PAGE>
LIST OF EXECUTORY CONTRACTS ASSUMED
Effective upon the Effective Date, the Debtor in Possession hereby
assumes the following executory contracts and unexpired leases:
SEE ATTACHED LIST.
EXHIBIT G TO PLAN
<PAGE>
LEASES AND EXECUTORY CONTRACTS ASSUMED
1. Name and Mailing Address of other Parties to Lease or Contract
2. Description of Contract or Lease
3. Cure Amount, if any
NAME & MAILING ADDRESS DESCRIPTION OF CONTRACT/LEASE CURE AMOUNT
- ---------------------- ----------------------------- -----------
Aaron, Peter Executive Employment Agreement $ -0-
5015 133rd Avenue NE
Bellevue, WA 98005
Aaron, Peter Indemnification Agreement $ -0-
c/o Lamonts Apparel, Inc.
12413 Willows Road, NE
Kirkland, WA 98034
Alco Capital Resources, Inc. Canon Copier Lease $ 403.05
P.O. Box 9115
Macon, GA 31298-2099
Allendale Mutual Insurance Co. Insurance Policy $ -0-
411 108th Avenue, NE, Suite 2000 Property
Bellevue, WA 98004-5515
American Express Travel Related Retail Establishment Agreement $ -0-
Services Company, Inc.
2121 4th Avenue, Suite 2150 Previously assumed per order dated
Seattle, WA 98121 02/17/95. Listed as a matter of
prudence.
American Express Travel Related
Services Company, Inc.
American Express Tower
World Financial Center
New York, NY 10285-3500
Armored Car Dispatch Armored Car Services Contract $ -0-
P.O. Box 1180
Yakima, WA 98907
Armored Express, Inc. Armored Car Services Contract $ -0-
P.O. Box 7641
Olympia, WA 98507
Armored Transport Northwest, Armored Car Services Contract $ -0-
Inc., OR
1401 E. Yesler Way
Seattle, WA 98122
Armored Transport Northwest, Armored Car Services Contract $ -0-
Inc, WA
1401 E. Yesler Way
Seattle, WA 98122
Arthur and Associates, Inc. License Agreement for Santa Photo $ -0-
7530 34th Street NW Department
Seattle, WA 98117
Ascent Solutions Inc. Software Maintenance Contract $ -0-
17 South St. Clair, Suite 300
Dayton, OH 45402
<PAGE>
ATD/Assembly Transportation Distribution Center Operating $ -0-
Distribution System, Inc. Agreement
Distribution Center Services
7202 S. 212th Street
Northwest District, Center 1
Kent, WA 98188
Attn: Dave Hutchins
Bankamerica State Trust Co Benefits Trust Custody & Management $ -0-
Institutional Trust Services Agreement - Lamonts Apparel, Inc.'s
Bank of America Capital Defined Contribution 401K Retirement
Management, Inc. Plan
P.O. Box 84993
Seattle, WA 98124
Bekins Northwest Relocation Services Agreement $ -0-
P.O. Box 30728
Seattle, WA 98103
Bendata Inc. Software Maintenance Contract $ -0-
1755 Telstar Drive, Suite 100
Colorado Springs, CO 80920
Best Programs Software Maintenance Contract $ -0-
P.O. Box 17428
Baltimore, MD 21298-9108
Brownfield, Debbie Indemnification Agreement $ -0-
c/o Lamonts Apparel, Inc.
12413 Willows Road, NE
Kirkland, WA 98034
Card Establishment Services, Inc. Credit Card Services $ -0-
Establishment Services Division
265 Broad Hollow Road Previously assumed per order dated
Melville, NY 11747 02/17/95. Listed as a matter of
prudence.
Cascade Architectural and Xerox Maintenance Agreement $ -0-
Engineering Supplies Co.
235 9th Avenue North
Seattle, WA 98109-5190
Ceridian Employer Services Payroll Processing Service $ 128.37
1730 Minor Avenue, Suite 1200 Agreement
Seattle, WA 98101
Comshare Computer Software Maintenance $ -0-
3001 South State Street Contract
Ann Arbor, MI 48106
Cooper Mountain Financial Custody Agreement - Lamonts $ -0-
Group, Inc. Apparel, Inc.'s Qualified Defined
1211 SW Fifth Avenue, Suite 1900 Benefits Retirement Plan
Portland, OR 97204
Data Serve
12125 Technology Drive Hardware Maintenance Contract $ 14,714.83
Eden Prarie, MN 55344-7339
Department of Labor and Insurance Policy $ -0-
Industries Workers Compensation (Washington)
Policy Manager, Robert Scribner
P.O. Box 44163
Olympia, WA 98504-4163
<PAGE>
Discover Card Services, Inc. Merchant Services Agreement $ -0-
2500 Lake Cook Road
Riverwoods, IL 60015 Previously assumed per order dated
02/17/95. Listed as a matter of
prudence.
Electronic Data Systems, Computer Software Maintenance $ 255.49
Inc. (AIM) Contract
2620 Augustine Drive, Suite 200
Santa Clara, CA 95054
Electronic Technical Alarm Monitoring for Stores $ 1,064.39
Services/ETS Agreement
P.O. Box 33583
San Diego, CA 92163
Executive Risk Indemnity, Inc. Insurance Policy $ -0-
P.O. Box 2002 Directors & Officers -
Simsbury, CT 06070-7683 primary
Farmington Casualty Company Insurance Policy $ -0-
Hartford, CT 06156 General Liability (Alaska
stores)
Farmington Casualty Company Insurance Policy $ -0-
Hartford, CT 06156 Property
Farmington Casualty Company Insurance Policy $ -0-
Hartford, CT 06156 General Liability
Foster Higgins & Co Inc Health & Welfare Insurance $ -0-
P.O. Box 100255 Consulting
Pasadena, CA 91189 Retainer Agreement
Frederick Atkins, Incorporated Standard Service Agreement $ -0-
1515 Broadway
New York, NY 10036 Previously assumed per order
dated 04/24/95. Listed as a
matter of prudence.
Group Health Cooperative Medical Coverage Agreement $ 1,401.33
of Puget Sound
P.O. Box 34581
Seattle, WA 98124-1581
Group Health Northwest Medical Coverage Agreement $ -0-
P.O. Box 204
Spokane, WA 99210-0204
Guardian Security Services Armored Car Services Contract $ -0-
2600 Seward Highway
Anchorage, AK 99503
Gulf Insurance Company Insurance Policy $ -0-
P.O. Box 1771 Directors & Officers - excess
Dallas, TX 75221-1771
Hammon Services Corporation Armored Car Services Contract $ -0-
P.O. Box 2586
Idaho Falls, ID 83401
Hassel, Inc. d/b/a Pacific Month to Month Lease
Refrigeration (Port Angeles Store sublease) $ -0-
600 East First Street
Port Angeles, WA 98362
IBM Corporation Computer Software and Hardware $ 7,622.88
2929 North Central Maintenance Contract
Phoenix, AZ 85012-2743
Industrial Indemnity Insurance Policy $ -0-
1601 Fifth Avenue, Suite 1300 Worker Compensation
Seattle, WA 98101
<PAGE>
Infotech Corporation Computer Services Agreement $ -0-
1511 Sixth Avenue
Seattle, WA 98101 Previously assumed per order
dated 03/25/96. Listed as
a matter of prudence.
Integra-Trak Inc. Software Maintenance Contract $ -0-
146 North Canal Street,
Suite 300
Seattle, WA 98103
Knightwatch Security Armored Car Services Contract $ -0-
2525 Industrial Boulevard
Juneau, AK 99803
Lamonts Apparel, Inc. Qualified Defined Benefits $ -0-
Employee Retirement Trust Retirement Plan
12413 Willows Road, NE
Kirkland, WA 98034
Lamonts Apparel, Inc. Qualified Defined $ -0-
Tax Relief Investment Contribution 401K
Protection Plan Retirement Plan
12413 Willows Road, NE
Kirkland, WA 98034
Lanier Worldwide, Inc. Dictaphone and Dictation $ 137.23
One Transam Plaza Drive. Machines Lease
Suite 550
Oakbrook Terra, IL 60181
London Fog Industries, Inc. London Fog Consignment $ -0-
1332 Londontown Boulevard Agreement
Eldersburg, ML 21784-5399 Previously assumed per
Attn: Gerry Schoenen order dated 02/17/95.
Listed as a matter
of prudence.
Loomis Armored, Inc. Armored Car Services $ -0-
1205 E. Dowling Road Contract
Anchorage, AK 99518
Loomis Armored, Inc. Armored Car Services $ -0-
3300 Airport Road Contract
Fairbanks, AK 99709
Loomis Armored, Inc. Armored Car Services $ -0-
806 East Second Contract
Spokane, WA 99202
Maxum Systems Corporation Software Maintenance $ -0-
Dept. AT 49903 Contract
Atlanta, GA 31192-9903
Micro-Focus Software License $ 37.12
P.O. Box 45611
San Francisco, CA 98145-0611
Miller Elevator Service Company Maintenance Service $ 2,617.54
P.O. Box 73017-N Contract
Cleveland, Ohio 44193
MMS Systems Inc Software System License $ -0-
88 South Finley Avenue
Baskin Ridge, NJ 07920
Montgomery Elevator Co. Maintenance Service $ 3,308.77
P.O. Box 429 Contract
Moline, IL 61265-0429
National Flood Insurance Insurance Policy $ -0-
Program Flood
Rockville, MD 20849-6468
<PAGE>
National Security Service Inc. Armored Car Services $ -0-
980 S. E. Stephens Street Contract
Roseburg, OR 97470
National Union Fire Comprehensive Dishonesty,
Insurance Company Disappearance and Destruction
70 Pine Street Policy #483-13-34 $ -0-
New York, NY 10270-0150
National Union Fire Insurance Pension and Welfare Benefit $ -0-
Company Plan Fiduciaries' and
70 Pine Street Administrators' Insurance
New York, NY 10270-0150 Policy #483-13-93
NCF Financial, Inc. Computer Equipment Lease $ -0-
15 Lake Street, Suite 106
Kirkland, WA 98033
Oracle Software License $ -0-
P.O. Box 44471
San Francisco, CA 94144-4471
Oracle Software License $ -0-
P.O. Box 44471
San Francisco, CA 94144-4471
Oracle Software License $ -0-
P.O. Box 44471
San Francisco, CA 94144-4471
Otis Elevator Company Maintenance Service $ 329.30
P.O. Box 100188 Contract
Pasadena, CA 91189-0188
Principal Mutual Life Administration of Group $ -0-
Insurance Company Health Insurance Agreement
711 High Street (Medical/Dental/Vision/Short-
Des Moines, IA 50392-0001 Term Disability)
Reliance Insurance Company Insurance Policy $ -0-
4 Penn Center Plaza Directors & Officer - excess
Philadelphia, PA 19103
Rothschild, Loren Employment Agreement $ -0-
1201 Tower Grove Drive Post-petition agreement
Beverly Hills, CA 90210 per order dated 04/13/95.
Listed as a matter
of prudence.
Rothschild, Loren Indemnification Agreement $ -0-
1201 Tower Grove Drive
Beverly Hills, CA 90210
RREEF Corporation Lease Agreement between $ -0-
520 Pike Street, Suite 2134 RREEF and Assembly
Seattle, WA 98101 Transportation Distribution
Systems, Inc. for Distribution
Center I at 7202 South 212th
Street in the City of Kent, WA.
Safeco Credit Co., Inc. Telephone Systems Lease $ 1,544.12
Safeline
Attn: Billie Honey
P.O. Box 84066
Seattle, WA 98124-8466
<PAGE>
Schlesinger, Alan Employment Agreement $ -0-
Lamonts Apparel, Inc.
12413 Willows Road, NE Post-petition agreement
Kirkland, WA 98034 per order dated 04/13/95.
Listed as a matter
Lawrence A. Jacobson of prudence.
Cohen and Jacobson
577 Airport Boulevard, Suite 230
Burlingame, CA 94101
Schlesinger, Alan Indemnification Agreement $ -0-
c/o Lamonts Apparel, Inc.
12413 Willows Road, NE
Kirkland, WA 98034
Scott Wetzel Services, Inc. Claims Services Contract $ -0-
Corporate Claims
33801 First Way South,
Suite 351
Federal Way, WA 98003
Scott Wetzel Services, Inc Claims Services Contract $ -0-
3000 "C" Street, Suite 110
Anchorage, AK 99503
Security Armored Express, Inc. Armored Car Services Contract $ -0-
2500 North Cooke
Helena, MT 59604
Sensormatic Electronics Corp. Lease for Ink Tag equipment $ 2,296.81
500 NW 12th Avenue
Deerfield Beach, FL 33442
Shoe Corporation of America Shoe Department License $ -0-
2035 Innis Road Agreement
Columbus, OH 43224 Post-petition agreement
Attn: Mike Dervis, Sr. per order dated 05/26/95.
VP of Operations Listed as a matter
of prudence.
J. Baker
555 Turnpike Street
Canton, MA 02021
Attn: Patty Cimmino
Standard Insurance Company Group Long Term $ -0-
P.O. Box 5673 Disability Insurance
Portland, OR 97228-5673 Coverage
Syncsort Inc Software Maintenance $ -0-
50 Tice Blvd, CN 18 Contract
Woodcliff Lake, NJ 07675
The Aetna Casualty & Insurance Policy $ -0-
Surety Company Umbrella
1501 Fourth Avenue,
Suite 1000
Seattle, WA 98101
The Aetna Casualty & Insurance Policy $ -0-
Surety Company Automobile
1501 Fourth Avenue,
Suite 1000
Seattle, WA 98101
The Maryland Insurance Group Group Insurance Plan $ -0-
3910 Keswick Road
Baltimore, MD 21211
Trans Union Corporation Loss Prevention Skip $ 906.96
400 112th Avenue N.E., #330 Tracing Contract
Bellevue, WA 98004
<PAGE>
Transamerica Occidental Life Voluntary Personal $ 289.98
c/o Transamerica Assurance Accident Insurance
Company Coverage
File #52649
Los Angeles, CA 90074-2649
UCI Distribution Plus Maintenance Service $ 13,011.68
P.O. Box 3802 Contract
Burbank, CA 91504
UFCW Local 1001, AFL-CIO 1996 - 1998 Collective $ -0-
12838 SE 40th Place Bargaining Agreement
Bellevue, WA 98006 (Office Employees)
Post-petition agreement
per order dated 05/17/96.
Listed as a matter of
prudence.
UFCW Local 1001, AFL-CIO 1995 - 1997 Agreement $ -0-
12838 SE 40th Place
Bellevue, WA 98006 Post-petition agreement
per order dated 10/16/95.
Listed as a matter of
prudence.
Wells Fargo Armored Armored Car Services $ 294.74
Services Corp. Contract
P.O. Box 4734
Pocatello, ID 83205
Wells Fargo Armored Armored Car Services $ -0-
Services Corp. Contract
2285 West California Ave.
Salt Lake City, UT 84104
William Dierickx Company Fax and Canon Copiers $ 4,256.53
3075 112th Avenue N.E., Maintenance Contract
Suite 100
P.O. Box 96046
Bellevue, WA 98004
William M. Mercer Incorporated Employee Benefits $ -0-
P.O. Box 24787 Consulting Retainer
Seattle, WA 98124-0787 Agreement
Willows 124 Associates, Corporate Offices $ -0-
Limited Partnership Lease Date: 02/23/96
c/o Newport Towers Limited
Partnership Post-petition lease.
3605 132nd Avenue SE, Listed as a matter
Suite 300 of prudence.
Bellevue, WA 98006-1323
Wells Fargo Bank Store #502 - Burien $ 139,479.13
PO Box 21927 (Mac #6540-141) Lease Date: 09/19/68
Seattle, WA 98111-3927
Contact: Mark Lusier
First Interstate Bank of
Washington, NA
c/o Glenn R. Nelson
Oles, Morrison & Rinker
3300 Columbian Center
701 5th Avenue
Seattle, WA 98104
Lake Forest Park Towne Center Store #506 - Forest Park $ 9,517.08
c/o Trammell Crow Company Lease Date: 06/13/88
Dept. 376
P.O. Box 34935
Seattle, WA 98124-1935
Contact: Tim Dickerson,
Property Manager
<PAGE>
Terranomics Crossroads Store #508 - Crossroads $ 30,385.24
Association Lease Date: 12/20/63
320 108th Ave. N.E.,
Suite 406
Bellevue, WA 98004
Contact: Susan Benton,
Property Manager
Edwin G. Woodward, Esq.
Wolfstone, Panchot & Bloch
301 Second Avenue, Suite 1500
Seattle, WA 98104-1577
Tomlinson Black Management, Inc. Store #510 - Manito $ 29,674.32
107 South Howard, Suite 600 Lease Date: 11/07/85
Spokane, WA 99204-0373
Contact: Sheron Olson, Lease
Administrator
Ernst Home Center, Inc.
15511 Sixth Avenue
Seattle, WA 98101
Contact: Douglas E. Newell
Circle V Management Company Store #512 - Totem Lake $ 139,351.48
12620 120th Avenue NE, Lease Date: 01/16/73
Suite 202
Kirkland, WA 98034
Contact: Linda Schallenberger,
Mall Manager
Joel G. Green
Green & Ockerman
9757 Juanita Drive NE,
Suite 100
Kirkland, WA 98034
Shadle Shopping Center Store #514 - Shadle Park $ 2,907.56
South 107 Howard, Suite 414 Lease Date 07/05/73
Spokane, WA 99204
Contact: B.E. Coe,
Vice President
Century Properties Fund XI
c/o Tomlinson Black
Management, Inc.
107 South Howard, Suite 600
Spokane, WA 99204-0373
Contact: John M. Bennett
Hickel Investment Company Store #516 - $ 100,456.38
Box 101700 Seward Highway
Anchorage, AK 99510-1700 Lease Date: 05/17/74
Contact: Nick Pefanis
Wesbuild, Inc. Store #518 - $ 17,411.04
D-10 Westwood Town Center Westwood Village
2500 SW Barton Lease Date: 04/01/74
Seattle, WA 98126
Contact: John Whitson,
General Manager
Wesbild, Inc.
c/o David R. Riley
800 Fifth Avenue, Suite 4100
Seattle, WA 98104
<PAGE>
SeaTac Mall Associates Store #520 - $ 8,826.66
1928 South SeaTac Mall SeaTac Mall
Federal Way, WA 98003 Lease Date: 12/02/74
Contact: Elaine Mansoor,
General Manager
Sea-Tac Mall Associates
c/o Ernie Zachary Park, Esq.
Bewley, Lassleben & Miller
13215 E. Penn Street,
Suite 510
Whittier, CA 90602
Fred Meyer, Inc. Store #522 - Pocatello $ 4,064.25
P.O. Box 42121 Lease Date: 01/07/76
Portland, OR 97242
Contact: Beverly Stautz
Joy Wright
Chris Matthews and
Associates
c/o Pocatello Mall Office
800 Yellowstone
Pocatello, ID 83201
Contact: Jodie Bates,
Property Manager
Daniel C. Vaughn
Cairncross & Hemplemann, P.S.
701 Fifth Avenue, Suite 7000
Seattle, WA 98104-7016
Gavora, Inc. Store #524 - Fairbanks $ 64,128.01
Box 70021 Lease Date: 04/29/76
Fairbanks, AK 99701
Contact: Bill Whaley
Factoria Square Mall Store #526 - Factoria $ 38,726.12
1388 Sutter Street, Suite 730 Lease Date: 12/01/75
San Francisco, CA 94109
Contact: Paul Roggencamp
Craig Chang
Factoria Square L.P.
Brad Brigham
Jameson Babbitt Stites &
Lombard
999 Third Ave, Suite 1900
Seattle, WA 98104
<PAGE>
Aetna Life Insurance Company Store #526 - Factoria $ -0-
151 Farmington Avenue Reciprocal Easement
Hartford, CT 06156 Agreement
Attn: Carl Geupel
Ernst Home Center, Inc.
1511 Sixth Avenue
Seattle, WA 98101
Attn: Real Estate Department
Ellis Kantor
Factoria Square Mall
1388 Sutter Street, Suite 730
San Francisco, CA 94108
Contact: Craig Chang
Jacob M. Alkow
(Big 5 Sporting Goods)
United Merchandising Corp.
2525 East El Segundo Blvd
El Segundo, CA 90245-4632
Attn: Keith L. Moore
Mervyn's
22301 Foothill Blvd
Hayward, CA 90624
Attn: Senior Property
Administrator
Target Stores
33 South Sixth Street
P.O. Box 1392
Minneapolis, MN 55440-1392
Attn: Mark B. Johnson
Payless Drug Stores
Northwest, Inc.
9275 South West Peyton Lane
Wilsonville, OR 97070
Attn: Robert B. Sari
Safeway, Inc
4th and Jackson Streets
Oakland, CA 94660
Attn: Sharman Braff
Senior Attorney
Safeway, Inc
1000 124th Avenue, NE
P.O. Box 90947
Bellevue, WA 98009-0947
Attn: Richard L. Costanzo
Washington Mutual Savings Bank
Corporate Real Estate SAS0407
1191 Second Avenue
Seattle, WA 98101
Attn: Kent Wiegel
<PAGE>
Wells Fargo Realty Advisors Store #528 - Northgate $ 27,637.18
Funding, Inc, Lease Date: 11/01/77
111 Sutter Street, 17th Floor
San Francisco, CA 94104
Contact: Don Kuemmeler
David & Linda Hudesman
1620 43rd E
Seattle, WA 98112
Contact: Skip Gilbert
Northgate Mall Partnership
Cynthia M. Bartlett, Esq.
Debartolo Properties
Management, Inc.
7620 Market Street
Youngstown, OH 44513
Principal Mutual Life
Insurance Co
Dennis Ballard, attorney
711 High Street
Des Moines, IA 50392-0301
Principal Mutual Life
Insurance Co
Phillip T. Hutchison,
attorney
Casey & Pruzan
720 3rd Avenue, 18th floor
Seattle, WA 98014
Country Club Mall Store #530 - Idaho Falls $ -0-
c/o Consolidated Property Lease Date: 06/21/76
Management Ltd.
168 N 9th Street, Suite 250
P.O. Box 2666 Previously assumed per
Boise, ID 83701 order dated 08/08/95.
Contact: Linda Roberts Listed as a matter of
prudence.
Country Club Mall Associates
c/o Diversified Equities
Limited Partnership
34555 Chargin Boulevard
Moreland Hills, Ohio 44022
Wenatchee Valley Mall Store #532 - $ 8,793.84
Eastmont Enterprises East Wenatchee
c/o Center Investments Lease Date: 01/16/76
PO Box 7219
East Wenatchee,
WA 98802-7219
Contact: Dan Barr,
General Manager
First Union Management Inc. Store #536 - Yakima $ 19,049.89
55 Public Square, Suite 1910 Lease Date: 03/23/78
Cleveland, OH 44113-1937
Contact: Lynn L. Boudon
<PAGE>
Capital Mall Company Store #538 - Olympia $ 41,515.81
Capital Mall Lease Date: 09/30/77
324 Capital Mall
Olympia, WA 98502-5089
Contact: Gene Coldon,
General Manager
Capital Mall Company
c/o Ernie Zachary Park, Esq.
Bewley, Lassleben & Miller
13215 E. Penn Street,
Suite 510
Whittier, CA 90602
Acquiport Seven Corporation Store #540 - $ -0-
c/o The Edward J. DeBartolo Alderwood Mall
Corp. Lease Date: 02/08/96
7655 Market Street
P.O. Box 3287 Post-petition lease per
Youngstown, OH 44513-6085 order dated 01/23/96.
Contact: Robin Butler Listed as a matter of
prudence
Benaroya Capital Company, LLC
1001 Fourth Avenue,
Suite 4700
Seattle, WA 98154
David N. Lombard
Jameson Babbitt Stites &
Lombard
999 Third Avenue, Suite 1900
Seattle, WA 98104
Acquiport Seven Corporation Store #540 - $ -0-
c/o The Edward J. DeBartolo Alderwood Mall
Corp. Operating Agreement
7655 Market Street
P.O. Box 3287
Youngstown, OH 44513-6085
Acquiport Seven Corporation
c/o Jones Lang Wootton
Realty Advisors
101 East 52nd Street
New York, NY 10022
Attn: Mr. Charles Grossman
J.C. PENNEY PROPERTIES, INC.
One Century Centre
1750 East Golf Road
Schaumburg, IL 60173-5049
J.C. PENNEY COMPANY, INC.
1901 N. Roselle Road
Schaumburg, IL 60173-5049
Attn: Real Estate Counsel
NORDSTROM, INC.
1501 Fifth Avenue
Seattle, WA 98101
Attn: President
<PAGE>
NORDSTROM REALTY, INC. Store #540 - $ -0-
c/o NORDSTROM, INC. Alderwood Mall
1501 Fifth Avenue Operating Agreement
Seattle, WA 98101 (continued)
Attn: President
Sears Roebuck & Co.
Sears Tower
Chicago, IL 60684
Attn: National Mgr, Real
Estate Planning Group,
Department 824 RE
Sears Roebuck & Co.
Sears Tower
Chicago, IL 60684
Attn: General Counsel
Merchandise Group
Department
The Bon, Inc.
Third Ave. & Pine Street
Seattle, WA 98181
Attn: Chairman
The Bon, Inc.
c/o Federated Department
Stores, Inc.
7 West Seventh Street
Cincinnati, OH 45202
Attn: Real Estate Dept.
McCarthy Management and Store #542 - Palouse $ 76,770.69
Development Company Empire
Palouse Empire Mall Lease Date: 06/22/78
W 201 North River Drive,
Suite 100
Spokane, WA 99201
Contact: Dahlia Smith,
Mall Manager
Orville L. Barnes
Northway Mall Store #544 - $ 22,963.65
3101 Penland Parkway, Northway Mall
Suite M-1 Lease Date: 03/30/79
Anchorage, AK 99508-1955
Contact: Barbara Dickson,
Assistant Mall Mgr
Northway Mall
c/o Rawson, Blum & Company
50 California Street, Suite
1400
San Francisco, CA 94111
Contact: Robert H. Barrett,
Vice President
<PAGE>
TRF Management Corp. Store #546 - $ 11,239.61
P.O. Box 5727 Wishkah Mall
12400 SE 38th Street Lease Date: 06/08/77
Bellevue, WA 98006-0227
Contact: Scott Tapp,
Property Acct.
Robert Burton,
Receiver
Laurence E. Mason, Attorney
for Receiver
Julin, Fosso, Sage, McBride
& Mason
1001 4th Avenue, Suite 3900
Seattle, WA 98154-3720
Pacific Mutual Life
Insurance Co.
c/o Marc Barreca
Prestion Gates & Ellis
5000 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7078
Loveless Tollefson Store #548 - Juneau $ -0-
Properties Lease Date: 01/13/87
606 110th Ave. NE, Suite 206
Bellevue, WA 98004 Previously assumed per
Contact: Bud Jaeger, order dated 01/12/96.
Mall Manager Listed as a matter of
prudence.
Sol-Ken Enterprises Store #550 - Soldotna $ 1,463.58
35277 Kenai Spur Road Lease Date: 05/18/84
Soldotna, WA 99669
Contact: Earl C. Mundell
Dimond Center Store #552 - $ 92,055.26
800 East Dimond Blvd., Seward & Dimond
Suite 3-500 Lease Date: 07/09/81
Anchorage, AK 99515
Contact: Nancy Trinklein,
Controller
K.O. Erickson Trust Fund Store #556 - $ 8,333.00
2611 Broadway E Port Angeles
Seattle, WA 98102 Lease Date: 04/09/84
Contact: David Storm,
Managing Trustee
Kitsap Mall Store #558 - $ 20,954.12
PO Box 2147 Kitsap Mall
10315 Silverdale Way NW Lease Date: 08/07/84
Silverdale, WA 98383
Contact: Bob Jones,
General Manager
Winmar Company, Inc.
700 5th Avenue, Suite 2600
Seattle, WA 98104-5026
Attn: Lauri J. Langton
Patty Fernandez
<PAGE>
J.C. PENNEY COMPANY, INC. Store #558 - $ -0-
P.O. Box 4015 Kitsap Mall
Buena Park, CA 90624 Construction and
Attn: Real Estate Counsel Operating Reciprocal
Easement Agreement
J.C. PENNEY COMPANY, INC.
1901 N. Roselle Road
Schaumburg, IL 60173-5049
Attn: Real Estate Counsel
J.C. PENNEY COMPANY, INC.
The Penney Store
Kitsap Mall
Silverdale, WA 98383
Attn: Store Manager
Kitsap Associates Limited
Partnership
c/o Winmar Company, Inc.
P.O. Box 21545
Seattle, WA 98111
Mervyn's
22301 Foothill Blvd
Hayward, CA 90624
Attn: Senior Property
Administrator
Sears Roebuck & Co.
Sears Tower
Chicago, IL 60684
Attn:National Mgr, Real
Estate Planning Group
Department 824 RE
Sears Roebuck & Co.
Sears Tower
Chicago, IL 60684
Attn: General Counsel
Merchandise Group
Department
The Bon, Inc.
Third Ave. & Pine Street
Seattle, WA 98181
Attn: Chairman
The Bon, Inc.
c/o Federated Department
Stores, Inc.
7 West Seventh Street
Cincinnati, OH 45202
Attn: Real Estate Dept.
TRF Management Corp. Store #562 - Wasilla $ -0-
Cottonwood Creek Mall Lease Date: 04/20/84
1801 Parks Highway,
Suite M-1 Previously assumed per
Wasilla, AK 99654 order dated 11/09/95.
Contact: Gudrun Gayman, Listed as a matter of
Property Manager prudence.
<PAGE>
Lewiston Center Store #564 - Lewiston $ 30,548.64
East 325 Sprague Avenue Lease Date: 06/07/84
Spokane, WA 99202
Contact: Gary Florence,
Mall Mgr.
Joan Peterson
Highland Hills Shopping Store #566 - $ 9,844.72
Center Highland Hills
c/o Koehler, McFayden and Lease Date: 01/23/87
Company
1601 Fifth Avenue,
Suite 2210
Seattle, WA 98101
Contact: Dan Kettman,
Controller
A.P. Century V, L.P. Store #568 - Marysville $ -0-
c/o Century Properties Inc. Lease Date: 04/29/87
365 W. Passaic Street
Rochelle Park, NJ 07662 Previously assumed per
Contact: Celeste Benzoni order dated 02/23/95.
Controller Listed as a matter of
prudence.
New Valley Corporation
P.O. Box 35090
Newark, NJ 07193-5090
Fred Meyer, Inc./Roundup Co. Store #570 - $ 46,651.95
P.O. Box 42121 Coeur D'Alene
Portland, OR 97242 Lease Date: 05/07/92
Contact: Beverly Stautz
The Cafaro Company Store #572 - Puyallup $ 30,370.43
2445 Belmont Avenue Lease Date: 02/16/88
P.O. Box 2186
Youngstown, OH 44504-0186
Contact: David
Montevido/Don Desalvo
South Hill Mall
P.O. Box 75032
Cleveland, OH 44101-2199
The Edward J. Debartolo Store #586 - Tri-Cities $ 19,879.10
Corporation Lease Date: 07/11/88
7655 Market Street
PO Box 3287
Youngstown, OH 44512
Contact: Don Williams,
Mall Mgr.
R. Lynn Squire
Columbia Mall Partnership
Cynthia M. Bartlett, Esq.
Debartolo Properties
Management, Inc.
7620 Market Street
Youngstown, OH 44513
Wells Fargo Realty Advisors
Funding, Inc,
111 Sutter Street, 17th
Floor
San Francisco, CA 94104
Contact: Don Kuemmeler
<PAGE>
The King Company Store #594 - Corvallis $ 11,178.12
Rainier Cold Storage Lease Date: 1988
6004 Airport Way South
Seattle, WA 98108
Contact: Bob King, Owner
The King Company
c/o Keith Allred
Davis Wright Tremaine
2600 Century Square
1501 Fourth Avenue
Seattle, WA 98101
Merlyn Doleman Store #594 - Corvallis $ -0-
464 Tahos Road (Parking Lot Lease)
Orinda, CA 94563
Lease Date: 06/30/75
Price Development Company Store #600 - Logan $ 18,067.64
1300 North Main Lease Date: 12/22/78
Logan, UT 84321
Contact: P. Todd Wightmar,
General Manager
Price Financing Partnership
35 Century Park Way
Salt Lake City, UT 84115
Contact: Marilyn M. Smedley
Kmart Corporation Store #606 - Moses Lake $ 12,486.58
International Headquarters Lease Date: 04/07/93
Real Estate Department
3100 West Big Beaver Rd.
Troy, MI 48084-3163
Contact: Marilyn J. Thomas,
Property Administrator
Mercury Development Store #608 - Astoria $ 15,989.32
7180 SW Fir Loop, Suite 100 Lease Date: 07/21/93
Tigard, OR 97223
Contact: David P. Zimmel,
President
Portland Fixture Limited
Partnership
13635 MW Cornell, #200
Portland, OR 97229
CWO/TCEP II Joint Venture #1 Store #610 - Issaquah $ -0-
c/o Trammell Crow Lease Date: 05/18/94
5601 Sixth Avenue South
PO Box 80326 Previously assumed per
Seattle, WA 98108 order dated 07/08/95.
Listed as a matter of
prudence.
<PAGE>
LIST OF EXECUTORY CONTRACTS REJECTED
Effective upon the Effective Date, the Debtor in Possession hereby
rejects all executory contracts and unexpired leases that exist between the
Debtor and any other entity which have not previously been rejected, except the
Debtor in Possession does not reject those executory contracts and unexpired
leases (i) which are listed in Exhibit G to the Plan and assumed pursuant to
Section VI.A of the Plan, or (ii) which are or have been specifically assumed,
or assumed and assigned, by the Debtor in Possession with the approval of the
Bankruptcy Court by separate proceeding in the Chapter 11 Case. The executory
contracts and unexpired leases rejected under the Plan shall include, without
limitation, those listed below. Inclusion herein does not constitute an
admission by the Debtor in Possession that an executory contract or unexpired
lease exists or is valid. As a matter of prudence, the following list includes
contracts and leases which may have previously been rejected or canceled or
assigned or which may have expired:
SEE ATTACHED LIST.
EXHIBIT H TO PLAN
<PAGE>
LEASES AND EXECUTORY CONTRACTS REJECTED
1. Name and Mailing Address of other Parties to Lease or Contract
2. Description of Contract or Lease
NAME & MAILING ADDRESS DESCRIPTION OF CONTRACT/LEASE
- ---------------------- -----------------------------
ADT Alarm Monitoring Contract for
1916 Boren Avenue Stores
Seattle, WA 98101
Air Plus Mechanical, Inc. Maintenance Service Contract
P.O. Box 3292
Spokane, WA 99220
Alascom Inc. Telephone Services Contract
Processing Center
P.O. Box 196790
Anchorage, AK 99519-6790
Altus Finance, S.A., AIF II, Debt Registration Rights
L.P., Executive Life Insurance Agreement
Company of New York Dated as of October 30, 1992
Altus Finance, S.A., AIF II, Master Recapitalization
L.P., Executive Life Insurance Agreement
Company of New York, The
Prudential Assurance Company
Limited, Morgens Waterfall
Vintiadis & Co., Inc., Merrill
Lynch Phoenix Fund, Inc.,
Insurance Commissioner of the
State of California as
Conservator for Pacific
Standard Life Insurance Co.,
New Street Capital
Corporation, T. Rowe High
Yield Fund, Inc., Warren F.
Florkiewicz, Melville B. Wier,
John R. Sloan, Penn Series
High Yield Bond Fund, The
Thompson Company, Fidelity
Management & Research Company,
The Philp Co., Jerome Chazen,
Wyn L. Lydecker, Western
Pacific Life Insurance
Company, in Conservation, John
Hancock Capital Fund One
Apollo Retail Partners, L.P., Equity Registration Rights
Merrill Lynch Phoenix Fund, Agreement
Inc., New Street Capital Dated as of October 30, 1992
Corporation, T. Rowe High
Yield Fund, Inc., Executive
Life Insurance Company of New
York, The Thompson Company,
Penn Series High Yield Bond
Fund, John Hancock Capital
Growth Management, Inc., The
Prudential Assurance Company
Limited, Jerome Chazen, David
E. Bowe, John R. Sloan, James
M. Harrison, The Philp Co.,
Western Pacific Life Insurance
Company, in Conservation,
Warren Florkiewicz, Melville
B. Wier, Morgens Waterfall
Vintiadis & Co. Inc., Morgens
Waterfall Vintiadis
Investments N.V., Morgens
Waterfall Income Partners,
Betje Partners, Phoenix
Partners, Restart Partners
L.P., Restart Partners II,
L.P., Restart Partners III,
L.P., The Bond Fund of the
Common Fund
<PAGE>
Apollo Retail Partners, L.P., Stockholder's Voting Agreement
Morgens Waterfall Vintiadis &
Co. Inc., Morgens Waterfall
Vintiadis Investments N.V.,
Morgens Waterfall Income
Partners, Betje Partners,
Phoenix Partners, Restart
Partners L.P., Restart
Partners II, L.P., Restart
Partners III, L.P., The Bond
Fund of the Common Fund,
Merrill Lynch Phoenix Fund,
Inc., Insurance Commissioner
of the State of California as
Conservator for Pacific
Standard Life Insurance Co.,
New Street Capital
Corporation, T. Rowe High
Yield Fund, Inc., Executive
Life Insurance Company of New
York, The Thompson Company,
The Philp Co., Western Pacific
Life Insurance Company, in
Conservation, Penn Series High
Yield Bond Fund, John Hancock
Capital Growth Management,
Inc., The Prudential Assurance
Company Limited, Jerome
Chazen, Warren Florkiewicz,
Melville B. Wier, David E.
Bowe, John R. Sloan, James M.
Harrison
AT&T Uniplan Telephone Services Contract
P.O. Box 8206
Fox Valley, IL 60572-8206
Austin Chase Coffee License Agreement for Espresso
320 Fourth Street SW Coffee Cart
Seattle, WA 98117
Bank of America Capital Lamonts Apparel, Inc.'s Non-
Management, Inc., Trustee qualified Supplemental TRIP
Box 84993 Benefit Plan
Seattle, WA 98124-6293
Lamonts Apparel, Inc.
Supplemental (TRIP) Benefit
Plan (as Amended) dated
11/15/94
12413 Willows Road, NE
Kirkland, WA 98034
Bankers Trust Company, Trustee 13.5% Notes Indenture
Attn: Stanley Berg
Corporate Trust and Agency
Group
Fourth Albany Street, 4th
Floor
New York, NY 10015
Bilger, Arthur H. Indemnification Agreement
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars,
Suite 1900
Los Angeles, CA 90067
Bowe, David E. Indemnification Agreement
4446 Taos Road
Dallas, TX 75209
Cascade Olympic Credit, Inc. Collection Agency Service
16150 NE 85th Street, Suite Contract
214-215
Redmond, WA 98052
CCI Mechanical Service Maintenance Service Contract
PO Box 25788
Salt Lake City, UT 84125
<PAGE>
Commerce and Industry Ins. Co. Insurance Policy
American Home Assurance Co. #WC 152-24-90 RA
99 John Street, 21st Floor
New York, NY 10038
Attn: Harry R. Bryant
Computer Repair Inc. Maintenance Service Contract
12524 130th Lane, NE
Kirkland, WA 98034
Continental Insurance Company Coverage: Property Damage
2900 First Interstate Center
999 Third Avenue, P.O. Box
24011
Seattle, WA 98124-9611
Copses, Peter P. Indemnification Agreement
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars,
Suite 1900
Los Angeles, CA 90067
DataBase Inc. MIS Contract
307 S 140th Street
Seattle, WA 98168-3431
Finlay Fine Jewelry License Agreement
Corporation
521 Fifth Avenue Previously terminated by
New York, NY 10175 agreement of the parties.
Attn: Bonni G. Davis, Esq. Listed as a matter of prudence.
First Trust National 10.25% Notes Indenture
Association
180 East Fifth Street
St. Paul, MN 55101
Florkiewicz, Warren F. Indemnification Agreement
6908 E. Thomas Road
Scottsdale, AZ 85251
Giordano, Andrew A. Indemnification Agreement
P.O. 2383
Arlington, VA 22202
Grinnell Fire Protection Maintenance Service Contract
Department 04015
P.O. Box C34936
Seattle, WA 98124
Harrison, James M. Indemnification Agreement
c/o Pangburns
2000 White Settlement Road
Fort Worth, TX 76107
Helms, Luke Indemnification Agreement
c/o Bank of America
555 California Street,
40th floor
San Francisco, CA 94104
Holznagel, Wallace Employment Agreement
8017 E. Via de Viva
Scottsdale, AZ 85258 Previously terminated by
agreement of the parties.
Listed as a matter of prudence.
Holznagel, Wallace Indemnification Agreement
8017 E. Via de Viva
Scottsdale, AZ 85258
<PAGE>
IBM Credit Corporation Computer Equipment Lease
4000 Executive Parkway
San Ramon, CA 94583
Imagetech Savin Copier Lease
192 Nickerson Street,
Suite 200
Seattle, WA 98109
Keen Realty Consulting Inc. Real Estate Services Contract
60 Cutter Mill Road, Suite 616
Great Neck, NY 11021 Post-petition agreement.
Previously terminated by
agreement of the parties.
Listed as a matter of prudence.
Kulp, Frank (a) Executive Employment
10 Columbia Key Agreement
Bellevue, WA 98006 (b) Resignation Agreement
Previously rejected per order
dated 01/27/95.
Listed as a matter of prudence.
Kulp, Frank Indemnification Agreement
10 Columbia Key
Bellevue, WA 98006
Lamonts Apparel, Inc. 1992 Employee Stock Option Plan
Incentive and Nonstatutory and all employee stock options
Option Plan issued by Lamonts.
12413 Willows Road, NE
Kirkland, WA 98034
Lamonts Apparel, Inc. Non-qualified Supplemental
Supplemental Executive Executive Retirement Plan
Retirement Plan (SERP) dated
11/15/94
12413 Willows Road, NE
Kirkland, WA 98034
Lerma, Jr, Carlos J. License Agreement
Vincent, Ryan D.
d/b/a After 7 Hair Design
363 S.W. Jefferson Avenue
Corvallis, Oregon 97330
Liebert Corporation MIS Contract
P.O. Box 70474
Chicago, IL 60673-0001
MacDonald-Miller AK, Inc. Maintenance Service Contract
3105 Lakeshore Dr. #B103
Anchorage, AK 99517
MacDonald-Miller Service, Inc. Maintenance Service Contract
7707 Detroit Ave. SW
Seattle, WA 98106
Makrianes, Jr., James K. Indemnification Agreement
c/o Ward Howell International,
Inc.
99 Park Avenue, Suite 2000
New York, NY 10016
Matthews, Norman Consulting Agreement
650 Madison Avenue, 23rd floor
New York, NY 10022-1004 Previously rejected per order
dated 02/15/95.
Matthews, Norman Listed as a matter of prudence.
c/o Debt Acquisition Company
of America II
101 West Broadway, Suite 1460
San Diego, CA 92101
<PAGE>
Matthews, Norman S. Indemnification Agreement
650 Madison Avenue, 23rd floor
New York, NY 10022-1004
Merit Mechanical, Inc. Maintenance Service Contract
PO Box 3395
Redmond, WA 98052
Merit Mechanical, Inc.
c/o Debt Acquisition Company
of America III
101 West Broadway, Suite 1460
San Diego, CA 92101
Miles Financial Services, Inc. Advertising Graphics Systems
Attn: Ron Schell Lease
200 Bellardvale Street
Wilmington, MA 01887
Monarch Marking Marking Machines Lease
P.O. Box 608
Dayton, OH 45401
Morris, Carolyn Indemnification Agreement
14670 SW Quail Lane, A102
Beaverton, OR 97007
Mountain West Audio, Inc. Maintenance Service Contract
PO Box 26628
Salt Lake City, UT 84126-0628
Muzak Maintenance Service Contract
1007 West 32nd Avenue
Anchorage, AK 99503
Muzak - Portland Maintenance Service Contract
12595 NE Marx Street
P.O. Box 3
Portland, OR 97230-0927
Muzak Ltd. Partnership Maintenance Service Contract
200 South Orcas
Seattle, WA 98108
National Union Fire Insurance Retrospective Premium
Company Agreement - One Year Plan
99 John Street, 21st Floor #WC 152 24 90
New York, NY 10038
Attn: Harry R. Bryant
Newport Towers Limited (a)Tenant/Landlord Lease
Partnership Agreement
3605 132nd Avenue SE, (b) Assignment and Assumption
Suite 300 (c) Satellite Dish Agreement
Bellevue, WA 98006 (d) First Amendment to Lease
Vyzis Company Previously terminated by
Newport Tower agreement of the parties.
3605 132nd Ave SE Listed as a matter of prudence.
Bellevue, WA 98006
Contact: Corey Candioglos
Property Manager
Password Pagers Pager Lease
1303 West First Avenue,
Suite 200
Spokane, WA 99204
<PAGE>
PRJ Computer Software Maintenance
1400 Marina Way South Contract
Richmond, CA 94804
QRS Computer Services Contract
300 Drake's Landing Road
Greenbrae, CA 94904
RCM Corporation Real Estate Services Agreement
600 First Avenue, Suite 620
Seattle, WA 98104
RCS Inc. Real Estate Services Contract
460 W. 34th Street
New York, NY 100011 Post-petition agreement.
Previously terminated by
agreement of the parties.
Listed as a matter of prudence.
Ressler, Antony Indemnification Agreement
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars,
Suite 1900
Los Angeles, CA 90067
Scocimara, Eriberto R. Indemnification Agreement
c/o Scocimara & Company, Inc.
Two Greenwich Plaza
Greenwich, CT 06830
SDL Corporation Construction Contract
3150 Richards Road SE
P.O. Box 1685
Bellevue, WA 98009
Seafirst Bank Employer Account Agreement
Main at Columbia Center
CASC 063800
701 Fifth Avenue
Seattle, WA 98104
Siegel, Mark Indemnification Agreement
1901 Avenue of the Stars,
Suite 1545
Los Angeles, CA 90067
Siegel, Eric B. Indemnification Agreement
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars,
Suite 1900
Los Angeles, CA 90067
Sloan, John R. Indemnification Agreement
300 Crescent Court, Suite 900
Dallas, TX 75201
Snyder, Leonard (a) Executive Employment
6277 N Calle Retreta Serena Agreement
Tucson, AZ 85750 (b) Resignation Agreement
Previously rejected per order
dated 01/27/95.
Listed as a matter of prudence.
Snyder, Leonard Indemnification Agreement
6277 N Calle Retreta Serena
Tucson, AZ 85750
Society National Bank Warrant Agreement and all
c/o Key Corp Shareholder warrants issued by Lamonts
Services, Inc.
1201 Elm Street, Suite 5050
Dallas, TX 75270
<PAGE>
SOS Alarm Alarm Monitoring Agreement
10 West Jackson
Medford, OR 97501
Soundcom, Inc. Sound system Equipment Lease
Attn: Dave
2701 California Avenue SW
Seattle, WA 98116
Sousley Sound and Maintenance Service Contract
Communications
108 South 4th Avenue
Yakima, WA 98903-3482
Spokane, Earle J. Employment Agreement
5656 N. via Umbrosa
Tucson, AZ 85750-1352 Previously terminated by mutual
agreement per order dated
04/27/95. List as a matter of
prudence.
Spokane, Earle J. Indemnification Agreement
5656 N. Via Umbrosa
Tucson, AZ 85750-1352
T & M Vending Business Contract/Lease
10053 NE 17th Street Agreement
Bellevue, WA 98004 (Vending Machines)
Tandem Computer Software/Hardware
19191 Vallco Parkway, Loc 4-20 Maintenance Contract
Cupertino, CA 95014-2594
Tandem Computer Software/Hardware
10220 NE Points Drive, Maintenance Contract
Suite 100
Kirkland, WA 98033-7864
Tandem Computers Inc. Computer Software/Hardware
P.O. Box 6000, File #9661 Maintenance Contract
San Francisco, CA 94160-9661
Tandem Computers Inc.
c/o Debt Acquisition Company
of America III
101 West Broadway, Suite 1460
San Diego, CA 92101
Tandem Computers Inc. Computer Software/Hardware
19333 Vallco Parkway Maintenance Contract
Cupertino, WA 95014
Technology Unlimited Inc. Check Encoder Service Contract
1179 Andover Park West
Tukwila, WA 98188
Tele-Waves Pagers Pager Lease
PO Box 2909
Yakima, WA 98907-2909
Telepage NW Pagers Lease
Attn: Brett
617 Eastlake Ave. East
Seattle, WA 98109
Thompson, Jere W. Indemnification Agreement
c/o The Southland Corporation
2828 N. Haskell Avenue
Dallas, TX 75204
<PAGE>
Thompson, John P. Indemnification Agreement
c/o The Southland Corporation
2828 N. Haskell Avenue
Dallas, TX 75204.
Thompson Consulting Consulting Agreement
J. Sloan and Company
300 Crescent Court, Suite 900 Previously rejected per order
Dallas, TX 75201 dated 02/15/95.
Attn: John R. Sloan Listed as a matter of prudence.
J. Sloan and Company
c/o Debt Acquisition Company
of America III
101 West Broadway, Suite 1460
San Diego, CA 92101
Trane Oregon Service Co. Maintenance Service Contract
PO Box 23579
Tigard, Oregon 97281
United Systems, Inc. Maintenance Service Contract
1021 SW Klickitat Way, Suite
104
Seattle, WA 98134
Vintiadis, Polyvios Indemnification Agreement
Khakum Wood
Greenwich, CT 06831
Vyzis Company Purchase and Sale Agreement
3605 132nd Avenue SE,
Suite 300 Previously terminated by
Bellevue, WA 98006-1323 agreement of the parties.
Listed as a matter of prudence.
W.W.W. Retail, Inc. Sublease Agreement for Shoe
9341 Courtland Drive Departments
Rockford, MI 49351
Previously rejected per order
dated 05/26/95.
Listed as a matter of prudence.
Walsh Construction Co. Construction Contract
3015 SW First Ave.
Portland, OR 97201
Washington Credit, Inc. Collection Agency Service
2001 152nd Ave. NE Contract
Redmond, WA 98073-9729
Wier, Melville B. Indemnification Agreement
6908 E. Thomas Road
Scottsdale, AZ 85251
Wire Communications Telephone Services
4134 Ingra Street
Anchorage, AK 99503
Xerox Corporation Computer Hardware Maintenance
PO Box 25074 Contract
Santa Ana, CA 92799
Xerox Corporation MIS Contract
P.O. Box 660506
Dallas, TX 75266-9937
Xerox Corporation MIS Contract
P.O. Box 25177
Santa Ana, CA 92799-5177
<PAGE>
University Village Shopping Store #504 - University Village
Center Lease Date: 05/27/82
2637 NE University Village,
Suite 7
Seattle, WA 98105 Terminated prior to bankruptcy.
Contact: Mathew J. Griffin, Listed as a matter of prudence.
Vice Pres.
Josalyn Clements, Mall Manager
Bear Creek Plaza, Oregon, Ltd. Store #534 - Bear Creek
Investment Analysts, Inc. Lease Date: 05/13/77
1415 Oriole Drive
Los Angeles, CA 90069 Previously rejected per order
Attn: F.L. Smothers, Pres. dated 03/24/95.
Listed as a matter of prudence.
Payne Properties and Store #555 - Downtown Spokane
Development Corp.
905 West Riverside, Suite 406 Previously rejected per order
Spokane, WA 99201 dated 03/24/95.
Attn: Edward A. "Al" Payne Listed as a matter of prudence.
Vyzis Company Store #574 - Lakewood
3605 132nd SE, Suite 300 Lease Date: 1988
Bellevue, WA 98006
Contact: John Candaux Previously rejected per order
Retail Acctg. Manager dated 02/24/95.
Listed as a matter of prudence.
Skip Gilbert
c/o Seattle Mortgage Company
1800 112th Avenue NE,
Suite 300
Bellevue, WA 98004
Contact: Skip Gilbert
Co-Executor for the Estate of
David Hudesman
Huna Totem Corporation Store #576 - Everett
Seattle Pacific Realty, Inc. Lease Date: 12/16/87
Greg Clos, Property Manager
1904 3rd Avenue, #710 Previously rejected per order
Seattle, WA 98101 dated 02/24/95.
Contact: Bianca Harrison, Listed as a matter of prudence.
Vice President
The Good Guys, Inc. Store #578 - Washington Circle
7000 Marina Blvd.
Brisbane, CA 94005 Lease Date: 11/22/88
Contact: Gregg Steele
VP Real Estate Previously terminated by
agreement of the parties.
Listed as a matter of prudence.
The Cafaro Company Store #580 - Vancouver Plaza
2445 Belmont Avenue Lease Date: 06/06/88
PO Box 2186
Youngstown, OH 44504-0186 Previously rejected per order
Contact: Herb Brooks, Mall dated 02/24/95.
Manager Listed as a matter of prudence.
Elliot Associates, Inc. Store #582 - Hillsboro
50 SW Pine Street #200 Lease Date: 03/15/88
Portland, OR 97204
Contact: Matt Sichel
S.Lloyd Assoc., Ltd. Store #588 - Lloyd Center
c/o Heitman Prop. Oregon Lease Date: 08/09/90
Lloyd Center Mall
2201 Lloyd Center Previously rejected per order
Portland, OR 97232 dated 01/27/95.
Contact: Tim Earnest, Listed as a matter of prudence.
Mall Manager
<PAGE>
Jantzen Beach Center Store #590 - Jantzen Beach
1405 Jantzen Beach Center Lease Date: 06/01/93
Portland, OR 97217
Contact: Jennifer J. Lewis Previously termininated by
Property Accountant agreement of parties. Listed as
a matter of prudence.
Valley River Center Store #592 - Eugene
Executive Offices Lease Date: 09/17/74
293 Valley River Center
Eugene, OR 97401 Previously rejected per order
Contact: Richard L. Hansen dated 04/05/96.
General Manager Listed as a matter of prudence.
Southgate Mall Associates Store #596 - Missoula
Management Office/ Lease Date: 04/06/89
Southgate Mall
Missoula, MT 59801
Contact: Douglas R. Anderson,
General Manager
The Hahn Company Store #598 - Ogden
285-B Ogden City Mall Lease Dated: 01/30/89
Ogden, UT 84401
Contact: Kevin Ireland, Previously rejected per order
Mall Manager dated 02/24/95.
Listed as a matter of prudence.
Magic Valley Mall Store #602 - Twin Falls
1485 Pole Line Road East Lease Date: 06/13/91
Twin Falls, ID 83301
Contact: Brett White
University City Store #604 - University City
c/o McCarthy Management & Lease Date: 06/07/91
Development Co.
W. 201 North River Drive,
Suite 180
Spokane, WA 99201
Contact: Orville L. Barnes
Price Development Company Store #701 - Boise
Boise Towne Square Lease Date: 03/26/91
350 North Milwaukee
Boise, ID 83788 Terminated prior to bankruptcy.
Contact: Thayne Fisher, Listed as a matter of prudence.
Asst. Mgr.
Price Financing
Partnership, L.P.
35 Century Park-Way
Salt Lake City, UT 84115
Attn: Marilyn M. Smedley
Cottonwood Mall Company Store #702 - Salt Lake City
4835 S. Highland Drive Lease Date: 04/01/91
Salt Lake City, UT 84117
Contact: Jeff Machin, Terminated prior to bankruptcy.
General Mgr. Listed as a matter of prudence.
Price Financing
Partnership, L.P.
35 Century Park-Way
Salt Lake City, UT 84115
Attn: Marilyn M. Smedley
University Mall Store #703 - Orem
E-205 University Mall Lease Date: 07/07/91
Orem, UT 84058
Contact: C. Robert Dallas Previously rejected per order
dated 01/10/95.
Listed as a matter of prudence.
<PAGE>
Heitman Properties of Nebraska Store #704 - Omaha
Ltd. Lease Date: 09/15/92
Oak View Mall
3001 S 144th St., Suite 2029 Previously rejected per order
Omaha, NB 68144 dated 01/10/95.
Contact: Don Lachore Listed as a matter of prudence.
Melvin Simon and Associates, Store #705 - Bloomington, MN
Inc. Lease Date: 04/24/92
Merchants Plaza
PO Box 7066 Terminated prior to bankruptcy.
Indianapolis, IN 46207 Listed as a matter of prudence.
Contact: Melodye Burner Grim
John Wheeler, Mall Manager
Muriel Hall, Asst. Manager
Cindy Harsh, Property
Accountant
<PAGE>
Judge: The Honorable Thomas T. Glover
Chapter: 11
Hearing Location: Park Place Building
1200 Sixth Avenue
Seattle, Washington
Room 416
Confirmation Hearing Date: January 6, 1997
Confirmation Hearing Time: 3:00 p.m.
Objection Date: December 2, 1996
UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
In re ) Case No. 95-00100
)
LAMONTS APPAREL, INC., )
a Delaware corporation, dba LAMONTS, )
LAMONTS FOR KIDS, fka TEXSTYRENE )
CORPORATION, a Delaware corporation, ) AMENDED DISCLOSURE STATEMENT
ARIS CORPORATION, a Delaware ) RE DEBTOR'S PLAN OF
corporation, LAMONTS CORPORATION, a ) REORGANIZATION UNDER CHAPTER 11
Delaware corporation, and LAMONTS ) OF THE BANKRUPTCY CODE
APPAREL, INC., a Washington corporation, )
)
Debtor. )
)
Taxpayer Identification )
No. 75-2076160 )
)
DEBTOR'S FORMER ADDRESS: )
3650 131st Avenue S.E. )
Bellevue, WA 98006 )
)
DEBTOR'S CURRENT ADDRESS: )
12413 Willows Road N.E. )
Kirkland, WA 98034 )
_________________________________________
AMENDED DISCLOSURE STATEMENT STUTMAN, TREISTER & GLATT
RE DEBTOR'S PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE 3699 WILSHIRE BLVD., SUITE 900
LOS ANGELES, CA 90010
SPECIAL REORGANIZATION COUNSEL FOR
DEBTOR AND DEBTOR IN POSSESSION
<PAGE>
TABLE OF CONTENTS
PAGE
----
I. INTRODUCTION..............................................................1
II. SUMMARY...................................................................4
A. The Debtor.............................................................5
B. Background.............................................................5
C. Recommendations........................................................6
D. Overview Of The Plan...................................................7
1. FNBB Claim........................................................7
2. General Unsecured Claims..........................................7
3. Old Common Stock..................................................8
4. Priority Claims...................................................8
5. Other Secured Claims..............................................8
E. Selected Historical Financial Information..............................8
III. RISK FACTORS............................................................13
A. Inherent Uncertainty In The Financial Projections.....................13
B. Leverage..............................................................14
C. Competition...........................................................14
D. Market For New Common Stock And New Warrants..........................14
E. Dividend Policy.......................................................15
F. Certain Economic Conditions And Recent Operating Performance..........15
G. Restrictive Covenants.................................................15
H. Dilution..............................................................16
IV. BACKGROUND...............................................................16
A. General...............................................................16
B. Financial Difficulties................................................16
C. Prior Financial Restructurings........................................16
<PAGE>
D. Operational Restructuring And New Management..........................17
E. Debtor-in-Possession Administration And Financing.....................18
F. Negotiations With Committees..........................................19
V. THE COMPANY...............................................................19
A. General...............................................................19
B. Properties............................................................20
C. Purchasing............................................................21
D. Distribution..........................................................21
E. Store Operations......................................................22
F. Employees.............................................................22
G. Competition...........................................................22
H. Trademarks............................................................22
I. Credit Policy.........................................................22
J. Return Policy.........................................................23
K. Seasonality...........................................................23
L. Inflation.............................................................24
M. Regulations...........................................................24
N. Promotion And Marketing...............................................24
O. Shoe Licensee.........................................................24
P. Change in Fiscal Year.................................................24
Q. Legal Proceedings.....................................................25
VI. THE PLAN OF REORGANIZATION...............................................25
A. General...............................................................25
B. Unclassified Claims...................................................26
1. Administrative Expenses..........................................26
2. Priority Tax Claims..............................................28
C. Classification And Treatment Of Claims And Interests..................28
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1. Class 1 - Other Priority Claims..................................28
2. Class 2 - FNBB Claim.............................................29
3. Class 3 - Other Secured Claims...................................29
4. Class 4 - General Unsecured Claims...............................29
5. Class 5 - Old Common Stock.......................................30
D. Summary Of Certain Other Provisions Of The Plan.......................31
1. Compromise Of Subordination Disputes.............................31
2. Executory Contracts And Unexpired Leases.........................34
3. Amended And Restated Certificate Of Incorporation And Bylaws.....35
4. Board Of Directors...............................................36
5. Effective Date...................................................36
6. Treatment Of Fractional Securities...............................36
7. New Employee Stock Options.......................................36
8. Resale Of Securities.............................................37
9. Retention of Jurisdiction........................................38
10. Discharge of Debtor.............................................38
11. Procedures With Respect To Old Common Stock, Old 10-1/4% Notes,
And Old 13-1/2% Notes........................................39
12. Conditions Precedent............................................40
13. Amendment Of The Plan...........................................40
14. Revocation Of The Plan..........................................40
15. Provisions For Treatment Of Disputed Administrative
Expenses And Disputed Claims..............................40
16. No Liability for Solicitation or Participation..................41
17. Limitation Of Liability.........................................41
18. Rights Of Action; Preferences...................................41
19. Continuation Of FNBB Claim And FNBB Liens.......................42
20. Revesting Of Assets.............................................42
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VII. CONFIRMATION PROCEDURE..................................................43
A. Solicitation Of Votes; Acceptance.....................................43
B. Confirmation Hearing..................................................43
C. Best Interests Test...................................................45
1. Chapter 7........................................................45
2. Liquidation Analysis.............................................46
D. Feasibility...........................................................47
E. Nonconsensual Confirmation............................................48
1. No Unfair Discrimination.........................................48
2. Fair And Equitable Test..........................................48
VIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE
PLAN OF REORGANIZATION..............................................49
A. Liquidation Under Chapter 7...........................................49
B. Alternative Plan Of Reorganization....................................49
IX. VOTING PROCEDURES........................................................50
A. Beneficial Owners.....................................................50
B. Brokerage Firms, Banks, Trust Companies And Other Nominees............50
C. Miscellaneous.........................................................50
X. CAPITALIZATION............................................................51
XI. DESCRIPTION OF FNBB FACILITY.............................................53
A. Amount Of Facility....................................................53
B. Borrowings............................................................53
C. Borrowing Base........................................................53
D. Maturity..............................................................53
E. Rate And Payment Of Interest..........................................53
F. Fees And Costs........................................................53
G. Security..............................................................53
H. Affirmative And Negative Covenants....................................54
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I. Events Of Default.....................................................54
J. Cash Collateral.......................................................54
XII. DESCRIPTION OF NEW COMMON STOCK.........................................55
A. New Common Stock......................................................55
B. Amended And Restated Certificate Of Incorporation And Amended
And Restated Bylaws.................................................55
C. Transfer Agent And Registrar..........................................55
XIII. DESCRIPTION OF NEW WARRANTS............................................55
A. General...............................................................55
B. Exercise; Purchase Price..............................................55
C. Adjustments...........................................................56
D. Notice Of Proposed Actions............................................56
E. Warrant Agent.........................................................57
F. Registration Rights...................................................57
XIV. COMMON STOCK OWNERSHIP..................................................57
A. Security Ownership Of Certain Beneficial Owners And Management........57
B. Dilution..............................................................60
XV. MARKET AND TRADING INFORMATION...........................................60
A. Old Common Stock......................................................60
B. Old 10-1/4% Notes And Old 13-1/2% Notes...............................61
XVI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................62
A. Introduction..........................................................62
B. Federal Income Tax Consequences To Debtor And Its Subsidiaries........62
1. Tax Reorganization...............................................62
2. Carryover And Availability Of The Debtor Consolidated Group's
Net Operating Losses...........................................63
a. General.....................................................63
b. Section 382.................................................63
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3. Reduction Of Debtor's Indebtedness...............................64
C. Tax Consequences To Creditors.........................................65
1. Claims Constituting Tax Securities...............................65
a. Definition Of "Security" For Tax Purposes...................65
b. Receipt Of Tax Securities...................................66
c. Receipt Of Cash Or Debt Not Constituting Tax
Securities For Tax Securities.............................66
d. Determination Of Character Of Gain..........................66
e. Tax Basis And Holding Period Of Items Received..............66
f. Receipt Solely Of Boot......................................67
2. Claims Not Constituting Tax Securities...........................67
a. Gain/Loss On Exchange.......................................67
b. Tax Basis And Holding Period Of Items Received..............67
c. Bad Debt Deduction On Discharge Of Claim....................67
3. Receipt Of Interest..............................................67
4. Other Tax Considerations.........................................68
a. Market Discount.............................................68
b. Original Issue Discount.....................................68
c. Withholding.................................................68
d. Taxation Of Certain Reserves................................68
D. Tax Consequences To Shareholders......................................69
XVII. CERTAIN FINANCIAL PROJECTIONS..........................................69
A. Pro Forma Balance Sheet...............................................69
B. Pro Forma Projections Of Income Statement, Balance Sheet Data
And Cash Flows......................................................73
XVIII. MANAGEMENT............................................................77
A. General...............................................................77
B. Executive Compensation................................................78
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1. Summary Compensation Table.......................................78
2. Old Employee Stock Options.......................................81
3. New Employee Stock Options.......................................82
4. Qualified Pension Plans..........................................83
5. Nonqualified Pension Plans.......................................85
C. Employment Agreements.................................................86
D. Indemnification Of Officers And Directors Of Reorganized Debtor.......87
E. Employee Stock Option Plan; Description Of New Employee Stock
Options.............................................................88
1. Plan Administration..............................................88
2. Shares Subject To The Employee Stock Option Plan.................89
3. Exercise Of New Employee Stock Options...........................90
4. Payment Of Taxes.................................................90
5. Certain Tax Effects Of New Employee Stock Options................90
XIX. CERTAIN TRANSACTIONS....................................................91
XX. FEES AND EXPENSES........................................................94
XXI. SUMMARY OF ADDITIONAL SOURCES OF INFORMATION............................94
XXII. RECOMMENDATION AND CONCLUSION..........................................96
LIST OF ANNEXES
Annex A: The Plan
Annex B: Consolidated Financial Statements of the Debtor and Management's
Discussion and Analysis
Annex C: List of Senior Claims
Annex D: Schedule of Pending or Threatened Litigation
<PAGE>
I.
INTRODUCTION
Lamonts Apparel, Inc., a Delaware corporation ("Lamonts," the
"Company," or the "Debtor"), filed a voluntary petition (the "Petition")
under chapter 11 ("Chapter 11") of title 11 of the United States Code, 11
U.S.C. Section 101 et seq. (the "Bankruptcy Code"), on January 6, 1995 (the
"Petition Date"), for the purpose of implementing an operational and
financial restructuring of its business. The "Debtor's Amended Plan of
Reorganization under Chapter 11 of the Bankruptcy Code" (the "Plan") has been
negotiated with representatives of the Official Committee of Creditors
Holding Unsecured Claims (the "Unsecured Creditors' Committee"), the
Official Committee of Bondholders (the "Bondholders' Committee"), and the
Official Committee of Equity Security Holders (the "Equity Committee", and
collectively with the Unsecured Creditors' Committee and the Bondholders'
Committee, the "Committees") which have been appointed by the Office of the
United States Trustee pursuant to section 1102 of the Bankruptcy Code to
serve in the Chapter 11 Case. The Debtor submits this Disclosure Statement
pursuant to section 1125 of the Bankruptcy Code to holders of impaired Claims
and holders of its outstanding common stock, par value $ .01 per share ("Old
Common Stock"), in connection with the solicitation from such holders of
ballots accepting the Plan, which has been proposed by the Debtor and filed
with the Bankruptcy Court, a copy of which is attached as Annex A hereto.
Unless otherwise defined herein, all capitalized terms contained herein shall
have the meanings ascribed to them in the Plan.
This Amended Disclosure Statement re Debtor's Plan of Reorganization
under Chapter 11 of the Bankruptcy Code ("Disclosure Statement") sets forth
information regarding the history of the Debtor, its business, the filing of the
Petition and the Plan, and alternatives thereto. Its purpose is to provide the
holders of impaired Claims and Old Common Stock adequate information to assist
them in making an informed decision as to whether to accept the Plan. Each
holder of an impaired Claim or Old Common Stock should read this Disclosure
Statement (including its Annexes) and the Plan (including its Exhibits) in their
entirety and consider them with such holder's legal and financial advisors
before voting on the Plan. No person has been authorized by the Debtor to
utilize for purposes of solicitation any information concerning the Debtor or
its business other than the information contained or referred to herein.
Pursuant to the Bankruptcy Code, only holders of Allowed Claims in
Class 1 (Other Priority Claims) and Class 4 (General Unsecured Claims), and
holders of Old Common Stock, whose Equity Interests are classified as Class 5
(Classes 1, 4, and 5 being referred to collectively as the "Voting Classes"),
are entitled to vote on the Plan. Holders of Claims in Class 2 (FNBB Claim) and
Class 3 (Other Secured Claims) are not entitled to vote on the Plan and are
deemed to have accepted the Plan because their Claims are not impaired. For a
description of the Classes of Claims and of the Equity Interests and their
treatment under the Plan, see "The Plan of Reorganization -- Classification and
Treatment of Claims and Interests."
Except as described below, the Plan may be confirmed only if accepted
by each Voting Class. The Bankruptcy Code defines "acceptance" (i) with respect
to a class of impaired Claims, as acceptance by holders of at least two-thirds
in dollar amount and more than one-half in number of the Allowed Claims in such
class whose holders cast ballots and (ii) with respect to a class of impaired
Equity Interests (in this case, the Old Common Stock), as acceptance by holders
of at least two-thirds of the Allowed Equity Interests in such class whose
holders cast ballots. Holders of impaired Claims and of Old Common Stock may
vote either to accept or to reject the Plan.
<PAGE>
THE DEBTOR BELIEVES THAT THE PLAN PROVIDES THE BEST FEASIBLE
RECOVERIES TO THE HOLDERS OF IMPAIRED CLAIMS AND TO THE HOLDERS OF OLD COMMON
STOCK AND THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF SUCH HOLDERS.
THE DEBTOR THEREFORE RECOMMENDS THAT HOLDERS OF IMPAIRED CLAIMS AND HOLDERS OF
OLD COMMON STOCK VOTE TO ACCEPT THE PLAN.
THE UNSECURED CREDITORS' COMMITTEE AND THE BONDHOLDERS' COMMITTEE HAVE
APPROVED THE PLAN AND RECOMMEND ACCEPTANCE OF THE PLAN BY HOLDERS OF GENERAL
UNSECURED CLAIMS.
THE EQUITY COMMITTEE HAS APPROVED THE PLAN AND RECOMMENDS ACCEPTANCE
OF THE PLAN BY HOLDERS OF OLD COMMON STOCK.
The Plan provides for the payment in full of Allowed Other Priority
Claims, and the Debtor therefore expects that holders of such claims will vote
to accept the Plan.
In the event of any rejection of the Plan by one or more impaired
classes, the Debtor reserves the right to request that the Bankruptcy Court
confirm the Plan in accordance with section 1129(b) of the Bankruptcy Code,
which permits confirmation of the Plan notwithstanding rejection by one or more
impaired classes if the Court finds that the Plan does not discriminate unfairly
and is "fair and equitable" with respect to the rejecting class or classes.
For a more detailed description of the requirements for acceptance of
the Plan and of the criteria for confirmation notwithstanding rejection by
certain classes, see "Confirmation Procedure."
Attached as Annexes to this Disclosure Statement are copies of the
following:
1. The Plan (Annex A);
2. Consolidated Financial Statements of the Debtor and Management's
Discussion and Analysis (Annex B);
3. List of Senior Claims (Annex C); and
4. Schedule of Pending or Threatened Litigation (Annex D).
Also accompanying this Disclosure Statement are copies of the
following:
1. The Order of the Bankruptcy Court approving this Disclosure
Statement and providing notice of the confirmation hearing, the deadlines for
ballots and for objections to the Plan, and related matters (the "Order and
Notice"); and
2. The Ballots for acceptance or rejection of the Plan.
Forms of certain documents referred to in the Plan are contained in a
separate Plan Documentary Supplement which has been filed with the Clerk of the
Bankruptcy Court. Such Plan Documentary Supplement may be inspected in the
office of the Clerk of the Bankruptcy Court, Park Place Building, 1200 Sixth
Avenue, Seattle, Washington. Holders of Claims and Old Common Stock may obtain
copies of the Plan Documentary Supplement or excerpts therefrom by placing an
order for copies from Nightrider, Attention: Steve Porter, 1401 Third Avenue,
Suite 200, Seattle, Washington 98101, telephone number (205) 233-9066; or upon
written request to the Debtor at its principal offices, 12413 Willows Road N.E.,
Kirkland, Washington 98034, Attention: Debbie Brownfield, Chief Financial
Officer.
The Bankruptcy Court has approved this Disclosure Statement as
containing information of a kind and in sufficient detail, as far as is
reasonably practicable in light of the nature
2
<PAGE>
and history of the Debtor and the condition of its books and records, adequate
to enable hypothetical, reasonable investors typical of the holders of impaired
Claims and Old Common Stock to make an informed judgment as to whether to accept
or reject the Plan. APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT, HOWEVER,
CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT AS TO THE FAIRNESS OR THE
MERITS OF THE PLAN.
THE ISSUANCE OF SHARES OF NEW COMMON STOCK AND NEW WARRANTS TO HOLDERS
OF CLAIMS AND EQUITY INTERESTS PURSUANT TO THE PLAN WILL NOT BE REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES OR
"BLUE SKY" LAW; SUCH NEW COMMON STOCK AND NEW WARRANTS WILL BE ISSUED IN
RELIANCE UPON THE EXEMPTION FROM SECURITIES ACT AND EQUIVALENT STATE LAW
REGISTRATION PROVIDED BY SECTIONS 1145(a)(1) AND (2) OF THE BANKRUPTCY CODE.
THIS DOCUMENT WAS COMPILED FROM INFORMATION OBTAINED BY THE DEBTOR
FROM NUMEROUS SOURCES BELIEVED TO BE ACCURATE TO THE BEST OF THE DEBTOR'S
KNOWLEDGE, INFORMATION, AND BELIEF. HOWEVER, NOTHING CONTAINED HEREIN SHALL OR
SHALL BE DEEMED TO BE AN ADMISSION OR A DECLARATION AGAINST INTEREST BY THE
DEBTOR FOR PURPOSES OF ANY EXISTING OR FUTURE LITIGATION.
EXCEPT AS OTHERWISE EXPRESSLY STATED HEREIN, NOTHING CONTAINED HEREIN
SHALL BE ATTRIBUTABLE TO OR IS DERIVED FROM OR REPRESENTED TO BE ACCURATE BY THE
COMMITTEES, BY ANY HOLDER OF A CLAIM OR OLD COMMON STOCK, OR BY ANY OF THEIR
RESPECTIVE ADVISORS, NOR HAVE THE COMMITTEES, ANY SUCH HOLDER OR ANY SUCH
ADVISOR INDEPENDENTLY VERIFIED THE INFORMATION SET FORTH HEREIN.
ALTHOUGH THE DEBTOR'S PROFESSIONAL ADVISORS HAVE ASSISTED IN THE
PREPARATION OF THIS DISCLOSURE STATEMENT BASED UPON FACTUAL INFORMATION AND
ASSUMPTIONS RESPECTING FINANCIAL, BUSINESS, AND ACCOUNTING DATA PROVIDED BY THE
DEBTOR, THEY HAVE NOT INDEPENDENTLY VERIFIED THE INFORMATION SET FORTH HEREIN
AND MAKE NO REPRESENTATION AS TO THE ACCURACY THEREOF.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: The information
contained under the caption "Certain Financial Projections" and certain other
statements contained or incorporated by reference herein, including, without
limitation, statements containing the words "believes," "anticipates,"
"expects," and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors that may cause the actual results, performance, or
achievements of the Company, or industry results, to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: national and local general economic and market conditions;
demographic changes; liability and other claims asserted against the Company;
competition; the loss of significant customers or suppliers; fluctuations in
operating results; changes in business strategy or development plans; business
disruptions; the ability to attract and retain qualified personnel; ownership of
Common Stock; volatility of stock price; and other factors referenced herein.
Certain of these factors are discussed in
3
<PAGE>
more detail elsewhere herein, including, without limitation, under the captions
"Risk Factors," "The Company," "Capitalization," and "Certain Financial
Projections". GIVEN THESE UNCERTAINTIES, THOSE READING THIS DISCLOSURE
STATEMENT ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. The Company disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained or incorporated by reference herein to reflect untrue
events or developments.
After carefully reviewing this Disclosure Statement and the Plan,
including the respective Annexes and Exhibits, each holder of an impaired Claim
or Old Common Stock should vote on the appropriate enclosed Ballot and return it
in the envelope provided. If you have a Claim in more than one Voting Class, or
if you hold both Claims and Old Common Stock, you should obtain a separate
Ballot for each Claim and for your Old Common Stock and vote each Claim and your
shares of Old Common Stock separately.
TO BE COUNTED, YOUR BALLOT MUST BE COMPLETELY FILLED IN, SIGNED, AND
TRANSMITTED IN THE MANNER SPECIFIED IN THE BALLOT SO THAT IT IS RECEIVED BY THE
VOTING DEADLINE SPECIFIED IN THE BALLOT. PLEASE FOLLOW CAREFULLY ALL
INSTRUCTIONS CONTAINED IN THE BALLOT. ANY BALLOTS RECEIVED WHICH DO NOT INDICATE
EITHER AN ACCEPTANCE OR REJECTION OF THE PLAN OR WHICH INDICATE BOTH AN
ACCEPTANCE AND REJECTION OF THE PLAN WILL NOT BE COUNTED. See "Voting
Procedures."
DO NOT RETURN YOUR SECURITIES WITH YOUR BALLOT.
If you have any questions about the procedure for voting, or if you
did not receive a Ballot, received a damaged Ballot, or have lost your Ballot,
or if you would like any additional copies of this Disclosure Statement, please
write to Ryan, Swanson & Cleveland, 1201 Third Avenue, Suite 3400, Seattle,
Washington 98101, Attention: Anne K. Dudley, Legal Assistant, or call (206)
464-4224.
The Bankruptcy Court has scheduled a hearing on confirmation of the
Plan (the "Confirmation Hearing") on the date and at the place specified in the
Order and Notice accompanying this Disclosure Statement. The Bankruptcy Court
has directed that objections, if any, to confirmation of the Plan be served and
filed on or before the date specified in the Order and Notice in the manner
described under "Confirmation Procedure - Confirmation Hearing." The
Confirmation Hearing may be continued from time to time by the Bankruptcy Court
without further notice except for the announcement of the continuation date made
at the Confirmation Hearing or at any subsequent continued Confirmation Hearing.
II.
SUMMARY
The following is a summary of certain information contained elsewhere
in this Disclosure Statement. Reference is made to, and this Summary is
qualified in its entirety by reference to, the more detailed information
contained herein and in the Annexes hereto. Holders of impaired Claims or Old
Common Stock are urged to read this Disclosure Statement and the Annexes hereto
in their entirety. Capitalized terms used but not defined herein have the
meanings ascribed thereto in the Plan of Reorganization attached hereto as
Annex A.
4
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A. THE DEBTOR.
The Debtor is a Northwest-based regional retailer of moderately priced
casual apparel. The Company, which has been operating in the Northwest for
almost thirty years, is well recognized in the region as a retailer of
nationally recognized brand name apparel such as Levi, Liz Claiborne, Lee, Union
Bay, Bugle Boy, Jockey, Alfred Dunner, Koret, OshKosh, and Health-Tex. Lamonts
operates forty-two stores in six states and employs approximately 1,600
employees. The Company's stores average approximately 40,000 square feet and
are generally located in top quality shopping centers and high traffic malls.
Since 1986, thirty-nine of the Company's stores have completed either major or
minor remodels.
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., 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.
B. BACKGROUND.
As a result of financial difficulties, during the second half of its
1992 fiscal year, 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 "Old
10-1/4% Notes"). As a result of the Recapitalization, 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 reduced the Company's debt. The
transaction included, among other things, the repurchase of $13.0 million
aggregate principal amount of Old 10-1/4% Notes, at par, together with accrued
interest through the repurchase date, and the concurrent amendment of the terms
of the Old 10-1/4% Notes that remained outstanding to, among other things,
prospectively reduce the interest rate of such Old 10-1/4% Notes from 11-1/2%
(the original rate at issuance) to 10-1/4%.
On June 10, 1994, the Company further amended the terms of the Old
10-1/4% Notes to provide, among other things, that interest payments due on the
Old 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 Old 10-1/4%
Notes ("PIK Interest"), at a rate of 13% per annum. In accordance with the
amendment, the Company elected to issue additional Old 10-1/4% Notes at the PIK
Interest rate of 13% for the November 1, 1994 interest payment. Interest
continued to accrue on the Old 10-1/4% Notes until the date of filing of the
Chapter 11 Case. In addition, on June 10, 1994, the Company issued warrants
(the "Old Warrants") initially to purchase up to an aggregate of approximately 2
million shares of Old Common Stock (or approximately 10% of the Old Common Stock
then outstanding after giving effect to the exercise of such Old Warrants) to
the holders of the Old 10-1/4% Notes. The Old Warrants provided that they could
be exercised on or prior to June 10, 1999, at an initial exercise price of $1.00
per share of Old Common Stock. As of the date hereof, none of the Old Warrants
have been exercised.
5
<PAGE>
On October 18, 1994, the holders of all outstanding Old 10-1/4% Notes
(i) granted the Company the option to exchange the Old 10-1/4% Notes for shares
of Old Common Stock, representing approximately 70% of the Old Common Stock
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 Old 10-1/4% Notes and generally
subordinated the Company's obligations under the Old 10-1/4% Notes so that they
are junior to trade payables and certain other liabilities, subject to certain
exceptions. The Company could exercise its option to exchange the Old 10-1/4%
Notes on or prior to March 31, 1995. However, on March 27, 1995, the Company
received an extension from the holders of the Old 10-1/4% Notes to extend
indefinitely the time within which the Company may exercise its option to
require the holders to exchange their Old 10-1/4% Notes; provided, however, that
a majority of the holders of the Old 10-1/4% Notes may terminate such extension
upon 60 days notice to the Company. See "The Plan Of Reorganization -- Summary
Of Certain Other Provisions Of The Plan -- Compromise Of Subordination Disputes"
for a discussion of the treatment of such option.
Despite the foregoing, the Company's financial position continued to
deteriorate through 1994. 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. In response to its deteriorating financial
condition, the Company determined that a more significant financial and
operational restructuring was necessary. Accordingly, on January 6, 1995, the
Company filed the Petition and commenced the Chapter 11 Case.
Lamont's new management, which began operating the Company in November
of 1994, believes that Lamonts has made substantial progress in improving its
business operations in the period since the commencement of the Chapter 11 Case.
The Company has closed unprofitable stores, eliminated unprofitable merchandise
lines, added a home decor line, replaced its shoe licensee, and reduced
operating expenses. The Company has also refocused its merchandising strategy
on casual apparel and expects to continue to build its merchandise categories in
the Men's, Children's, Misses, and Special Sizes areas and to promote nationally
recognized brands. In addition, the new management team has implemented new
merchandising strategies designed to: (i) improve the quality of merchandise
offered while maintaining price points geared to the Company's customer base;
(ii) reduce cash operating expenses; and (iii) reduce inventory levels and
increase inventory turns to improve the Company's performance. As a result, the
age and quality of inventory have improved significantly. The Company also has
initiated a policy to mark-down and clear out any unsold merchandise within its
respective season.
In order to emerge from Chapter 11, the Debtor engaged in negotiations
with the Committees with a view to effecting a financial restructuring. After
extensive discussions, the Debtor and the Committees have negotiated a financial
restructuring contemplating the satisfaction of General Unsecured Claims with
New Common Stock and New Warrants. The Plan incorporates the results of these
negotiations and is designed significantly to reduce and restructure the
Debtor's outstanding indebtedness as described below.
C. RECOMMENDATIONS.
The Debtor believes that the Plan provides the best feasible
recoveries to holders of impaired Claims and to the holders of Old Common Stock
and is in the best interests of such holders. ACCORDINGLY, THE DEBTOR
RECOMMENDS THAT ALL SUCH HOLDERS VOTE TO ACCEPT THE PLAN.
THE UNSECURED CREDITORS' COMMITTEE AND THE BONDHOLDERS' COMMITTEE HAVE
APPROVED THE PLAN AND RECOMMEND ACCEPTANCE OF THE PLAN BY HOLDERS OF GENERAL
UNSECURED CLAIMS.
6
<PAGE>
THE EQUITY COMMITTEE HAS APPROVED THE PLAN AND RECOMMENDS ACCEPTANCE
OF THE PLAN BY HOLDERS OF OLD COMMON STOCK.
D. OVERVIEW OF THE PLAN.
THE FOLLOWING OVERVIEW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE PLAN, WHICH IS ATTACHED HERETO AS ANNEX A. IN THE EVENT OF ANY
INCONSISTENCY, THE PLAN WILL CONTROL. FOR A MORE DETAILED DESCRIPTION, SEE "THE
PLAN OF REORGANIZATION," "CAPITALIZATION," "DESCRIPTION OF FNBB FACILITY,"
"DESCRIPTION OF NEW COMMON STOCK," AND "DESCRIPTION OF NEW WARRANTS."
The principal features of the Plan are as follows:
The Plan provides for Lamonts to issue New Common Stock and New
Warrants in exchange for and satisfaction of certain existing Claims and Old
Common Stock. All equity securities outstanding as of the Effective Date will
be canceled and extinguished. Specifically, a total of 9,000,000 shares of New
Common Stock, 2,203,320 Class A Warrants, and 800,237 Class B Warrants are to be
issued pursuant to the Plan as of the Effective Date. In addition, Lamonts is
to issue, on the terms and conditions set forth in the Plan, New Employee Stock
Options initially exercisable for the purchase of 1,000,000 shares (subject to
adjustment to prevent dilution upon certain events, including among other things
any exercise of the New Class A Warrants or New Class B Warrants) of New Common
Stock initially with an exercise price of $1,000,000 in the aggregate, for
distribution to specified employees of the Reorganized Debtor.
Holders of Allowed Claims and Allowed Equity Interests will be treated
in the following manner:
1. FNBB CLAIM.
The FNBB Claim will be treated in accordance with all of the
provisions of the FNBB Facility, and all of the legal, equitable, and
contractual rights to which FNBB is entitled under the FNBB Facility will be
left unaltered.
2. GENERAL UNSECURED CLAIMS.
On the Effective Date or as soon thereafter as is practicable, each
holder of an Allowed General Unsecured Claim will receive, in exchange for
and satisfaction of such Claim, all of the following: (i) its Pro Rata Share
of 8,800,000 shares of New Common Stock (representing approximately 97.78% of
the primary shares of New Common Stock which will be issued and outstanding
as of the Effective Date or approximately 65.98% of the fully diluted shares
of New Common Stock assuming exercise of all New Warrants and all New
Employee Stock Options), (ii) its Pro Rata Share of New Class A Warrants
exercisable for the purchase of 2,203,320 shares of New Common Stock
(representing a number of shares equal to approximately 24.48% of the primary
shares of New Common Stock which will be issued and outstanding as of the
Effective Date or approximately 16.52% of the fully diluted shares of New
Common Stock assuming exercise of all New Warrants and all New Employee Stock
Options), and (iii) its Pro Rata Share of New Class B Warrants exercisable
for the purchase of 700,237 shares of New Common Stock (representing a number
of shares equal to approximately 7.78% of the primary shares of New Common
Stock which will be issued and outstanding as of the Effective Date or
approximately 5.25% of the fully diluted shares of New Common Stock assuming
exercise of all New Warrants and all New Employee Stock Options). See
"Common Stock Ownership -- Dilution." A portion of the securities otherwise
distributable
7
<PAGE>
to certain specified holders of Allowed General Unsecured Claims will instead be
distributed to certain other specified holders of Allowed General Unsecured
Claims who are entitled to the benefits of settlements under the Plan of
disputes regarding subordination provisions of the respective indentures
governing the Old 10-1/4% Notes and the Old 13-1/2% Notes. See "The Plan of
Reorganization - Summary of Certain Other Provisions of the Plan - Compromise of
Subordination Disputes." In addition, as of the Effective Date, in conjunction
with the issuance of such securities, the Grant of Registration Rights contained
in the Plan Documentary Supplement will be deemed an obligation of the
Reorganized Debtor. The Unsecured Creditors' Committee and the Bondholders'
Committee have each approved the treatment of holders of Allowed General
Unsecured Claims under the Plan and the compromise of the subordination disputes
provided for under the Plan.
3. OLD COMMON STOCK.
All outstanding shares of Old Common Stock will be canceled, and, on
the Effective Date or as soon thereafter as is practicable, each holder of Old
Common Stock of record as of the Effective Date will receive in exchange
therefor (i) its Pro Rata Share of 200,000 shares of New Common Stock
(representing approximately 2.22% of the primary shares of New Common Stock
which will be issued and outstanding as of the Effective Date or approximately
1.50% of the fully diluted shares of New Common Stock assuming exercise of all
New Warrants and all New Employee Stock Options), and (ii) its Pro Rata Share of
New Class B Warrants exercisable for the purchase of 100,000 shares of New
Common Stock (representing a number of shares equal to approximately 1.11% of
the primary shares of New Common Stock which will be issued and outstanding as
of the Effective Date or approximately 0.75% of the fully diluted shares of New
Common Stock assuming exercise of all New Warrants and all New Employee Stock
Options). See "Common Stock Ownership -- Dilution." In addition, as of the
Effective Date, in conjunction with the issuance of such securities, the Grant
of Registration Rights contained in the Plan Documentary Supplement will be
deemed an obligation of the Reorganized Debtor. The Equity Committee has
approved the treatment of holders of Equity Interests under the Plan.
4. PRIORITY CLAIMS.
Allowed Priority Claims (other than Priority Tax Claims) are to be
paid in full, in cash, on the Effective Date or as soon thereafter as is
practicable, or as may otherwise be agreed by the holder of any such Claim.
Allowed Priority Tax Claims will be treated in the same manner, except those
Allowed Deferred Payment Tax Claims listed in Exhibit D to the Plan, which will
be paid by the Reorganized Debtor in equal quarterly installments with interest
over a period not exceeding six years after the date of assessment of each such
Claim, as provided in section 1129(a)(9)(C) of the Bankruptcy Code.
5. OTHER SECURED CLAIMS.
Allowed Secured Claims, other than the FNBB Claim, will be reinstated
and paid in accordance with their terms.
E. SELECTED HISTORICAL FINANCIAL INFORMATION.
The following tables set forth certain selected financial data for the
Company and should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto included in Annex B hereto. The
following financial data is not necessarily comparable for the periods presented
because of the effects of, among other things, the consummation of the
Recapitalization in October 1992 and the Company's change in fiscal year end in
1995. However, for purposes of comparing the data for the 1995 fiscal year, the
Company
8
<PAGE>
has provided data for the comparable prior year period which are derived from
unaudited financial records of the Company.
LAMONTS APPAREL, INC.
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
STATEMENT OF 53 weeks ended 52 weeks ended Quarter ended 52 weeks ended
OPERATIONS DATA Feb. 3, 1996 Jan. 28, 1995 Jan. 28, 1995 Oct. 29, 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues (1) $199,548 $231,199 $71,014 $237,922
Cost of merchandise sold 131,677 175,330 60,587 163,697
--------------------------------------------------------------------------
Gross profit 67,871 55,869 10,427 74,225
--------------------------------------------------------------------------
Operating and administrative expenses 71,372 87,807 22,400 88,520
Depreciation and amortization 9,232 11,355 2,666 11,441
Store closure costs 7,200 7,200
--------------------------------------------------------------------------
Operating costs 80,604 106,362 25,066 107,161
--------------------------------------------------------------------------
Earnings (loss) from continuing
operations before other income/
(expense), reorganization expenses and
income tax provision/(benefit) (12,733) (50,493) (14,639) (32,936)
Other income (expense):
Interest expense
- Cash (5,098) (6,698) (1,356) (8,130)
- Non-cash (2) (5,160) (1,670) (3,490)
Other income (expense) 196 27 29 (369)
--------------------------------------------------------------------------
Loss from continuing operations before
reorganization expenses and income tax
provision/(benefit) (17,635) (62,324) (17,636) (44,925)
Reorganization expenses 7,240 7,499 7,499
--------------------------------------------------------------------------
Loss from continuing operations before
income tax provision/(benefit) 24,875 (69,823) (25,135) (44,925)
Income tax provision/(benefit) (400) (400)
--------------------------------------------------------------------------
Net earnings (loss) ($24,875) ($69,423) ($25,135) ($44,525)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NET EARNINGS (LOSS) PER COMMON SHARE (4)
- ----------------------------------------
Net earnings (loss) per common share ($1.39) ($4.13) ($1.41) ($3.05)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted average number of shares 17,893,675 16,820,257 17,883,135 14,583,038
<CAPTION>
BALANCE SHEET DATA (at end of As of As of As of As of
period) Feb. 3, 1996 Jan. 28, 1995 Jan. 28, 1995 Oct. 29, 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Working capital ($2,248) $16,025 $16,025 $9,938
Total assets 102,361 120,269 120,269 152,589
Liabilities subject to settlement under
reorganization proceedings 104,845 108,333 108,333
Long term debt and obligations under
capital leases, net of current maturities 80,642
Stockholders' equity (deficit) (42,556) (17,509) (17,509) 7,560
</TABLE>
9
<PAGE>
LAMONTS APPAREL, INC.
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
52 weeks ended 52 weeks ended 52 weeks ended
Oct. 31, 1993 Oct. 31, 1992 Nov. 2, 1991
------------------------------------------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
- ----------------------------
Revenues (1) $251,015 $258,096 $252,627
Cost of merchandise sold 157,098 156,940 153,771
------------------------------------------------------
Gross profit 93,917 101,156 98,856
------------------------------------------------------
Operating and administrative expenses 84,176 83,798 78,921
Depreciation and amortization 11,164 13,290 11,070
------------------------------------------------------
Operating costs 95,340 97,088 89,991
------------------------------------------------------
Earnings (loss) from continuing operations (1,423) 4,068 8,865
before other income/(expense), income
tax provision/(benefit), and extraordinary
item
Other income (expense):
Interest expense
- Cash (12,477) (9,936) (16,439)
- Non-cash (2) (13,417) (5,494)
Other income (expense) 29 417 917
------------------------------------------------------
Loss from continuing operations before (13,871) (18,868) (12,151)
income tax provision/(benefit) and
extraordinary item
Income tax provision/(benefit) (3,000) 710 (552)
------------------------------------------------------
Loss from continuing operations before (10,871) (19,578) (11,599)
extraordinary item
Gain (loss) from discontinued
operations, net of income taxes 283 (113)
Extraordinary item - gain on
extinguishment of debt (3) 23,572
------------------------------------------------------
Net earnings (loss) ($10,871) $4,277 ($11,712)
------------------------------------------------------
------------------------------------------------------
NET EARNINGS (LOSS) PER COMMON SHARE (4)
- ----------------------------------------
Loss from continuing operations
before extraordinary item ($1.22) ($82.84) ($67.99)
Gain (loss) from discontinued
operations, net of income taxes 1.20 (0.61)
Extraordinary item - gain on
extinguishment of debt 99.74
------------------------------------------------------
Net earnings (loss) per common share ($1.22) $18.10 ($68.60)
------------------------------------------------------
------------------------------------------------------
Dividends on preferred stock (5) None None ($1,045)
Weighted average number of shares 8,917,624 236,339 185,970
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
As of As of As of
BALANCE SHEET DATA (at end of period) Oct. 31, 1993 Oct. 31, 1992 Nov. 2, 1991
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Working capital $43,060 $52,327 $52,319
Total assets 183,709 195,339 194,954
Long term debt and obligations under 93,130 94,615 154,694
capital leases, net of current maturities
Stockholders' equity (deficit) 36,208 46,773 (1,500)
</TABLE>
LAMONTS APPAREL, INC.
FOOTNOTES TO SELECTED HISTORICAL FINANCIAL DATA
(1) The additional week in the 1995 fiscal year 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 previously outstanding preferred stock for the 52 weeks ended
November 2, 1991. Concurrently with the Recapitalization, the Company
(i) converted all of that preferred stock into Old Common Stock, (ii) eliminated
all accrued and unpaid dividends associated with that preferred stock, and
(iii) effected a one-for-30 reverse stock split of the Old Common Stock
outstanding prior to the Recapitalization. All share and per share amounts for
the 52 weeks ended November 2, 1991 have been restated to reflect the reverse
stock split on a retroactive basis.
(5) Represents dividends on the previously outstanding preferred
stock which were accrued but never declared or paid. All of the accrued and
unpaid dividends were eliminated pursuant to the Recapitalization.
11
<PAGE>
LAMONTS APPAREL, INC.
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended Quarter ended Month ended
May 4, 1996 August 3, 1996 August 31, 1996
------------------------------------------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
- -----------------------------
Revenues $37,922 $49,657 $17,335
Cost of merchandise sold 24,348 31,607 11,185
------------------------------------------------------
Gross profit 13,574 18,050 6,150
------------------------------------------------------
Operating and administrative expenses 15,775 17,201 5,356
Depreciation and amortization 2,037 2,000 667
Store closure costs 0 0 0
------------------------------------------------------
Operating costs 17,812 19,201 6,023
------------------------------------------------------
Earnings (loss) from continuing operations
before other income/(expense), reorganization
expenses and income tax provision/(benefit) (4,238) (1,151) 127
Other income (expense):
Interest expense
- Cash (1,198) (1,257) (445)
- Non-cash 0 0 0
Other income (expense) 3 2 1
------------------------------------------------------
Loss from continuing operations before (5,433) (2,406) (317)
reorganization expenses and income tax
provision/(benefit)
Reorganization expenses 670 985 379
------------------------------------------------------
Loss from continuing operations before income (6,103) (3,391) (696)
tax provision/(benefit)
Income tax provision/(benefit) 0 0 0
------------------------------------------------------
Net earnings (loss) ($6,103) ($3,391) ($696)
------------------------------------------------------
------------------------------------------------------
NET EARNINGS (LOSS) PER COMMON SHARE
- ------------------------------------
Net earnings (loss) per common share ($0.34) ($0.19) ($0.04)
------------------------------------------------------
------------------------------------------------------
Weighted average number of shares 17,899,549 17,899,759 17,900,053
<CAPTION>
BALANCE SHEET DATA (at end of period) As of As of As of
May 4, 1996 August 3, 1996 August 31, 1996
- --------------------------------------------- ----------- -------------- ---------------
<S> <C> <C> <C>
Working capital ($111) ($2,130) ($2,124)
Total assets 101,258 110,539 108,226
Liabilities subject to settlement under
reorganization proceedings 104,547 103,733 103,666
Long term debt and obligations under
capital leases, net of current maturities 2,808 2,808 2,808
Stockholders' equity (deficit) (48,645) (52,022) (52,713)
</TABLE>
12
<PAGE>
III.
RISK FACTORS
IN ADDITION TO RISKS INHERENTLY INVOLVED IN SECURITIES ISSUED PURSUANT
TO A PLAN OF REORGANIZATION, NUMEROUS SPECIAL FINANCIAL RISKS ARE ASSOCIATED
WITH THE PLAN AND MUST BE CAREFULLY CONSIDERED IN DETERMINING WHETHER TO VOTE TO
APPROVE THE PLAN. The following is intended as a summary of certain material
risks associated with the Plan and the future operations of the Reorganized
Debtor but is not exclusive and must be supplemented by an analysis and
evaluation of the Plan and this Disclosure Statement as a whole by each holder
of an impaired Claim and each holder of Old Common Stock with such person's
advisors.
A. INHERENT UNCERTAINTY IN THE FINANCIAL PROJECTIONS.
The financial projections set forth in this Disclosure Statement are
based on numerous assumptions, including confirmation and consummation of the
Plan in accordance with its terms, the anticipated future performance of the
Company, industry performance, general business and economic conditions, and
other matters, many of which are beyond the control of the Company and some or
all of which may not materialize. The Company's new management has developed,
and the Company is implementing, changes in merchandising, advertising, and
pricing strategies. There is no assurance, however, as to the timing or extent
to which these changes will produce the desired effect. In addition,
unanticipated events and circumstances occurring subsequent to the date the
Disclosure Statement was approved by the Bankruptcy Court may affect the actual
financial results of the Company's operations. These variations may be material
and may adversely affect the ability of the Company to pay the obligations owing
to certain creditors entitled to distributions under the Plan and other
post-Effective Date indebtedness. Because the actual results achieved
throughout the periods covered by projections may vary from the projected
results, the projections should not be relied upon as a guaranty,
representation, or other assurance of the actual results that will occur.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: The information
contained under the caption "Certain Financial Projections" and certain other
statements contained or incorporated by reference herein, including, without
limitation, statements containing the words "believes," "anticipates,"
"expects," and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors that may cause the actual results, performance, or
achievements of the Company, or industry results, to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: national and local general economic and market conditions;
demographic changes; liability and other claims asserted against the Company;
competition; the loss of significant customers or suppliers; fluctuations in
operating results; changes in business strategy or development plans; business
disruptions; the ability to attract and retain qualified personnel; ownership of
Common Stock; volatility of stock price; and other factors referenced herein.
Certain of these factors are discussed in more detail elsewhere herein,
including, without limitation, under the captions "The Company,"
"Capitalization," and "Certain Financial Projections". GIVEN THESE
UNCERTAINTIES, THOSE READING THIS DISCLOSURE STATEMENT ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. The Company disclaims
any obligation to update any such factors or to publicly announce the result of
any revisions to any of the forward-looking
13
<PAGE>
statements contained or incorporated by reference herein to reflect untrue
events or developments.
B. LEVERAGE.
After giving effect to the reduction in its outstanding debt pursuant
to the Plan, the Reorganized Debtor will have a reduced, but nevertheless
substantial, degree of leverage. After giving effect to the Plan and the
financial and operational restructuring effected pursuant thereto and in
connection therewith, the Reorganized Debtor's consolidated ratio of total debt
to equity on the Effective Date (assuming an Effective Date of February 1, 1997)
is projected to be approximately 2.1:1. See "Capitalization" and "Certain
Financial Projections - Pro Forma Balance Sheet."
The Debtor believes that, after giving effect to the operational
restructuring which has been and is being conducted in conjunction with the
Plan, the Reorganized Debtor's cash flow from operations will be adequate to
make required payments of principal and interest on its debt (including the
loans under the FNBB Facility), to permit anticipated capital expenditures
(which in any case will be limited under the terms of the FNBB Facility), and to
fund working capital requirements. However, if, contrary to expectations, the
Reorganized Debtor is unable to generate sufficient cash flow from operations in
the future, or if it fails to satisfy the financial covenants contained in the
FNBB Facility, it could face default on its restructured obligations.
The leveraged nature of the Reorganized Debtor's capital structure
will have several important effects on the Company and its operations, including
the following: (i) the Company will continue to have significant cash
requirements for debt service; (ii) the financial covenants and other
restrictions contained in the FNBB Facility will require the Company to meet
certain financial tests and will limit its ability to borrow additional funds or
to dispose of assets; (iii) because the Company's indebtedness under the FNBB
Facility will bear interest at a floating rate, the Company will be sensitive to
any increase in prevailing interest rates; (iv) as a result of the Company's
debt service requirements and restrictions imposed under the terms of the FNBB
Facility, funds available for capital expenditures and dividends will be
limited; and (v) the Company's ability to meet its debt service obligations and
to reduce its total debt will be dependent upon its future performance, which,
in turn, will be subject to general economic conditions and to financial,
business, and other factors affecting its operations, including factors beyond
its control.
C. COMPETITION.
The retail business in which the Company is involved is highly
competitive, and the Company has certain competitors with substantially greater
resources than the Company. Numerous other companies, including publicly and
privately held independent stores and small chains, and department stores, also
provide competition on a national and regional basis. In addition, the
competitive environment is often affected by factors beyond a particular
retailer's control, such as shifts in consumer preferences, changes in style,
business environment, population trends, and traffic control. Although
management attempts to anticipate and respond to changes in consumer preferences
and changes in styles, and believes that the Company competes successfully, the
Reorganized Debtor could face difficulties in continuing to compete
successfully. See "The Company - Competition."
D. MARKET FOR NEW COMMON STOCK AND NEW WARRANTS.
The Old 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.
As a result of the filing, the Old Common Stock is no longer listed. Prior to
the date hereof, there has been a limited public trading market for the Old
Common Stock. There is no active trading market for the New
14
<PAGE>
Common Stock or for the New Warrants. Although the Company intends to utilize
its reasonable best efforts to continue its compliance with requirements of
applicable securities laws and to facilitate trading of the New Common Stock,
there can be no assurance that any market will develop for the New Common Stock
or for the New Warrants, as to liquidity of any such market, the ability of
holders to sell such securities, or the price at which holders would be able to
sell such securities.
E. DIVIDEND POLICY.
The Company has never declared or paid cash dividends on its Old
Common Stock or any other equity security. In addition, the FNBB Facility
contains certain covenants that directly and indirectly restrict the ability of
the Company to pay dividends. Such restrictions prohibit the payment of cash
dividends on the New Common Stock for the foreseeable future. See "Description
of FNBB Facility."
F. CERTAIN ECONOMIC CONDITIONS AND RECENT OPERATING PERFORMANCE.
The Company's business is dependent upon a high volume of sales and,
with respect to its mall stores, sales are derived, in part, from a high volume
of mall traffic. Volume of sales and mall traffic may be adversely affected by
local, regional, or national economic downturns, new competition, and, in the
case of its mall stores, by the closing of "anchor" stores. Revenues have been
adversely affected by, among other things, (i) the general lower demand for
apparel experienced by the Company and many other apparel retailers, (ii) the
economy in the Seattle/Tacoma market, and (iii) the increase in discounter/mass
merchandiser retail space in the Company's markets. Management believes that
sales may continue to be adversely affected by the foregoing, among other
factors, and by the interruption of merchandise delivery and adverse publicity
related to the commencement of the Chapter 11 Case. Additionally, management
believes that there may be continued pressure on gross profit in order to
maintain a competitive position in the Company's markets. There can be no
assurance that the above factors or a future economic downturn would not have a
material adverse impact on the Company.
Management believes that the Company's profitability was also
adversely affected by the Company's previous merchandising strategies.
Consequently, new management has developed and commenced the implementation of
numerous 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) organize merchandising efforts in key departments
on an integrated basis in order to streamline operations and focus
responsibility for merchandise presentation and a more attractive mix of
quality, price and availability; (iii) reduce or eliminate low-margin items and
departments and add higher margin goods; and (iv) improve inventory mix to
reduce the need for inventory markdowns. In addition, the Company has begun a
new policy to markdown and clear out unsold merchandise with specific "out"
dates set by classification. There can be no assurance, however, that the above
strategies will continue to result in improved profitability.
G. RESTRICTIVE COVENANTS.
The FNBB Facility includes affirmative and negative covenants which
substantially restrict many aspects of the Company's operations and finances.
Such covenants include, without limitation, a prohibition on dividends and
restrictions on capital expenditures and the incurrence of indebtedness. The
covenants will reduce the Company's operational and financial flexibility and
its ability to respond to changing retail conditions and take advantage of
attractive business opportunities. See "Description of FNBB Facility."
15
<PAGE>
H. DILUTION.
The New Common Stock to be issued as of the Effective Date under the
Plan is subject to potential dilution by the additional shares of New Common
Stock issuable upon exercise of the New Class A Warrants, the New Class B
Warrants, the New Employee Stock Options, the Employee Stock Option Plan and the
Gordian Warrants. See "Common Stock Ownership - Dilution." Moreover, the
Reorganized Debtor will have the right to issue additional securities in the
future upon compliance with applicable law, the Amended and Restated Certificate
of Incorporation, and the Amended and Restated Bylaws, which could result in
further dilution.
IV.
BACKGROUND
A. GENERAL.
Lamonts is a Northwest-based retailer with 42 stores in six states.
The Company offers an assortment of moderately priced fashion apparel and
accessories at competitive prices for the entire family. Lamonts purchases
finished goods from over 1,700 vendors and uses a distribution center in Kent,
Washington for processing and warehousing merchandise for distribution to its
stores. Lamonts employs approximately 1,600 people in salaried, hourly, or
part-time positions. Lamonts' revenues for the fiscal year ending February 3,
1996, were approximately $200 million. As of February 3, 1996, Lamonts' total
assets and liabilities, at book value, approximated $102.4 million and $144.9
million, respectively. Lamonts is a publicly-held company; its stock is traded
on the over-the-counter market.
B. FINANCIAL DIFFICULTIES.
In the years prior to the commencement of the Chapter 11 Case, Lamonts
had experienced significant financial difficulties. In addition to being
overburdened by debt, Lamonts' competitive position had deteriorated over the
prior three years. Revenues had declined from approximately $258 million in
1992 to approximately $251 million in 1993 and to approximately $238 million in
1994. Comparable store sales had declined by 3.8% from 1992 to 1993 and by 6.4%
from 1993 to 1994. Lamonts' deteriorating financial performance was a result of
several factors, including increased competition and regional economic
conditions. Lamonts had also failed to respond adequately to changes in
consumer demand and had failed to adopt necessary buying disciplines and
merchandising strategies appropriate to new market conditions.
C. PRIOR FINANCIAL RESTRUCTURINGS.
As a result of financial difficulties, during the second half of its
1992 fiscal year, 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 Old
10-1/4% Notes. As a result of the Recapitalization, the Company's funded debt
was reduced by $63.6 million.
On December 1, 1993, the Company completed the Infusion which
included, among other things, the repurchase of $13.0 million aggregate
principal amount of Old 10-1/4% Notes, at par, together with accrued interest
through the repurchase date, and the concurrent amendment of the terms of the
Old 10-1/4% Notes that remained outstanding to, among other things,
16
<PAGE>
prospectively reduce the interest rate of such Old 10-1/4% Notes from 11-1/2%
(the original rate at issuance) to 10-1/4%.
On June 10, 1994, the Company further amended the terms of the Old
10-1/4% Notes to provide, among other things, that interest payments due on the
Old 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. In accordance with the amendment, the
Company elected to issue additional Old 10-1/4% Notes at the PIK Interest rate
of 13% for the November 1, 1994 interest payment. Interest continued to accrue
on the Old 10-1/4% Notes until the Petition Date. In addition, on June 10,
1994, the Company issued the Old Warrants initially to purchase up to an
aggregate of approximately 2 million shares of Old Common Stock (or
approximately 10% of the Old Common Stock outstanding after giving effect to the
exercise of such Old Warrants) to the holders of the Old 10-1/4% Notes. The Old
Warrants could be exercised on or prior to June 10, 1999, at an initial exercise
price of $1.00 per share of Old Common Stock. As of July 29, 1996, none of the
1994 Warrants had been exercised.
On October 18, 1994, the holders of all outstanding Old 10-1/4% Notes
(i) granted the Company the option to exchange the Old 10-1/4% Notes for shares
of Old Common Stock, representing approximately 70% of the Old Common Stock
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 Old 10-1/4% Notes and generally
subordinated the Company's obligations under the Old 10-1/4% Notes so that they
are junior to trade payables and certain other liabilities, subject to certain
exceptions. The Company could exercise its option to exchange the Old 10-1/4%
Notes on or prior to March 31, 1995. However, on March 27, 1995, the Company
received an extension from the holders of the Old 10-1/4% Notes to extend
indefinitely the time in which the Company may exercise its option to require
the holders to exchange their Old 10-1/4% Notes; provided, however, that a
majority of the holders of the Old 10-1/4% Notes may terminate such extension
upon 60 days notice to the Company. See "The Plan Of Reorganization -- Summary
Of Certain Other Provisions Of The Plan -- Compromise Of Subordination Disputes"
for a discussion of the treatment of such option.
Despite the foregoing, the Company's financial position continued to
deteriorate through its 1994 fiscal year. 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. In response to its deteriorating
financial condition, the Company determined that a more significant financial
and operational restructuring was necessary. Accordingly, on the Petition
Date, Lamonts commenced the Chapter 11 Case.
D. OPERATIONAL RESTRUCTURING AND NEW MANAGEMENT.
In the summer of 1994, the Board of Directors of Lamonts commenced a
nationwide search through a leading retail executive recruiter for a new Chief
Executive Officer. As a result, in October 1994, Lamonts offered the position
of Chairman and Chief Executive Officer to Alan Schlesinger, who was then
employed as the Senior Vice President/General Merchandise Manager at May Co.
Mr. Schlesinger joined Lamonts on November 22, 1994.
Mr. Schlesinger and his new management team immediately initiated an
aggressive plan to increase sales and eliminate old and less saleable inventory.
They developed and implemented new merchandising and marketing strategies and
buying disciplines designed to increase sales and improve operating margins.
These strategies included improving the quality of the goods offered while
maintaining Lamonts' traditional price points; reducing and eventually
eliminating low margin merchandise and departments; reducing inventory levels;
and increasing inventory turns. Lamonts also initiated a new policy to mark
down and clear out old and obsolete
17
<PAGE>
merchandise. The Company has refocused its merchandising strategy on casual
apparel and expects to continue to build its merchandise categories in the
Men's, Children's, Misses, and Special Sizes areas and to promote nationally
recognized brands. Further, aggressive actions were taken to decrease Lamonts'
operating costs.
Moreover, beginning in 1994 and continuing to date, Lamonts analyzed
the performance of each of its stores and determined that a number of stores
should be closed because of poor performance.
New management believes that Lamonts has made substantial progress in
the period since the filing of the Petition and that, if Lamonts is able to
emerge from Chapter 11 with the capital structure contemplated by the Plan and
the working capital financing contemplated by the Plan, it can succeed as a
profitable and successful business enterprise. Lamonts has served a
well-defined market niche in the Northwest for more than 30 years. It has a
large customer base and a loyal and dedicated work force. With its new
management and with the implementation of new management's merchandising and
marketing strategies, the Company believes that sales should continue to
improve. Although there can be no assurance that these efforts will be
successful, new management is confident that it can complete the turnaround of
Lamonts' business. See "Risk Factors."
E. DEBTOR-IN-POSSESSION ADMINISTRATION AND FINANCING.
Since the Petition Date, the Debtor and its representatives have been
involved in complying with applicable requirements of the Bankruptcy Code and
Bankruptcy Rules and of the United States Trustee. At all times since the
Petition Date, the Debtor has retained control of the operation and management
of its business and properties as Debtor in Possession.
Until June 4, 1996, the Company obtained its debtor in possession
financing from Foothill Capital Corporation ("Foothill"), which had previously
provided the Company's prepetition working capital financing. Pursuant to its
loan and security agreement with Foothill dated February 17, 1995 (the "Foothill
Facility"), the Company was able to borrow up to $32 million in revolving loans,
including up to $15 million of letters of credit. Borrowings under the Foothill
Facility, together with cash flow from operations, were used by the Company to
finance general working capital requirements, including purchases of inventory
and other expenditures permitted under the Foothill Facility. The Foothill
Facility was secured by inventory and certain other assets and was an allowed
administrative expense claim with priority over certain other administrative
expenses in the Chapter 11 Case. The Foothill Facility was extended from its
initial maturity date of May 17, 1996, and would have expired on the earlier of
(i) August 17, 1996, with provisions for two additional quarterly renewals, or
(ii) the effective date of a plan of reorganization.
In an effort to improve its liquidity, reduce its financing costs, and
obtain necessary post-confirmation financing, Lamonts, with the approval of the
Committees, established a new financing relationship with FNBB under which FNBB
would, among other things: (i) enhance the availability of funds to Lamonts,
primarily by increasing the inventory advance rates beyond those utilized under
the borrowing base formulas under the Foothill Facility; (ii) lend funds at a
significantly lower overall financing cost than under the Foothill Facility; and
(iii) commit to continue financing Lamonts not only during the Chapter 11 Case,
but also for a term of two years after confirmation of a plan of reorganization.
On June 4, 1996, the Company entered into the FNBB Facility after obtaining the
approval of the Bankruptcy Court and used a portion of the loan proceeds under
the FNBB Facility to fully repay its obligations to Foothill. For a detailed
description of the FNBB Facility, see "Description of FNBB Facility."
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F. NEGOTIATIONS WITH COMMITTEES.
Lamonts, with the assistance of its accountants and financial
advisors, Coopers & Lybrand, L.L.P., developed a detailed five-year business
plan and projections (the "Projections"). The Projections were distributed, on
a confidential basis, to the Committees and to their attorneys and accountants
in order to provide the basis for the parties' negotiation of a plan of
reorganization. The Projections were subsequently revised to reflect updated
results of operations and market trends.
Lamonts has, since the Petition Date, made every effort to establish a
constructive and cooperative relationship with the Committees and their members.
As a result, Lamonts and the Committees have been able to resolve all issues
between them that have arisen to date regarding the administration of this case
by discussions and without the need for judicial intervention. In those few
instances where there has been initial disagreement among Lamonts and the
Committees, matters have been satisfactorily resolved by discussions.
Accordingly, the parties have been free to focus their attention on the
negotiation of a plan of reorganization for the ultimate resolution of the
Chapter 11 Case.
After extensive discussions, the Debtor and the Committees have
negotiated a financial restructuring contemplating the satisfaction of General
Unsecured Claims with New Common Stock and New Warrants.
In the course of the Plan negotiations, the Unsecured Creditors'
Committee and the Bondholders' Committee contended that holders of Old Common
Stock should receive no consideration under any plan and that a plan could be
confirmed over the objection of the Equity Committee. The Equity Committee
denied that a plan could be confirmed without the acceptance of holders of Old
Common Stock. After due consideration of their respective litigation positions,
the Committees and the Debtor agreed upon a mutually-satisfactory treatment of
holders of Old Common Stock.
After these extensive negotiations, Lamonts and the Committees
ultimately reached agreement on the Plan, and all three Committees have approved
the Plan and recommend its acceptance by their respective constituencies.
V.
THE COMPANY
A. GENERAL.
The Company has been operating in the Northwest for almost thirty
years and is well known in the region as a retailer of nationally recognized
brand name apparel such as Levi, Liz Claiborne, Lee, Union Bay, Bugle Boy,
Jockey, Alfred Dunner, Koret, OshKosh, and Health-Tex. The Company's stores
average approximately 40,000 square feet and are generally located in top
quality shopping centers and high traffic malls. Since 1986, thirty-nine of the
Company's stores have completed either major or minor remodels.
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 Apparel from
LH Group, Inc., 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
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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 was, until May of 1996, located at 3650
131st Avenue, S.E., Bellevue, Washington 98006. In May 1996, as part of its
cost cutting efforts, the Company relocated its principal office to 12413
Willows Road N.E., Kirkland, WA 98034.
B. 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 42 stores in the following locations:
Alaska 7 Washington 24 Utah 1
- ---------------------- ------------------------------- ------------------
Anchorage: 3 stores Seattle area: 6 stores Logan
Fairbanks Bellevue/Eastside: 4 stores
Juneau Spokane: 3 stores
Soldotna Tacoma: 2 stores Montana 1
Wasilla Aberdeen ------------------
Marysville Missoula
Idaho 6 Moses Lake
- ---------------------- Olympia
Port Angeles Oregon 3
Coeur d'Alene Silverdale ------------------
Idaho Falls Tri-Cities Astoria
Lewiston Wenatchee Corvallis
Moscow Yakima Hillsboro
Pocatello
Twin Falls
Of the 42 stores, 17 are located in regional malls, 15 are located in
community malls, 4 are located in strip centers, and 6 are located in
free-standing locations.
All of the Company's operating stores (except one which is subject to
a ground lease) are currently located in leased facilities. The lease terms for
these facilities cover periods up to 30 years, with an average remaining term of
8 years, not including additional option periods. The Company has executed a
new lease for its principal office in Kirkland, Washington. The new lease,
which commenced May 1996, is for approximately 30,000 square feet and expires
May, 2006.
The Company's stores range in size from 20,000 to 85,000 square feet,
with a typical 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 Portland, Oregon
stores and all five Lamonts For Kids children's stores should be closed because
of poor performance. In
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October 1994, the Company closed an additional store in the greater Seattle area
as the lease was not renewed. Also, in connection with its operational
restructuring, the Company received permission from the Bankruptcy Court to
close six additional underperforming stores in early 1995. The six stores
closed were located in Vancouver, Everett and Lakewood, Washington; Medford,
Oregon; Ogden, Utah; and the downtown outlet center in Spokane, Washington.
The Company opened a new 36,000 square foot store in March 1995 in a
465,000 square foot shopping center in Issaquah, Washington. This is the
Company's fourth store in the eastside area of the Seattle market.
In January 1996, the Company received permission from the Bankruptcy
Court to close an underperforming store located in Eugene, Oregon, and the
Company conducted going out of business sales at this store through March 1996.
The Company attempted to market the building, which it owned, but was unable to
locate a purchaser, and ownership of the building reverted to the owner of the
underlying land.
In February 1996, the Company entered into a sale-leaseback
transaction involving the land and building at the Company's Alderwood store in
Washington. The Company sold the property for $5 million and leased the
property back for a 20 year period, plus option terms.
The Company has an arrangement with Distribution Center Systems, Inc.
which 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 the lease of the distribution center located in Kent, Washington.
The lease has remaining future minimum rents of approximately $0.3 million per
year and expires February 1998.
Management is continually evaluating store locations and operations to
determine whether to close, downsize, or relocate stores that do not meet
performance objectives. Management has decided to close four underperforming
stores effective December 31, 1996: Hillsboro, Oregon; University City
(Spokane), Washington; Twin Falls, Idaho; and Missoula, Montana. Management has
no current plans to close any of the 38 Lamonts stores which will remain on the
Effective Date.
C. PURCHASING.
The Company's centralized buying organization includes general
merchandise managers, divisional merchandise managers and buyers responsible for
maintaining vendor relationships. New management teams within the merchandising
departments have been assembled over the last 15 months. In addition, the
Company's membership in Frederick Atkins, Inc. ("Atkins") provides it with group
buying opportunities on domestic merchandise, industry research, and the ability
to use Atkins' private label import program. 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 1,700 vendors
and is not dependent on any single source of supply. The Company maintains no
long term commitments with any supplier and believes that 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 highly
dependent upon its ability to obtain trade credit.
D. DISTRIBUTION.
The Company utilizes a 100,000 square foot, contractor-operated
distribution center dedicated to the Company for centralized receiving and
marking (ticketing). Through its distribution
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center, the Company is 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 effectively, reduce receiving and marking
expenses, reduce related transportation costs, improve inventory control, and
reduce inventory shrinkage. The lease of this distribution center, which
expires in February 1998, is guaranteed by the Company.
E. STORE OPERATIONS.
The Company's store management team consists of a senior vice
president, four regional directors, and 38 store managers. The four regional
directors also serve as 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 23 to 40 people,
including the store manager, two to four area sales managers, and 20 to 35 sales
clerks, approximately one-half of whom are part-time.
F. EMPLOYEES.
The Company employs approximately 1,600 employees, approximately
one-half of whom are part-time. Approximately 385 employees working in Seattle,
Washington stores are represented by the United Food and Commercial Workers
Union pursuant to a contract that expires the earlier of June 11, 1997 or seven
months following emergence from Chapter 11. Approximately 39 employees work in
the Wenatchee, Washington store and are represented by the United Food and
Commercial Workers Union; they have no negotiated bargaining agreement and the
employees work under the same working conditions as the Company's non-union
employees. There are approximately 20 employees working in the Seattle
corporate office who are represented by the United Food and Commercial Workers
Union pursuant to an employee ratified agreement that expires the earlier of
March 31, 1998 or seven months following emergence from Chapter 11. Management
believes that its employee relations are good.
G. COMPETITION.
Lamonts competes with other specialty retail apparel stores,
department stores and discount/mass merchandisers on the basis of product range,
quality, fashion, price, and service. The Company differentiates itself from
its competitors by positioning itself as a focused specialty retailer with
emphasis on casual wear and high quality branded products, including denim.
Lamonts has also been promoting its recently introduced private label "Northwest
Outfitters". Principal competitors in one or more of the Company's market areas
include The Bon Marche (a division of Federated Stores, Inc.), Nordstrom, J.C.
Penney Co., Inc., Sears Roebuck and Company, and Mervyn's (a division of
Dayton-Hudson Corporation). Many of the Company's competitors have
substantially greater financial resources than the Company.
H. 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.
I. 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 500,000 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
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Company believes that its proprietary charge card program provides additional
benefits in two areas: (i) the creation of customer loyalty, and
(ii) enhancement of target marketing by providing demographic and purchasing
behavior information on customers.
The Company's proprietary charge card, administered and owned by
National City Bank, 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, 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 has elected to
pass such increase in the minimum fee on to its charge card 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. Additionally, the Company is responsible for 50% of the net
bad debt expense. The agreement with National City may be terminated without
cause by either party after June 22, 1999, with 180 days prior written notice.
The agreement with National City may be terminated by the Company for cause
immediately without further action if National City defaults in the performance
of or compliance with any term contained in the agreement and such default is
not remedied within 30 days after written notice. Legal counsel for the Company
are reviewing the Company's rights, including without limitation potential
termination, under the agreement and the status of the agreement resulting from
potential defaults by National City. The Company paid National City $0.9
million for bad debt expense and $0.5 million in fees during Fiscal 1995.
J. 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.
K. SEASONALITY.
The Company's sales are seasonal, with the Christmas Season being its
strongest quarter. The table below sets forth the effect of seasonality on the
Company's business for its 1995 fiscal year and the comparable prior year
period. Revenues by quarter in the comparable prior year period have been
restated to conform with the current year presentation, after the Company's
change in fiscal year to the Saturday closest to January 31.
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1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
------- ------- ------- ------- -----
(dollars in thousands)
Twelve months ended
Feb. 3, 1996
Revenues $36,682 $47,711 $49,802 $65,353 $199,548
%Contribution 18.4% 23.9% 24.9% 32.8%
Twelve months ended
Jan. 28, 1995
Revenues $48,503 $54,994 $56,688 $71,014 $231,199
% Contribution 21.0% 23.8% 24.5% 30.7%
L. INFLATION.
The primary items affected 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.
M. 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.
N. PROMOTION AND MARKETING.
Sales promotion and inventory allocation decisions are made centrally
by Lamonts' corporate staff. The Company generally maintains uniformity with
respect to inventory, pricing decisions, selection of promotional goods, and
markdown policies throughout all of its locations.
Lamonts advertises primarily through radio, television, newspaper
inserts, direct mail, and charge statement inserts. The Company's promotional
strategy is to target specific merchandise products and consumer groups,
including holders of its proprietary credit card, for sale events.
O. SHOE LICENSEE.
In May 1995, the Company replaced its previous licensee for its family
shoe department with a new license with Shoe Corporation of America. Sales of
the licensee approximated 6% of the Company's 1995 fiscal year revenues, but are
not reflected in such revenues for financial reporting purposes because income
derived by the Company from the rental fees charged to the licensee is reported
as an offset to operating expenses.
P. CHANGE IN FISCAL YEAR.
On March 9, 1995, the Company elected to change its fiscal year end
from the Saturday closest to October 31 to the Saturday closest to January 31 in
order to enhance comparability of the Company's results of operations with other
apparel retailers.
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Q. LEGAL PROCEEDINGS.
The Company is from time to time involved in routine litigation
incidental to the conduct of its business. Attached as Annex D is a listing of
all litigation pending or threatened against the Company as of the date hereof.
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 Debtor, could have a material effect upon the
distributions under the Company's plan of reorganization by increasing the total
amount of Allowed General Unsecured Claims.
VI.
THE PLAN OF REORGANIZATION
The Plan is the result of substantial negotiations among the Company
and the Committees. The Debtor and the Committees believe that, through the
Plan, the holders of impaired Claims and holders of Old Common Stock will obtain
a substantially greater recovery than would be available if the Debtor's assets
were liquidated under the Bankruptcy Code or if any other feasible alternatives
were pursued. The Debtor and the Committees further believe that the Plan will
afford the Company the opportunity and ability to continue in business as a
going concern, thereby benefiting creditors, shareholders, employees, vendors,
other parties in interest, customers, and the general public.
THE DEBTOR BELIEVES THAT THE PLAN PROVIDES THE BEST FEASIBLE
RECOVERIES TO THE HOLDERS OF IMPAIRED CLAIMS AND TO THE HOLDERS OF OLD COMMON
STOCK AND THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF SUCH HOLDERS.
THE DEBTOR THEREFORE RECOMMENDS THAT HOLDERS OF IMPAIRED CLAIMS AND HOLDERS OF
OLD COMMON STOCK VOTE TO ACCEPT THE PLAN.
THE UNSECURED CREDITORS' COMMITTEE AND THE BONDHOLDERS' COMMITTEE HAVE
APPROVED THE PLAN AND RECOMMEND ACCEPTANCE OF THE PLAN BY HOLDERS OF GENERAL
UNSECURED CLAIMS.
THE EQUITY COMMITTEE HAS APPROVED THE PLAN AND RECOMMENDS ACCEPTANCE
OF THE PLAN BY HOLDERS OF OLD COMMON STOCK.
THE SUMMARY OF THE PLAN SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE MORE DETAILED PROVISIONS SET FORTH IN THE PLAN, THE TERMS OF
WHICH ARE CONTROLLING. The Plan is attached hereto as Annex A and forms a part
of this Disclosure Statement. Capitalized terms used but not defined herein
shall have the meanings ascribed thereto in the Plan.
A. GENERAL.
In accordance with the Bankruptcy Code, the Plan classifies Claims and
Equity Interests separately and provides, separately for each class, either that
the Claims or Equity Interests in such class are unimpaired or that holders of
such Claims or Equity Interests will receive various types of consideration
(such as restructured obligations, New Common Stock, New Warrants and/or cash),
thereby giving effect to the different rights of the holders of Claims and
Equity Interests of each class. The treatment of Allowed Claims under the Plan
will be in full settlement, satisfaction, and discharge of all such Claims. On
the Effective Date, the Debtor will be discharged from all Claims that have
arisen before confirmation of the Plan, except for payments, distributions, and
obligations provided for in the Plan or in the Confirmation Order.
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B. UNCLASSIFIED CLAIMS.
1. ADMINISTRATIVE EXPENSES.
Administrative Expenses are costs or expenses of administration of the
Chapter 11 Case allowed under Sections 503(b) and 507(a)(1) of the Bankruptcy
Code. These Claims include, but are not limited to, (i) actual and necessary
postpetition costs and expenses of preserving the Debtor's estate, (ii) actual
and necessary postpetition costs and expenses of operating the Debtor's
business, (iii) postpetition indebtedness or obligations duly incurred or
assumed by the Debtor in Possession in connection with the conduct of its
postpetition business or for the postpetition acquisition or lease of property
or the rendition of postpetition services, (iv) any compensation and
reimbursement of expenses to the extent allowed under section 330, 331, or 503
of the Bankruptcy Code, and (v) fees or charges assessed against the Debtor's
estate under section 1930 of title 28 of the United States Code.
In general, under the Plan, each holder of an Allowed Administrative
Expense will be paid in full as soon as practicable after the later of (a) the
Effective Date and (b) the date such Administrative Expense becomes an Allowed
Administrative Expense, unless such holder agrees to a different treatment.
However, any Allowed Administrative Expenses representing liabilities incurred
in the ordinary course of postpetition business by the Debtor in Possession
(including postpetition trade obligations, routine postpetition payroll
obligations, and postpetition tax obligations) will be assumed and paid by the
Reorganized Debtor in the ordinary course of business in accordance with the
terms and conditions of the particular transactions and any agreements relating
thereto.
All payments to professionals for compensation in respect of services
rendered prior to the Effective Date and for reimbursement of expenses incurred
in connection therewith will be made in accordance with the procedures
established by the Bankruptcy Code and the Bankruptcy Rules relating to the
payment of interim and final compensation and expenses. The Bankruptcy Court
will review and determine all such requests for compensation and reimbursement
of expenses.
The Debtor expects that the following professionals employed in the
Chapter 11 Case will seek the approval of the Bankruptcy Court pursuant to
Section 503(b)(2) of the Bankruptcy Code of compensation or reimbursement of
expenses:
Andrews & Kurth L.L.P. Counsel for Equity Committee
Bogle & Gates P.L.L.C. Local Counsel for Bondholders' Committee
Coopers & Lybrand L.L.P. Accountants and Financial Advisors for Debtor
in Possession
Davis Wright Tremaine Local Counsel for Equity Committee
Ernst & Young, L.L.P. Accountants and Financial Advisors for
Unsecured Creditors' Committee
Farleigh, Wada & Witt, P.C., Oregon Counsel for Debtor in Possession
and Black, Helterline
Goodwin, Procter & Hoar L.L.P. Counsel for Bondholders' Committee
Graham & James L.L.P./ Local Counsel for Unsecured Creditors'
Riddell Williams P.S., and Committee
Stoel Rives L.L.P.
Ryan, Swanson & Cleveland Counsel for Debtor in Possession
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Siegel, Sommers & Schwartz L.L.P. Counsel for Unsecured Creditors' Committee
Skadden, Arps, Slate, Meagher Special Corporate Counsel for Debtor in
& Flom Possession
Stutman, Treister & Glatt Special Reorganization Counsel for Debtor in
Professional Corporation Possession
Thomas, Head & Greisen Alaska Accountants for Debtor in Possession
Young, Sanders & Feldman Alaska Counsel for Debtor in Possession
The Debtor estimates that the aggregate amount of all interim and
final allowances of compensation and reimbursement of expenses of the foregoing
professionals during the Chapter 11 Case will be approximately $4,800,000, of
which approximately $4,300,000 will have been paid as interim compensation (or
retainers applied to interim compensation) prior to the Effective Date. Actual
allowances will be as determined by the Bankruptcy Court.
In accordance with the "Stipulation re Employment of Gordian Group,
L.P.; and Order Thereon" (the "Gordian Stipulation") which was approved by the
Bankruptcy Court on October 11, 1996, Gordian Group, L.P. ("Gordian") will be
issued, on the 120th calendar day following the Effective Date, in exchange for
its Administrative Expense Claims for compensation for services rendered as
investment banker for the Debtor in Possession, warrants (the "Gordian
Warrants") for the purchase of New Common Stock. The term of the Gordian
Warrants will be 5 years from their issuance date. The number of shares of New
Common Stock for which the Gordian Warrants will be exercisable in the aggregate
will be equal to 200,000 divided by the "Normalized Share Price." The exercise
price will be the Normalized Share Price per share. The Normalized Share Price
will be equal to the average of the "Closing Prices" of New Common Stock for the
45 trading days commencing on the 45th calendar day following the Effective
Date. For purposes of determining the Normalized Share Price, the Closing Price
will mean (i) the closing sales price per share on the national securities
exchange on which the New Common Stock is principally traded, or (ii) if the
shares are then traded in an over-the-counter market, the average of the closing
bid and asked prices on such market, or (iii) if the shares are not then traded
on a national securities exchange or in an over-the-counter market, then such
value as the Board of Directors of the Reorganized Debtor shall in good faith
reasonably determine; if Gordian disagrees with such determination, then an
investment banking firm shall be mutually agreed upon, engaged, and compensated
by the Reorganized Debtor for a definitive determination of the Normalized Share
Price. The Plan provides that the securities law exemption of section 1145 of
the Bankruptcy Code will apply to the Gordian Warrants and the securities issued
upon the exercise thereof. The Gordian Warrants will be governed in all
respects by the Gordian Warrant Agreement substantially in the form set forth in
the Plan Documentary Supplement and by the Gordian Stipulation. The obligations
of the Debtor and Gordian under the Gordian Stipulation will survive
confirmation of the Plan and will continue in effect after the Effective Date.
The Debtor has been advised by Bankers Trust Company ("BT"), a
member of the Bondholders' Committee and the Indenture Trustee for the Old
13 1/2% Notes, that it intends to file a Claim for an Administrative Expense
pursuant to section 503(b) of the Bankruptcy Code based upon its making a
substantial contribution in the Chapter 11 Case. BT has agreed to reduce
significantly the Claim which it might otherwise assert to $16,000, and the
Debtor and the Committees have advised BT that they do not intend to object
to such reduced amount. BT has advised the Debtor that, if such
Administrative Expense is allowed, BT does not intend to assert a charging
lien upon the New Common Stock to be distributed pursuant to the Plan to
holders of Old 13 1/2% Notes.
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All quarterly fees due and payable to the Office of the United States
Trustee pursuant to section 1930(a)(6) of title 28 of the United States Code
will be duly paid in full on or before the Effective Date, as required by
section 1129(a)(12) of the Bankruptcy Code. Lamonts projects that $5,000 will
be payable to the Office of the United States Trustee for the quarter including
the Effective Date. The Reorganized Debtor will remain responsible for timely
payment of such quarterly fees due and payable after the Effective Date pursuant
to section 1930(a)(6) of title 28 of the United States Code. After the
Effective Date and until the Chapter 11 Case is closed, the Reorganized Debtor
will file with the Office of the United States Trustee required monthly
financial reports including a statement of all disbursements, whether or not
pursuant to the Plan.
2. PRIORITY TAX CLAIMS.
Priority Tax Claims include the Allowed Claims of governmental units
entitled to a priority in right of payment under Section 507(a)(8) of the
Bankruptcy Code. The Debtor estimates that the aggregate amount of Allowed
Priority Tax Claims will be in the range of $960,000 to $1,120,000.
Pursuant to the Plan, each Allowed Priority Tax Claim, except the
Deferred Payment Tax Claims listed on Exhibit D to the Plan, will be paid in
full, in cash, on the Effective Date or as soon thereafter as is practicable,
except to the extent the holder of such Claim agrees to a different treatment or
specifies a later payment date. Each Deferred Payment Tax Claim listed on
Exhibit D to the Plan will be satisfied by the Reorganized Debtor in deferred
Cash payments, over a period not exceeding six years after the date of
assessment of such Claim, of a value, as of the Effective Date, equal to the
amount of such Allowed Priority Tax Claim, as provided in section 1129(a)(9)(C)
of the Bankruptcy Code. Each Deferred Payment Tax Claim will be paid in equal
installments of principal, with the first of such installments to be made three
months after the later of (i) the Effective Date and (ii) the date on which an
order allowing such Claim becomes a Final Order, and with each successive
installment to be made at three month intervals thereafter. Interest will
accrue on the unpaid principal balance of such Claim from and after the
Effective Date at the simple interest rate specified by the applicable tax law
for delay in the payment of taxes, without penalty, unless a different rate is
specified by the Bankruptcy Court after notice thereof to the claimant and a
hearing, and will be payable in arrears at the time of payment of each principal
installment. Any Deferred Payment Tax Claim may be prepaid at any time without
penalty or premium, and any such prepayments will be applied to future principal
installments in order of maturity. Allowed Priority Tax Claims will not include
any interest accruing subsequent to the Petition Date or any penalties, and all
postpetition interest and all penalties will be disallowed.
C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.
1. CLASS 1 - OTHER PRIORITY CLAIMS.
Class 1 Claims are any Claims against the Debtor entitled to priority
in accordance with Section 507(a) of the Bankruptcy Code (other than Priority
Tax Claims and Administrative Expenses) and include, among others:
(a) unsecured Claims for accrued employee compensation earned within 90 days
prior to the Petition Date, to the extent of $4,000 per employee;
(b) contributions to employee benefit plans arising from services rendered
within 180 days prior to the Petition Date, but only for such plans to the
extent of (i) the number of employees covered by such plans multiplied by
$4,000, less (ii) the aggregate amount paid to such employees from the estate
for wages, salaries or commissions; and (c) Claims by individual consumer
customers in respect of deposits for goods, in an amount of up to $1,800 per
individual.
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Pursuant to the Plan, Allowed Claims in Class 1 are to be paid in cash
in full on the Effective Date or as soon as practicable thereafter, except to
the extent the holder agrees to a different treatment. The Debtor was previously
authorized by the Bankruptcy Court to honor certain of such employee and
customer claims in the ordinary course of business. The Debtor estimates that
the aggregate amount of remaining Allowed Other Priority Claims will not exceed
$16,000.
2. CLASS 2 - FNBB CLAIM.
The Class 2 Claim is the Claim of FNBB under the FNBB Facility. Under
the Plan, the FNBB Claim, including without limitation any unpaid accrued
interest, fees, costs, and charges, will be paid in accordance with all of the
provisions of the FNBB Facility, and all of the legal, equitable, and
contractual rights to which FNBB is entitled under the FNBB Facility will be
left unaltered. The Debtor projects that, as of the Effective Date, the
estimated outstanding amount of the Class 2 Claim will be approximately
$20,500,000. Under the terms of the FNBB Facility, the Debtor is required to
obtain FNBB's approval of the Plan.
FNBB is to provide post-Effective Date secured working capital
financing for the Reorganized Debtor on the terms and conditions set forth in
the FNBB Facility. See "Description of FNBB Facility."
3. CLASS 3 - OTHER SECURED CLAIMS.
Class 3 consists of all Allowed Secured Claims, other than the FNBB
Claim. Under the Plan, any defaults with respect to an Allowed Other Secured
Claim, other than defaults of a kind specified in section 365(b)(2) of the
Bankruptcy Code, will be cured on the Effective Date; the maturity of each such
Claim will be reinstated as the maturity existed before any defaults; the holder
of each such Claim will be compensated on the Effective Date for any damages
incurred as a result of any reasonable reliance by such holder on any
contractual provision or applicable law that entitled the holder to accelerate
maturity of the Claim; and the other legal, equitable, and contractual rights of
the holder of such Allowed Other Secured Claim will not be otherwise altered.
Certain personal property lease obligations may be construed to be Other Secured
Claims. In such event, the Debtor estimates that the aggregate outstanding
amount of Allowed Claims in Class 3, as of the Effective Date, will be in the
range of $150,000 to $200,000.
4. CLASS 4 - GENERAL UNSECURED CLAIMS.
Class 4 consists of the Allowed General Unsecured Claims. General
Unsecured Claims are all allowed unsecured Claims other than Administrative
Expenses, Priority Tax Claims, and Other Priority Claims, and include, without
limitation, (a) Claims of trade creditors for goods and services provided to the
Debtor prior to the Petition Date, (b) Claims of holders of Old 10-1/4% Notes,
(c) Claims of holders of Old 13-1/2% Notes, and (d) Claims of parties to
executory contracts and unexpired leases which are rejected by the Debtor. The
latter category includes any Allowed Claims of the lessors under rejected leases
of stores closed by the Debtor. The Debtor estimates that the aggregate
outstanding amount of Allowed Claims in Class 4, as of the Effective Date, will
be in the range of $89,900,000 to $95,400,000.
Under the Plan, on the Effective Date or as soon thereafter as is
practicable, each holder of an Allowed General Unsecured Claim will receive, in
exchange for and satisfaction of such Claim, all of the following: (i) its Pro
Rata Share of 8,800,000 shares of New Common Stock (representing approximately
97.78% of the primary shares of New Common Stock which will be issued and
outstanding as of the Effective Date or approximately 65.98% of the fully
diluted shares of New Common Stock assuming exercise of all New Warrants and all
New Employee Stock Options), (ii) its Pro Rata Share of New Class A Warrants
exercisable for the purchase of 2,203,320 shares of New Common Stock
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(representing a number of shares equal to approximately 24.48% of the primary
shares of New Common Stock which will be issued and outstanding as of the
Effective Date or approximately 16.52% of the fully diluted shares of New Common
Stock assuming exercise of all New Warrants and all New Employee Stock Options),
and (iii) its Pro Rata Share of New Class B Warrants exercisable for the
purchase of 700,237 shares of New Common Stock (representing a number of shares
equal to approximately 7.78% of the primary shares of New Common Stock which
will be issued and outstanding as of the Effective Date or approximately 5.25%
of the fully diluted shares of New Common Stock assuming exercise of all New
Warrants and all New Employee Stock Options). See "Common Stock Ownership --
Dilution." Also see "Capitalization," "Description of New Common Stock," and
"Description of New Warrants."
A portion of the securities otherwise distributable to certain
specified holders of Allowed General Unsecured Claims will instead be
distributed to certain other specified holders of Allowed General Unsecured
Claims who are entitled to the benefits of settlements under the Plan of
disputes regarding subordination provisions of the respective indentures
governing the Old 10-1/4% Notes and the Old 13-1/2% Notes. See "Summary of
Certain Other Provisions of the Plan - Compromise of Subordination Disputes."
As of the Effective Date, in conjunction with the issuance to holders
of General Unsecured Claims of the New Common Stock and New Warrants, the Grant
of Registration Rights contained in the Plan Documentary Supplement will be
deemed an obligation of the Reorganized Debtor.
5. CLASS 5 - OLD COMMON STOCK.
Class 5 consists of the Allowed Equity Interests of holders of Old
Common Stock. Under the Plan, on the Effective Date or as soon thereafter as is
practicable, each holder of record as of the Effective Date of an Allowed Equity
Interest will receive, in exchange for and satisfaction of such Equity Interest,
both of the following: (i) its Pro Rata Share of 200,000 shares of New Common
Stock (representing approximately 2.22% of the primary shares of New Common
Stock which will be issued and outstanding as of the Effective Date or
approximately 1.50% of the fully diluted shares of New Common Stock assuming
exercise of all New Warrants and all New Employee Stock Options), and (ii) its
Pro Rata Share of New Class B Warrants exercisable for the purchase of 100,000
shares of New Common Stock (representing a number of shares equal to
approximately 1.11% of the primary shares of New Common Stock which will be
issued and outstanding as of the Effective Date or approximately 0.75% of the
fully diluted shares of New Common Stock assuming exercise of all New Warrants
and all New Employee Stock Options). See "Common Stock Ownership -- Dilution."
Also see "Capitalization," "Description of New Common Stock," and "Description
of New Warrants."
As of the Effective Date, in conjunction with the issuance to holders
of Old Common Stock of the New Common Stock and New Warrants, the Grant of
Registration Rights contained in the Plan Documentary Supplement will be deemed
an obligation of the Reorganized Debtor.
Holders of Old Employee Stock Options and holders of Old Warrants who,
in each case, shall have exercised prior to the Effective Date such holders'
rights to purchase Old Common Stock in accordance with the provisions of such
Old Employee Stock Options or Old Warrants, as the case may be, will be treated
under the Plan with respect to the Old Common Stock so purchased in the manner
specified in the Plan for the treatment of holders of Old Common Stock. Holders
of unexercised Old Employee Stock Options or unexercised Old
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Warrants will receive no consideration under the Plan, and all such Old Employee
Stock Options and Old Warrants unexercised as of the Effective Date will be
rejected.
D. SUMMARY OF CERTAIN OTHER PROVISIONS OF THE PLAN.
1. COMPROMISE OF SUBORDINATION DISPUTES.
The Plan provides for the compromise of the disputes regarding the
application and effect of the respective subordination provisions of both the
indenture, as amended, for the Old 10-1/4% Notes (the "Old 10-1/4% Indenture"),
and the indenture, as amended, for the Old 13-1/2% Notes (the "Old 13-1/2%
Indenture"). A complete resolution, by litigation, of these controversies and
disputes would be time-consuming and expensive, and the value of Lamonts' estate
would likely deteriorate substantially as a result. After extensive
negotiations, the parties have agreed to settle these disputes on the terms set
forth in the Plan.
The Old 10-1/4% Indenture provides, in relevant part, as follows:
"All principal of, premium, if any, and interest on the Notes . . . shall
be and hereby are expressly made subordinate and junior in right of payment
to all Senior Claims . . . to the extent and in the manner provided in
these subordination provisions. . . ."
In the event of insolvency proceedings, the Old 10-1/4% Indenture
provides, in relevant part:
"All Senior Claims shall be paid in full . . . before any payment or
distribution, whether in cash, securities or other property, shall be made
to any holder of [Old 10-1/4% Notes] on account of such [Notes] (excluding
payments made with Junior Securities)."
"Junior Securities" are defined by the Old 10-1/4% Indenture as
including "Capital Stock."
The Old 10-1/4% Indenture defines "Senior Claims" as follows:
" '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."
The representatives of holders of Senior Claims have contended that
holders of Senior Claims are entitled to payment in full before any
consideration can be distributed to holders of Old 10-1/4% Notes; the
representatives of holders of Old 10-1/4% Notes have contended that the shares
of New Common Stock constitute Junior Securities under the Old 10-1/4% Indenture
and, therefore, are excluded from the operation of the subordination provisions.
In order to resolve the ongoing disputes between the holders of Senior
Claims and the holders of Old 10-1/4% Notes, and in full settlement and
satisfaction of all subordination rights claimed by holders of all Claims which
constitute Senior Claims, (i) a portion of the New Common Stock otherwise
distributable as of the Effective Date to the holders of Old 10-1/4% Notes
absent this compromise will instead be distributed on a pro rata basis to
holders of Allowed Senior Claims to the extent that holders of Allowed Senior
Claims will receive, in the aggregate, the number of shares of New Common Stock
set forth in Exhibit E to the Plan, and (ii) all New Class A Warrants and New
Class B Warrants otherwise
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distributable to the holders of Senior Claims absent this compromise will
instead be distributed on a pro rata basis to holders of Old 10-1/4% Notes.
Thus, the effect of the compromise will be that the holders of Old 10-1/4% Notes
will receive fewer, and the holders of Allowed Senior Claims will receive more,
shares of the New Common Stock to be issued as of the Effective Date than they
would absent this compromise; and the New Warrants will be issued to holders of
Old 10-1/4% Notes rather than to holders of Allowed Senior Claims so that
holders of Allowed Senior Claims will not receive any of the New Warrants. This
compromise takes fully into account the relative priorities of the Claims
affected in connection with the contractual subordination provisions relating to
the Old 10-1/4% Notes. Accordingly, all holders of Claims will be deemed, as of
the Effective Date, to have waived any and all contractual subordination rights
which they might otherwise have with respect to the Old 10-1/4% Notes and the
Old 10-1/4% Indenture and shall be deemed, as of the Effective Date, permanently
enjoined from enforcing or attempting to enforce any such rights with respect to
the distributions under the Plan to the holders of the Old 10-1/4% Notes. In
addition, this compromise takes fully into account the Debtor's right, if any,
to exercise the previously granted option to exchange preferred and common stock
for the Old 10-1/4% Notes.
Exhibit E to the Plan specifies the number of shares of New Common
Stock to which holders of allowed Senior Claims will be entitled under the terms
of the compromise. That number will vary, depending upon the total amount of
Senior Claims actually allowed in the Chapter 11 Case. The Debtor's best
estimate is that approximately $14,000,000 to $16,500,000 in Senior Claims will
ultimately be allowed, based upon the Debtor's analysis of the proofs of claim
which have been timely filed in the Chapter 11 Case and a comparison of such
proofs of claim to the Company's own books and records. If the Debtor's
estimate proves to be accurate, then the aggregate number of shares to which
holders of Allowed Senior Claims would be entitled as set forth on Exhibit E
would be either 4,800,000 or 4,970,000. However, there can be no assurance that
the Debtor's estimate will accurately predict the actual total amount of Senior
Claims which will ultimately be allowed by the Bankruptcy Court.
For purposes of the implementation of the compromise of the
subordination disputes regarding the Old 10-1/4% Indenture, Annex C to this
Disclosure Statement specifies those Claims that have been filed or are deemed
filed in the Chapter 11 Case which will, to the extent ultimately allowed, be
treated as Allowed Senior Claims. If any party in interest contends that Annex
C to this Disclosure Statement is incorrect or incomplete, such party must file
with the Bankruptcy Court and serve upon counsel for the Debtor and each of the
Committees a written statement and an accompanying declaration in support
thereof specifying the alleged error or omission in Annex C, no later than 31
calendar days before the date scheduled for the commencement of the Confirmation
Hearing. Failure timely to file and serve such statement will result in the
determination that those Claims specified in Annex C to this Disclosure
Statement as Senior Claims constitute all of the Senior Claims and will, to the
extent allowed, be treated as Allowed Senior Claims under Section V.E.1 of the
Plan. The Debtor and the Committees reserve the right to object to any response
filed by any party in interest, and any disputes with respect to whether a Claim
constitutes an Allowed Senior Claim will be resolved by the Bankruptcy Court.
The Old 13-1/2% Indenture provides, in relevant part, as follows:
"The Company agrees, and each [holder of Old 13-1/2% Notes] by accepting
[an Old 13-1/2% Note] agrees, that the indebtedness evidenced by the [Old
13-1/2% Notes] is subordinated in the right of payment to the extent and in
the manner provided in [Article 10 of the Old 13-1/2% Indenture] to the
prior payment in full in cash of all Senior Indebtedness of the Company,
and that the
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subordination is for the benefit of the holders of Senior Indebtedness of
the Company."
The Old 13-1/2% Indenture defines "Senior Indebtedness", in relevant
part, as follows:
" 'Senior Indebtedness of the Company' means all Indebtedness (present or
future) created, incurred, assumed or guaranteed by the Company (and all
renewals, extensions or refundings thereof) including, without limitation,
Indebtedness incurred, and all fees, expenses and other obligations
payable, pursuant to the BNY Revolving Credit Agreement and all renewals,
extensions and refundings thereof, unless the instrument under which such
Indebtedness is created, incurred, assumed or guaranteed expressly provides
that such Indebtedness is not senior or superior in right of payment to the
[Old 13-1/2% Notes]. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness of the Company shall not include . . . any
Indebtedness incurred for the purchase of goods or materials or for
services obtained in the ordinary course of business and which constitutes
a trade payable."
In order to resolve the ongoing disputes between the holders of Senior
Indebtedness and the holders of Old 13-1/2% Notes, and in full settlement and
satisfaction of all subordination rights claimed by holders of Allowed Claims
which constitute Senior Indebtedness, (i) only 16,500 shares of New Common Stock
distributable as of the Effective Date to holders of Old 13-1/2% Notes will be
retained by the holders of Old 13-1/2% Notes, (ii) all other shares of New
Common Stock otherwise distributable as of the Effective Date to the holders of
Old 13-1/2% Notes absent this compromise will instead be distributed on a pro
rata basis to holders of Allowed Senior Indebtedness, and (iii) all New Class A
Warrants and New Class B Warrants otherwise distributable to the holders of Old
13-1/2% Notes absent this compromise will instead be distributed on a pro rata
basis to holders of Allowed Senior Indebtedness. This compromise takes fully
into account the relative priorities of the Claims affected in connection with
the contractual subordination provisions relating to the Old 13-1/2% Notes.
Accordingly, all holders of Claims will be deemed, as of the Effective Date, to
have waived any and all contractual subordination rights which they might
otherwise have with respect to the Old 13-1/2% Notes and the Old 13-1/2%
Indenture, and will be deemed, as of the Effective Date, permanently enjoined
from enforcing or attempting to enforce any such rights with respect to the
distributions under the Plan to the holders of the Old 13-1/2% Notes.
For purposes of the implementation of the compromise of the
subordination disputes regarding the Old 13-1/2% Indenture, only the Claims of
the holders of Old 10-1/4% Notes will be treated as Allowed Senior Indebtedness.
If any party in interest contends that such treatment is incorrect or that any
other Claims constitute Allowed Senior Indebtedness, such party must file with
the Bankruptcy Court and serve upon counsel for the Debtor and each of the
Committees a written statement and an accompanying declaration in support
thereof specifying the alleged error or omission, no later than 31 calendar days
before the date scheduled for the commencement of the Confirmation Hearing.
Failure timely to file and serve such statement will result in the determination
that only the Allowed Claims of holders of Old 10-1/4% Notes constitute Senior
Indebtedness and will be treated as Allowed Senior Indebtedness under Section
V.E.2 of the Plan. The Debtor and the Committees reserve the right to object to
any response filed by any party in interest, and any disputes with respect to
whether a Claim constitutes Allowed Senior Indebtedness will be resolved by the
Bankruptcy Court.
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In considering the proposed compromises, the Bankruptcy Court must
evaluate (i) the probability of success in the litigation; (ii) the
difficulties, if any, to be encountered in the matter of collection; (iii) the
complexity of the litigation involved, and the expense, inconvenience and delay
necessarily attending to it; and (iv) the paramount interest of the creditors
and a proper deference to their reasonable views in the premises.
In the present case, all four factors for Bankruptcy Court approval of
the compromises are satisfied:
(i) Probability of success. The parties have evaluated the
probability of success, the merits of the litigation, and the risks inherent
with litigation. Based upon their analysis, the parties have determined that
the settlements reached are reasonable in light of the prospects of success in
litigation. There is no guarantee that the either side would prevail.
Additionally, any litigation with respect thereto would be expensive and time
consuming and not in the best interest of the estate.
(ii) Difficulties with collection. Collection is not a
factor; therefore this element is not applicable.
(iii) Complexity of the litigation. The issues involved are
complex and would involve protracted litigation. Such litigation would
undoubtedly delay confirmation of a consensual plan. Thus, approval of the
compromises will avoid the time, delay, and expenses attendant to such
litigation.
(iv) Interests of Creditors. Upon resolution of the claims,
the disputes between the parties will have been resolved, and the Debtor will be
able to facilitate the orderly implementation of the Plan. In order to obviate
any further delays, the Debtor believes that the compromises are in the best
interest of the creditors. Moreover, the Committees have negotiated and
approved the compromises.
Lamonts submits that, under the applicable standards as more
specifically set forth above, the compromises proposed in the Plan should be
approved.
2. EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
Subject to the approval of the Bankruptcy Court, the Bankruptcy Code
empowers the Debtor in Possession to assume, assume and assign, or reject
executory contracts and unexpired leases. As a general matter, an "executory
contract" is a contract under which material performance (other than the payment
of money) is due by each party. If an executory contract or unexpired lease is
rejected by the Debtor in Possession, the other party to the agreement may file
a Claim for any damages incurred by reason of the rejection. In the case of
rejection of employment agreements and leases of real property, such damage
Claims are subject to certain limitations imposed by the Bankruptcy Code. If an
executory contract or unexpired lease is assumed, the Debtor generally has the
obligation to perform its obligations thereunder in accordance with the terms of
such agreement. If an executory contract is assumed and assigned, the assignee
generally has the obligation to perform the obligations of the Debtor thereunder
in accordance with the terms of such agreement.
The Plan provides that entry of the Confirmation Order by the
Bankruptcy Court will constitute approval, pursuant to section 365(a) of the
Bankruptcy Code, of the Debtor's rejection or assumption of its executory
contracts and unexpired leases as provided in the Plan. Executory contracts and
unexpired leases to be assumed pursuant to the Plan are listed in Exhibit G
thereto. All executory contracts and unexpired leases which have not previously
been rejected and which are not assumed, either pursuant to the Plan or by
separate proceeding in the Chapter 11 Case,
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are deemed rejected pursuant to the Plan. Exhibit H to the Plan contains a
non-exclusive list of executory contracts and unexpired leases to be rejected
under the Plan.
Exhibit G specifies the Cure Payment amounts, if any, which the Debtor
believes are required to be paid on the Effective Date in accordance with
sections 365(b)(1)(A) & (B) of the Bankruptcy Code in connection with the
assumption of the executory contracts and unexpired leases listed therein. The
Plan requires that any party to a listed contract or lease who disagrees with
the listed Cure Payment amount must serve upon counsel for the Debtor and file
with the Bankruptcy Court an objection thereto no later than 31 calendar days
before the date scheduled for the commencement of the Confirmation Hearing in
the manner set forth therein, and any disputes which cannot be resolved by the
parties will be determined by the Bankruptcy Court.
The Plan provides that certain specified employment policies and
certain specified compensation and benefit plans, policies, and programs of the
Debtor applicable generally to its employees, including, without limitation,
certain specified health care plans, disability plans, collective bargaining
agreements, incentive plans, qualified pension plans, and life and accidental
death and dismemberment insurance plans, are treated as executory contracts
under the Plan and are assumed by the Debtor. Similarly, employment agreements
with certain members of management will be assumed by the Debtor. See
"Management -- Employment Agreements." The Debtor's obligation to indemnify
former officers and directors is rejected under the Plan. See "Management --
Indemnification Of Officers And Directors Of Reorganized Debtor." The Debtor's
obligations under two non-qualified pension plans are also rejected under the
Plan. See "Management -- Executive Compensation -- Nonqualified Pension Plans."
All Allowed Claims arising from the rejection of executory contracts
or unexpired leases, whether under the Plan or by separate proceeding, will be
treated as Class 4 Claims under the Plan.
All Claims arising from the rejection of executory contracts or
unexpired leases, whether under the Plan or by separate proceeding, must be
filed with the Bankruptcy Court on or before such date as the Bankruptcy Court
has fixed or may fix by express order with respect to Claims arising from the
rejection of specified executory contracts and unexpired leases, or, if no such
date is or has been fixed, on or before the first Business Day which is at least
fifteen calendar days after the mailing of notice of entry of the Confirmation
Order. Any such Claims which are not filed within such time will be forever
barred from assertion against the Debtor, its estate, the Reorganized Debtor,
and its property.
3. AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND BYLAWS.
Pursuant to the Plan, the Certificate of Incorporation of the Debtor
will be amended and restated in substantially the form set forth in the Plan
Documentary Supplement (the "Amended and Restated Certificate of
Incorporation"), and the Bylaws of the Debtor will be amended and restated in
substantially the form included in the Plan Documentary Supplement (the "Amended
and Restated Bylaws"). The Amended and Restated Certificate of Incorporation
includes provisions limiting the liability of directors of the Reorganized
Debtor, and the Amended and Restated Bylaws provide for mandatory
indemnification of the Reorganized Debtor's agents (including officers and
directors) for past and future acts to the maximum extent permitted by
applicable law. The Amended and Restated Certificate of Incorporation prohibits
the Reorganized Debtor from issuing non-voting equity securities, as required by
section 1123(a)(6) of the Bankruptcy Code. See "Description of New Common
Stock."
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4. BOARD OF DIRECTORS.
Under the Plan, the initial Board of Directors of the Reorganized
Debtor (the "New Board") will consist of the individuals to be designated as set
forth in Exhibit F to the Plan. See "Management."
5. EFFECTIVE DATE.
The Effective Date is the later of (i) the first Business Day on which
no stay of the Confirmation Order is and remains in effect and which is at least
one Business Day after the date on which all conditions to effectiveness of the
Plan have been satisfied or waived, and (ii) February 1, 1997. See "Conditions
Precedent." On the Effective Date or as soon thereafter as is practicable, the
Debtor will deposit with the Disbursing Agent the New Common Stock, the New
Warrants, and the cash to be distributed as of the Effective Date pursuant to
the Plan.
6. TREATMENT OF FRACTIONAL SECURITIES.
No fractional shares of New Common Stock and no fractional New
Warrants will be issued or distributed pursuant to the Plan. Instead, the
number of shares of New Common Stock and/or number of New Warrants to be
distributed to the holder of an Allowed Claim or Allowed Equity Interest will be
rounded to the nearest whole number (with fractions equal to exactly one-half
being rounded up). No consideration will be provided in lieu of the fractional
shares that are rounded down and therefore are not issued.
7. NEW EMPLOYEE STOCK OPTIONS.
Pursuant to the Plan, the Reorganized Debtor will, as of the Effective
Date, adopt the Employee Stock Option Plan, authorizing the grant of options to
purchase shares of New Common Stock to key employees and directors. Pursuant to
the Plan, the Reorganized Debtor will issue as of and after the Effective Date,
from time to time, New Employee Stock Options initially exercisable for the
purchase of 1,000,000 (subject to adjustment to prevent dilution upon certain
events, including among other things any exercise of New Class A Warrants or New
Class B Warrants) of such authorized shares of New Common Stock, allocated as
set forth in this Disclosure Statement under "Management," for distribution to
specified employees of the Reorganized Debtor. See "Management -- Employee
Stock Option Plan; Description Of New Employee Stock Options." The number of
shares issuable upon exercise of the New Employee Stock Options will represent
10.00% of the fully diluted shares of New Common Stock assuming exercise of all
New Warrants and all New Employee Stock Options. See "Common Stock Ownership --
Dilution."
Under the terms of the Employee Stock Option Plan, the Reorganized
Debtor will have available, in addition to the New Employee Stock Options, an
additional 375,000 shares (subject to adjustment to prevent dilution upon
certain events, excluding any exercise of New Class A Warrants, New Class B
Warrants, or New Employee Stock Options) of new Common Stock for possible grants
of additional stock options from time to time after the Effective Date if, and
to the extent, the disinterested committee administering the Employee Stock
Option Plan may determine that such additional grants would be in the best
interest of the Reorganized Debtor. If options for all shares available under
the Employee Stock Option Plan were to be issued and exercised, such shares
would represent 12.46% of the fully diluted shares of New Common Stock assuming
the exercise of all New Warrants. See "Common Stock Ownership -- Dilution."
The Plan and the Disclosure Statement will be deemed to be a
solicitation to the holders of Old Common Stock and to the holders of New Common
Stock and New Warrants for approval of the Employee Stock Option Plan, and the
entry of the Confirmation
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Order will constitute approval of the plan, for purposes of compliance with
Rule 16b-3(a) promulgated under the Securities Exchange Act of 1934, as amended
(the "1934 Act"). Future employee stock plans or grants will be implemented by
the New Board if and as the New Board determines such plans to be appropriate as
a means to provide management with additional incentives.
8. RESALE OF SECURITIES.
In reliance upon an exemption from the registration requirements of
the Securities Act and state and local securities laws afforded by section 1145
of the Bankruptcy Code, the issuance of the New Common Stock and the New
Warrants to holders of Claims and Equity Interests pursuant to the Plan will not
require registration or qualification under the Securities Act or any state or
local securities laws. In addition, subject to certain exceptions, any such
securities issued pursuant to the Plan may be resold by any holder without
registration under the Securities Act pursuant to the exemption provided by
Section 4(1) of the Securities Act, unless the holder is an "underwriter" with
respect to such securities, as that term is defined in the Bankruptcy Code (a
"statutory underwriter"). Section 1145(b) of the Bankruptcy Code defines
"underwriter" for purposes of the Securities Act as one who (i) purchases a
claim with a view to distribution of any security to be received in exchange for
the claim, or (ii) offers to sell securities issued under a plan for the holders
of such securities, or (iii) offers to buy securities issued under a plan from
persons receiving such securities, if the offer to buy is made with a view to
distribution of such securities, or (iv) is a controlling person of the issuer
of the securities.
ENTITIES WHO BELIEVE THEY MAY BE STATUTORY UNDERWRITERS ARE ADVISED TO
CONSULT THEIR OWN COUNSEL WITH RESPECT TO THE POSSIBLE AVAILABILITY OF
EXEMPTIONS WHICH MAY BE PROVIDED BY SECTION 1145 OR OTHER APPLICABLE LAW.
In addition, the securities issued under the Plan generally may be
resold by the recipients thereof without registration on the state level
pursuant to various exemptions provided by the respective laws of the several
states. HOWEVER, RECIPIENTS OF SECURITIES ISSUED UNDER THE PLAN ARE ADVISED TO
CONSULT WITH THEIR OWN COUNSEL AS TO THE AVAILABILITY OF ANY SUCH EXEMPTION FROM
REGISTRATION UPON STATE LAW IN ANY GIVEN INSTANCE AND AS TO ANY APPLICABLE
REQUIREMENTS OR CONDITIONS TO THE AVAILABILITY THEREOF.
On the Effective Date and after giving effect to the distribution of
New Common Stock pursuant to the Plan, each holder of an Allowed Class 4 Claim
or Allowed Class 5 Interest which beneficially owns, together with its
affiliates, in excess of ten percent (10%) of the issued and outstanding shares
of New Common Stock (a "10% Holder"), will have the benefit of the Grant of
Registration Rights included in the Plan Documentary Supplement (the
"Registration Rights"). See "Common Stock Ownership." The Registration Rights
provide that the Reorganized Debtor is obligated to cause a "shelf" registration
statement (the "Shelf Registration") covering (i) the shares of New Common Stock
issued to the 10% Holders pursuant to the Plan, (ii) the New Class A Warrants
and New Class B Warrants issued to the 10% Holders pursuant to the Plan, and
(iii) the shares of New Common Stock issuable pursuant to such New Class A
Warrants and New Class B Warrants (collectively, the "10% Holder Securities") to
be effective no later than 45 days after the Effective Date and to maintain the
effectiveness of such Shelf Registration for the period provided by the
Registration Rights. In addition, the Registration Rights provide to the 10%
Holders and their respective assignees and transferees, if any, (a) "piggyback"
registration rights which give such parties the right to cause the Reorganized
Debtor to include the 10% Holder Securities, on customary terms, in certain
registrations of securities of the Reorganized Debtor and (b) the right to
liquidated damages under certain circumstances should the Reorganized Debtor
fail to
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cause the Shelf Registration to become effective or suspend or fail to maintain
the effectiveness of the Shelf Registration.
The foregoing summary of the Registration Rights is qualified in its
entirety by reference to the Registration Rights itself. Persons who believe
that they may be 10% Holders are encouraged to read the Registration Rights
carefully for a complete statement of the rights granted thereby and the
conditions, limitations and restrictions pertaining thereto.
Although the Company intends to utilize its reasonable best efforts to
continue its compliance with the reporting requirements of applicable securities
laws and to facilitate trading of the New Common Stock, there can be no
assurance that any market will develop for the New Common Stock or for the New
Warrants, as to liquidity of any such market, the ability of holders of sell
such securities, or the price at which holders would be able to sell such
securities.
9. RETENTION OF JURISDICTION.
The Plan provides for the retention by the Bankruptcy Court of
jurisdiction over the Chapter 11 Case as specified in the Plan.
10. DISCHARGE OF DEBTOR.
On and after the Effective Date, the Plan will bind the Debtor and all
holders of Claims and Old Common Stock, whether or not they accept the Plan, and
will also discharge the Debtor from all debts that arose before Confirmation,
except as provided in the Plan and in the Confirmation Order.
The rights afforded in the Plan and the treatment of all Claims and
Equity Interests therein will be in exchange for and in complete satisfaction,
discharge, and release of any and all Claims and Equity Interests of any nature
whatsoever, including any interest accrued on such claims from and after the
Petition Date, against the Debtor and the Debtor in Possession, or any of their
assets or properties. Except as otherwise provided in the Plan, on the
Effective Date, the Debtor will be deemed discharged and released to the fullest
extent permitted by section 1141 of the Bankruptcy Code from all Claims and
Equity Interests, including, but not limited to, demands, liabilities, Claims,
and interests that arose before the Confirmation Date and all debts of the kind
specified in sections 502(g), 502(h), or 502(i) of the Bankruptcy Code, whether
or not: (a) a proof of claim or proof of interest based on such debt or
interest is filed or deemed filed pursuant to section 501 of the Bankruptcy
Code, (b) a Claim or Equity Interest based on such debt or interest is Allowed
pursuant to section 502 of the Bankruptcy Code, or (c) the holder of a Claim or
Equity Interest based on such debt or interest has accepted the Plan. In
addition, all persons and entities will be deemed precluded from asserting
against the Reorganized Debtor, its successors, or its assets or properties any
other or further Claims or Equity Interests based upon any act or omission,
transaction, or other activity of any kind or nature that occurred prior to the
Confirmation Date. The Confirmation Order will act as a discharge of any and
all claims against and all debts and liabilities of the Debtor, as provided in
sections 524 and 1141 of the Bankruptcy Code, and such discharge will void any
judgment against the Debtor at any time obtained to the extent that it relates
to a Claim discharged.
Except as otherwise provided in the Plan, the documents executed
pursuant to the Plan, or the Confirmation Order, on and after the Effective
Date, all persons and entities who have held, currently hold, or may hold a
debt, Claim, or interest discharged pursuant to the terms of the Plan shall be
deemed permanently enjoined from taking any of the following actions on account
of any such discharged debt, Claim, or interest: (a) commencing or continuing
in any manner any action or other proceeding against the Debtor, the Reorganized
Debtor, its successors, or its property; (b) enforcing, attaching, executing,
collecting, or recovering in any manner any judgment,
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award, decree, or order against the Debtor, the Reorganized Debtor, its
successors, or its property; (c) creating, perfecting, or enforcing any lien or
encumbrance against the Debtor, the Reorganized Debtor, its successors, or its
property; (d) asserting any setoff, right of subrogation, or recoupment of any
kind against any obligation due to the Debtor, the Reorganized Debtor, its
successors, or its property; and (e) commencing or continuing any action, in any
manner, in any place that does not comply with or is inconsistent with the
provisions of the Plan. Any person or entity injured by any willful violation
of such injunction will recover actual damages, including costs and attorneys'
fees, and, in appropriate circumstances, may recover punitive damages, from the
willful violator.
The discharge will not apply to the FNBB Claim or the FNBB Liens,
which will survive and continue and be governed by the FNBB Facility.
11. PROCEDURES WITH RESPECT TO OLD COMMON STOCK,
OLD 10-1/4% NOTES, AND OLD 13-1/2% NOTES.
Pursuant to Bankruptcy Rule 3021, as of the Effective Date, the
transfer ledgers for the Old 10-1/4% Notes, the Old 13-1/2% Notes, and the Old
Common Stock will be closed, and there will be no further changes in the holders
of record of such securities. The Disbursing Agent will have no obligation to
recognize any transfer of such securities occurring after the Effective Date,
but will instead be entitled to recognize and deal for all purposes under the
Plan with only those holders of record stated on the applicable transfer ledgers
as of the Effective Date.
As of the Effective Date, the Old Employee Stock Options, the Old
Warrants, and the Debtor's obligations under the Old 10-1/4% Indenture and the
Old 13-1/2% Indenture and under the agreements governing the Old Employee Stock
Options and Old Warrants will be rejected.
As of the Effective Date, the instruments which previously evidenced
ownership of the Old 10-1/4% Notes, the Old 13-1/2% Notes, and the Old Common
Stock will be cancelled, and such instruments will thereafter represent only the
right to receive the property distributable with respect to such securities
under the Plan. No holder of Old 10-1/4% Notes, Old 13-1/2% Notes, or Old
Common Stock will be entitled to any distribution under the Plan until such
holder has surrendered to the Disbursing Agent the original certificate for the
securities held by it or, in the event that such original securities have been
lost, destroyed, stolen, or mutilated, has first executed and delivered an
affidavit of loss and indemnity with respect thereto that is reasonably
satisfactory to the Disbursing Agent and, if so requested by the Disbursing
Agent, a bond in form and substance (including as to amount) reasonably
satisfactory to the Disbursing Agent. As soon as practicable after such
surrender or delivery of such affidavit, the Disbursing Agent will distribute to
each holder of Old 10-1/4% Notes, Old 13-1/2% Notes, or Old Common Stock the
distribution to which such holder is entitled under the Plan.
In accordance with section 1143 of the Bankruptcy Code, any holder of
Old 10-1/4% Notes, Old 13-1/2% Notes, or Old Common Stock who fails to surrender
such security or deliver such affidavit of loss and indemnity and, if so
requested, such bond as provided in the Plan within five years after the
Effective Date will be deemed to have forfeited all rights, Claims, and
interests and will not participate in any distribution under the Plan. Upon the
expiration of such five-year period, all New Common Stock and cash, or proceeds
received with respect thereto, held for distribution by the Disbursing Agent
will be returned to the Reorganized Debtor.
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12. CONDITIONS PRECEDENT.
The Plan provides that it will not become effective unless each of the
following conditions has occurred or, or in the case of condition (i), has been
waived in writing by the Debtor: (i) the Confirmation Order shall have been
entered on the docket of the Bankruptcy Court for at least 10 days (as
calculated in accordance with Bankruptcy Rule 9006(a)); and (ii) all conditions
precedent to the occurrence of the "Exit Facility Date" under the FNBB Facility
shall have been satisfied or waived and no Event of Default shall have occurred
thereunder.
13. AMENDMENT OF THE PLAN.
The Debtor may amend or modify the Plan before or after the
Confirmation Date in accordance with the provisions of section 1127 of the
Bankruptcy Code.
14. REVOCATION OF THE PLAN.
The Debtor may revoke or withdraw the Plan at any time prior to
Confirmation.
15. PROVISIONS FOR TREATMENT OF DISPUTED
ADMINISTRATIVE EXPENSES AND DISPUTED CLAIMS.
On the Effective Date or as soon thereafter as practicable, the
Disbursing Agent will establish such reserve (the "Distribution Reserve"), if
any, as the Bankruptcy Court may require after notice and a hearing, on account
of particular Disputed Priority Tax Claims, Disputed Other Priority Claims, and
Disputed Administrative Expenses. No reserve will be required for any Disputed
Claim or Disputed Administrative Expense to the extent of any effective
insurance coverage therefor. Any such Distribution Reserve will be held in
trust for the benefit of the holders of such Disputed Claims, Disputed
Administrative Expenses, and the Reorganized Debtor, as their respective
interests may appear, pending determination of their respective entitlement
thereto. Any interest accruing thereon will be paid to the Reorganized Debtor.
When, and to the extent that, a Disputed Claim or Disputed
Administrative Expense for which a reserve has been required by the Bankruptcy
Court becomes allowed pursuant to a Final Order, the Disbursing Agent will make
a distribution to the holder thereof in accordance with the Plan. Any surplus
in the Distribution Reserve which may result from the allowance of a Disputed
Claim or Disputed Administrative Expense in an amount less than the Claim or
Administrative Expense as filed with the Bankruptcy Court will be transferred to
the Reorganized Debtor by the Disbursing Agent.
Each beneficial owner of Old 10-1/4% Notes, Old 13-1/2% Notes, or Old
Common Stock of record as of the Effective Date will be deemed to have an
Allowed Class 4 Claim or Allowed Class 5 Interest, as the case may be, and need
not file a proof of claim or proof of interest with respect thereto. In the
event any entity which is NOT the record holder as of the Effective Date of an
Old 10-1/4% Note, Old 13-1/2% Note, or Old Common Stock or the beneficial owner
with respect thereto shall file a proof of right to record status pursuant to
Bankruptcy Rule 3003(d), the Disbursing Agent will establish such reserve, if
any, as may be ordered by the Bankruptcy Court on account of any objection
thereto. Such reserve shall be held in trust for the holders of such Disputed
Claims or Interests. To the extent any such Disputed Claim or Interest, as the
case may be, is disallowed, any reserve pertaining to such Disputed Claim or
Interest shall be distributed pro rata to all holders of Allowed Claims or
Allowed Interests in the same class as such disallowed Disputed Claim or
Interest, subject to redistribution pursuant to the compromises under Section
V.E of the Plan.
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16. NO LIABILITY FOR SOLICITATION OR PARTICIPATION.
As specified in section 1125(e) of the Bankruptcy Code, persons who
solicit acceptances or rejections of the Plan and/or who participate in the
offer, issuance, sale, or purchase of securities offered or sold under the Plan,
in good faith and in compliance with the applicable provisions of the Bankruptcy
Code, are not liable, on account of such solicitation or participation, for
violation of any applicable law, rule, or regulation governing the solicitation
of acceptances or rejections of the Plan or the offer, issuance, sale, or
purchase of securities.
17. LIMITATION OF LIABILITY.
Neither the Debtor, nor the Reorganized Debtor, nor any of their
respective employees, officers, directors, shareholders, agents, or
representatives, nor the Committees or their members, nor any professional
persons employed by the Debtor, the Debtor-in-Possession, the Reorganized
Debtor, or the Committees, shall have or incur any liability to any person or
entity for any act taken or omission made in good faith in connection with or
related to negotiating, formulating, implementing, confirming, or consummating
the Plan, this Disclosure Statement, or any contract, instrument, security,
release, or other agreement, instrument or document created in connection with
the Plan.
18. RIGHTS OF ACTION; PREFERENCES.
Any and all rights and causes of action accruing to the Debtor or its
estate will remain assets of and vest in the Reorganized Debtor, whether or not
litigation relating thereto is pending on the Effective Date. The Reorganized
Debtor may pursue all rights and causes of action in its sole discretion, in
accordance with what is in the best interests, and for the benefit, of the
Reorganized Debtor. Neither the Debtor nor the Reorganized Debtor waives,
relinquishes, or abandons any right or cause of action which constitutes
property of the Debtor's Estate, whether or not such right or cause of action
has been listed or referred to in the Schedules or in this Disclosure Statement
and whether or not such right or cause of action is currently known to the
Debtor. Notwithstanding the foregoing, the Reorganized Debtor will not pursue
any preference causes of action arising under section 547 of the Bankruptcy
Code.
The rights and causes of action which will remain assets of and vest
in the Reorganized Debtor include, without limitation, the following:
a. Lamonts Apparel, Inc. v. Hickel Investment Company
United States District Court for Alaska
Cause No. A95-0463 (HRH) Filed 3/21/95
Recovery of overpayment of CAM charges
Defendant's address:
Hickel Investment Company
P.O. Box 101700
Anchorage, AK 99510
b. Lamonts Apparel, Inc. v. Si-Lloyd Associates
Oregon Court of Appeals
Cause No. CA A91907 filed 2/16/96
Lease dispute
Defendant's address:
Si-Lloyd Associates
c/o Katherine McDowell
Stoel Rives Boley Jones & Grey
Standard Insurance Center
900 S.W. Fifth Avenue, Suite 2300
Portland, OR 97204-1268
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c. Claims against National City Bank for breach and termination
of credit card agreement
Address: National City Card Services
4661 E. Main Street
Columbus, OH 43213
d. Claims against Leonard Snyder
Address: Leonard Snyder
6277 N. Calle Retreta Serena
Tucson, AZ 85750
e. Claims against Frank Kulp
Address: Frank Kulp
10 Columbia Way
Bellevue, WA 98006
f. Any claims or rights of the Debtor under its leases or
otherwise to any offset, credit or reimbursement for
overpayment of taxes, insurance or common area maintenance
charges.
19. CONTINUATION OF FNBB CLAIM AND FNBB LIENS.
Notwithstanding the entry of the Confirmation Order and the
implementation of the Plan on the Effective Date, the FNBB Claim will not be
discharged, and all liens, security interests, and mortgages granted to FNBB
pursuant to the FNBB Facility will continue in full force and effect. The
validity and enforceability of the FNBB Claim and the validity, enforceability,
perfection, and priority of the FNBB Liens will be automatically ratified and
confirmed in all respects and will continue without any further action by FNBB.
Without limiting the foregoing, the FNBB Liens will not be subject to any
present or future contractual, statutory, or common law lien, security interest,
or mortgage which might be avoided and preserved for the benefit of the estate
pursuant to section 551 of the Bankruptcy Code. In furtherance of (and without
limiting) the foregoing, the FNBB Liens in any of the Reorganized Debtor's
non-fixture personal property will be superior and senior in priority to any and
all liens arising by operation of law in favor of lessors and landlords for
obligations relating to or arising in connection with rental agreement for the
use of real property.
20. REVESTING OF ASSETS.
Except as otherwise provided in the Plan, the property of the estate
of the Debtor will revest in the Reorganized Debtor on the Effective Date. The
Reorganized Debtor may operate its business and may use, acquire, and dispose of
property without supervision by the Bankruptcy Court or the United States
Trustee and free of any restrictions of the Bankruptcy Code or the Bankruptcy
Rules. As of the Effective Date, all property of the Reorganized Debtor will be
free and clear of all Claims, liens, encumbrances, and other interests of
creditors and holders of Equity Interests, except as otherwise provided in the
Plan.
HOLDERS OF IMPAIRED CLAIMS AND OLD COMMON STOCK AND OTHER INTERESTED
PARTIES ARE URGED TO READ THE PLAN (INCLUDING THE EXHIBITS THERETO) IN ITS
ENTIRETY SO THAT THEY MAY MAKE AN INFORMED JUDGMENT CONCERNING THE PLAN.
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VII.
CONFIRMATION PROCEDURE
In order for the Plan to be confirmed by the Bankruptcy Court, all of
the applicable requirements of section 1129 of the Bankruptcy Code must be met.
These include, among others, the requirements that the Plan: (i) is accepted by
all impaired classes of Claims and Equity Interests or, if rejected or deemed
rejected by an impaired class, "does not discriminate unfairly" and is "fair and
equitable" as to each rejecting class; (ii) is feasible; and (iii) is in the
"best interest" of holders of Claims in each class impaired under the Plan and
of holders of Old Common Stock.
A. SOLICITATION OF VOTES; ACCEPTANCE.
Any holder of a Claim in either Class 1 or Class 4 is entitled to vote
if either (i) such holder's Claim has been scheduled by the Debtor in the
schedules filed with the Bankruptcy Court (provided that such Claim has not been
scheduled as disputed, contingent, unknown, or unliquidated), or (ii) such
holder has filed a proof of Claim on or before the deadline fixed by the
Bankruptcy Court and such Claim is deemed allowed pursuant to section 502 of the
Bankruptcy Code or has been allowed by the Bankruptcy Court, unless such Claim
has been disallowed for voting purposes by the Bankruptcy Court. The record
date for determining which holders of Old 10-1/4% Notes, of Old 13-1/2% Notes,
or of Old Common Stock are entitled to vote on the Plan is the date specified in
the Order and Notice (the "Record Date"). A vote may be disregarded if the
Bankruptcy Court determines, after notice and a hearing, that an acceptance or
rejection was not solicited or procured or made in good faith or in accordance
with the provisions of the Bankruptcy Code.
Each of the Voting Classes of Claims will be deemed to have accepted
the Plan if the Plan is accepted by holders of at least two-thirds in dollar
amount and more than one-half in number of the Claims of such Class (excluding
certain Claims designated under section 1126(e) of the Bankruptcy Code) that
have voted to accept or reject the Plan.
THE TRUSTEES UNDER THE OLD 10-1/4% INDENTURE AND UNDER THE OLD 13-1/2%
INDENTURE ARE NOT PERMITTED TO VOTE ON BEHALF OF THE HOLDERS OF THE NOTES.
CONSEQUENTLY, SUCH HOLDERS MUST SUBMIT THEIR OWN BALLOTS IN ORDER FOR THEIR
VOTES TO COUNT.
Class 5, consisting of the Equity Interests of holders of Old Common
Stock, will be deemed to have accepted the Plan if the Plan is accepted by
holders of at least two-thirds of the outstanding shares that vote to accept or
reject the Plan.
B. CONFIRMATION HEARING.
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a hearing on confirmation of the Plan (the "Confirmation
Hearing") after the Ballots have been cast. The Confirmation Hearing may be
postponed from time to time by the Bankruptcy Court without further notice
except for an announcement of the postponement made at the Confirmation Hearing.
Section 1128(b) of the Bankruptcy Code provides that any party in interest may
object to confirmation of the Plan. Objections must be made in writing,
specifying in detail the name and address of the person or entity objecting, the
grounds for the objection, and the nature and amount of the Claim or Equity
Interest held by the objector, and otherwise complying with the requirements of
the Bankruptcy Rules and Local Bankruptcy Rules. Objections must be filed with
the Clerk of the Bankruptcy Court, with two copies to chambers of the bankruptcy
judge, together with proof of service, and served upon the parties so designated
in the Order and Notice in the manner set forth therein, on or before the time
and date designated in the Order and Notice as being the last date for
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serving and filing objections to confirmation of the Plan. UNLESS AN OBJECTION
TO CONFIRMATION IS TIMELY SERVED AND FILED IN ACCORDANCE WITH THE ORDER AND
NOTICE, IT WILL NOT BE CONSIDERED BY THE BANKRUPTCY COURT.
At the Confirmation Hearing, the Bankruptcy Court will determine,
among other things, whether the following confirmation requirements specified in
section 1129 of the Bankruptcy Code have been satisfied:
1. The Plan complies with the applicable provisions of the Bankruptcy
Code.
2. The Debtor has complied with the applicable provisions of the
Bankruptcy Code.
3. The Plan has been proposed in good faith and not by any means
proscribed by law.
4. Any payment made or promised by the Debtor for services or for costs
and expenses in, or in connection with, the Bankruptcy Case, or in
connection with the Plan and incident to the Bankruptcy Case, has been
disclosed to the Bankruptcy Court, and any such payment made before the
confirmation of the Plan is reasonable or, if such payment is to be fixed
after the confirmation of the Plan, such payment is subject to the approval
of the Bankruptcy Court as reasonable.
5. The Debtor has disclosed the identity and affiliations of any
individual proposed to serve, after confirmation of the Plan, as a director
or officer of the Reorganized Debtor, and the appointment to, or
continuance in, such office of such individual is consistent with the
interests of creditors and holders of New Common Stock and with public
policy, and the Debtor has disclosed the identity of any insider that will
be employed or retained by the Reorganized Debtor and the nature of any
compensation for such insider.
6. Each holder of an impaired Claim and each holder of Old Common Stock
either has accepted the Plan or will receive or retain under the Plan on
account of such holder's Claims or Old Common Stock, as the case may be,
property of a value, as of the Effective Date, that is not less than the
amount that such entity would receive or retain if the Debtor were
liquidated on such date under chapter 7 of the Bankruptcy Code. See "Best
Interests Test."
7. Unless the Debtor proposes a nonconsensual plan of reorganization,
each class of Claims or Equity Interests has either accepted the Plan or is
not impaired under the Plan. See "Nonconsensual Confirmation."
8. Except to the extent that the holder of a particular Claim has agreed
to a different treatment of such Claim, the Plan provides that
Administrative Expenses and Other Priority Claims will be paid in full on
the Effective Date and that Priority Tax Claims will receive on account of
such Claims either payment in full on the Effective Date or deferred cash
payments, over a period not exceeding six years after the date of
assessment of such Claims, of a value as of the Effective Date equal to the
allowed amount of such Claims.
9. At least one class of Claims has accepted the Plan, determined without
including any acceptance of the Plan by any insider holding a Claim in such
class.
10. Confirmation of the Plan is not likely to be followed by the
liquidation, or the need for further financial reorganization, of the
Debtor or any successor to the Debtor under the Plan, unless such
liquidation or reorganization is proposed in the Plan. See "Feasibility."
The Board of Directors of the Debtor believes that, upon acceptance of
the Plan by each of the Voting Classes, the Plan will satisfy all the statutory
requirements of Chapter 11 of the Bankruptcy Code, that the Debtor has complied
or will have complied with all of the requirements of Chapter 11, and that the
Plan is being proposed and will be submitted to the Bankruptcy Court in good
faith.
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C. BEST INTERESTS TEST.
As referred to in subparagraph 6 above, confirmation of the Plan
requires that each holder of an impaired Claim and each holder of Old Common
Stock either (a) accepts the Plan or (b) receives or retains under the Plan
property of a value, as of the Effective Date, that is not less than the value
such holder would receive or retain if the Debtor were liquidated under
chapter 7 of the Bankruptcy Code.
The Debtor has determined that confirmation of the Plan will provide
each holder of a Claim and each holder of Old Common Stock with a recovery that
is not less than, and will in fact substantially exceed, that which it would
receive pursuant to a liquidation of the Debtor under chapter 7 of the
Bankruptcy Code. This determination is based upon a consideration of the
effects that a chapter 7 liquidation would have on the ultimate proceeds
available for distribution to such holders, including: (i) the enormous erosion
in value of assets in a chapter 7 case in the context of the expeditious
liquidation required under chapter 7 and the "forced sale" atmosphere that would
prevail; (ii) the adverse effects on the liquidation proceeds as a result of the
departure of key employees whose services would be required in connection with
the liquidation; (iii) the substantial increases in Claims which would be
satisfied on a priority basis or on parity with existing Claims in the
Chapter 11 Case; and (iv) the increased costs and expenses of a liquidation
under chapter 7 arising from fees payable to a trustee in bankruptcy and
professional advisors to such trustee.
Moreover, the Debtor believes that the value of any distributions from
the liquidation proceeds to each class of Allowed Claims in a chapter 7 case
would be further reduced because such distributions in a chapter 7 case may not
occur for a substantial period of time. In this regard, it is possible that
distribution of the proceeds of the liquidation could be delayed for a year or
more after the completion of such liquidation in order to resolve the Claims and
prepare for distributions. In the event litigation were necessary to resolve
Claims asserted in the chapter 7 case, the delay could be further prolonged.
1. CHAPTER 7.
To determine the value that the holders of impaired Claims and the
holders of Old Common Stock would receive if the Debtor were liquidated, the
Bankruptcy Court would determine the dollar amount that would be generated from
the liquidation of the Debtor's assets and properties in the context of a
chapter 7 liquidation case. Section 704 of the Bankruptcy Code requires a
chapter 7 trustee to collect and reduce to money the property of the estate as
expeditiously as is compatible with the best interests of parties in interest.
In the case of the Debtor, the chapter 7 trustee may face a difficult task in
liquidating the assets of the estate given the Debtor's numerous locations, the
nature of the Debtor's business and assets, and the current business
environment. The cash amount which would be available for satisfaction of
Allowed Administrative Expenses, Allowed Claims, and Allowed Equity Interests
would consist of the proceeds resulting from the disposition of the Debtor's
assets, augmented by the cash, if any, held by the Debtor at the time of the
commencement of the chapter 7 case. Any such cash amount then would be reduced
by the amount of any Claims secured by such assets, the costs and expenses of
the liquidation, and such additional Administrative Expenses and priority Claims
that may result from the termination of the Debtor's business and the use of
chapter 7 for the purposes of liquidation.
The costs of liquidation under chapter 7 would include the fees
payable to a trustee in bankruptcy, as well as those which might be payable to
attorneys and other professionals that such a trustee may engage, plus any
unpaid expenses incurred by the Debtor during the Chapter 11 Case and allowed in
the chapter 7 case, such as compensation for attorneys, financial advisors,
accountants, and other professionals and costs and expenses of the Committees.
In addition, as described above, Claims would arise by reason of the breach or
rejection of obligations
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incurred and executory contracts entered into or assumed by the Debtor during
the pendency of the Chapter 11 Case. The foregoing types of Claims, costs,
expenses, and fees and such other Claims which may arise in a liquidation case
or result from the Chapter 11 Case would be paid in full from the liquidation
proceeds before the balance of those proceeds would be made available to pay
pre-petition priority Claims and General Unsecured Claims.
To determine if the Plan is in the best interests of each impaired
Class, the present value of the distributions from the proceeds of the
liquidation of the Debtor's assets and properties, after subtracting the amounts
attributable to the foregoing Claims, is then compared with the value of the
property offered to such Class under the Plan.
In applying the "best interests test," it is possible that Claims and
Equity Interests in the chapter 7 case may not be classified according to the
seniority of such Claims and Equity Interests as provided in the Plan. In the
absence of a contrary determination by the Bankruptcy Court, all pre-petition
unsecured Claims which have the same rights upon liquidation would be treated as
one class for purposes of determining the potential distribution of the
liquidation proceeds resulting from the chapter 7 case. The distributions from
the liquidation proceeds would be calculated ratably according to the amount of
the Claim held by the respective holder. The Debtor believes that the most
likely outcome of liquidation proceedings under chapter 7 would be the
application of the rule of absolute priority of distributions. Under that rule,
no junior holder of a Claim receives any distribution until all senior holders
are paid in full with interest, and no holder of an Equity Interest receives any
distribution until all holders of Claims are paid in full with interest.
CONSEQUENTLY, AS DEMONSTRATED IN THE FOLLOWING LIQUIDATION ANALYSIS, THE DEBTOR
BELIEVES THAT UNDER CHAPTER 7 OF THE BANKRUPTCY CODE, SUBSTANTIALLY ALL OF THE
LIQUIDATION PROCEEDS WOULD BE PAID TO FNBB ON ACCOUNT OF ITS SECURED CLAIMS AND
SUPERPRIORITY CLAIMS AND TO HOLDERS OF ADMINISTRATIVE EXPENSES. HOLDERS OF
OTHER PRIORITY CLAIMS, GENERAL UNSECURED CLAIMS, AND OLD COMMON STOCK WOULD
RECEIVE LITTLE OR NO DISTRIBUTIONS.
2. LIQUIDATION ANALYSIS.
The determination of the hypothetical proceeds from the sale of assets
in a chapter 7 liquidation is an uncertain process involving numerous
assumptions. Accordingly, there can be no assurance that the assumptions
employed by the Debtor in determining the liquidation value of its assets will
result in an accurate estimation of such liquidation values.
The liquidation analysis presented herein assumes that all assets of
the Debtor would be liquidated in the context of a chapter 7 case and sets forth
the value as of February 1, 1997, of the proceeds of such liquidation. The
assumptions utilized in the analysis considered the estimated liquidation value
of the assets and the estimated amount of the Claims that would be allowed,
together with an estimate of certain administrative costs and expenses that
would likely result during the liquidation process. While the Debtor believes
that the assumptions utilized in the liquidation analysis are reasonable, the
validity of such assumptions may be affected by the occurrence of events and the
existence of conditions not now contemplated or by other factors, many of which
would be beyond the control of the Bankruptcy Court, the Debtor, and the chapter
7 trustee. The actual liquidation value of the Debtor would likely vary from
that presented herein.
For purposes of its liquidation analysis, the Debtor has assumed that
a chapter 7 trustee is appointed and a hypothetical liquidation sale, lasting 12
weeks, is commenced on February 1, 1997. This liquidation would be effected by
means of simultaneous "going out of business" sales managed by a professional
retail liquidator hired by the chapter 7 trustee. All sales would be for cash.
Any remaining inventory would be sold to a professional liquidator, and fixed
assets in the stores and head office would be sold at auction, where feasible,
or abandoned. Based upon the Debtor's recent experience with the liquidation of
certain stores and indications
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received from professional liquidators, the Debtor estimates that the gross
proceeds before payment of the costs of liquidation combined with projected cash
on hand, would be in the range of $39,500,000 to $43,400,000. These amounts are
not necessarily indicative of the amounts which might be realized from a
commercially reasonable foreclosure sale.
In the event, however, that the chapter 7 trustee were unable to
conduct such "going out of business" sales, because, for example, of
difficulties in retaining necessary employees, lack of cooperation from shopping
center store landlords, and other factors, the trustee would instead be required
to dispose of the inventory in bulk in auction sales. Based upon the
indications received from professional retail liquidators, the Debtor estimates
that the net liquidation proceeds under this approach would be substantially
less than the net proceeds from "going out of business" sales.
In view of FNBB's security interest in substantially all of the
Debtor's assets and superpriority Administrative Claim, proceeds from any
liquidation after payment of the costs of liquidation would be applied first to
the obligations under the FNBB Facility in the estimated projected amount as of
February 1, 1997 of approximately $20,500,000. Accordingly, assuming
liquidation proceeds at the high end of the range discussed above in the amount
of $43,400,000 were to be achieved by the chapter 7 trustee in the hypothetical
chapter 7 case discussed herein, the Debtor estimates for purposes of this
analysis that the proceeds would then be distributed as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Chapter 7 Administrative Claims and
Liquidation Expenses $17,200,000
Chapter 11 Administrative Claims
(Including Chapter 11 Trade Payables) 5,700,000
Priority Tax Claims $ -0-
Class 1 - Other Priority Claims $ -0-
Class 2 - FNBB Claims 20,500,000
Class 3 - Other Secured Claims (return of collateral)
Class 4 - General Unsecured Claims $ -0-
Class 5 - Old Common Stock $ -0-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Based upon such liquidation analysis, the Debtor believes that the
holders of Other Priority Claims, General Unsecured Claims, and Old Common Stock
would likely receive little or nothing in liquidation. In contrast, under the
Plan, such holders will receive cash and/or securities with respect to their
Allowed Claims and Equity Interests.
D. FEASIBILITY.
The Bankruptcy Code requires that, in order for the Plan to be
confirmed by the Bankruptcy Court, it must be demonstrated that consummation of
the Plan is not likely to be followed by the liquidation or the need for further
financial reorganization of the Debtor. For purposes of determining whether the
Plan meets this requirement, the Debtor has analyzed its ability to meet its
obligations under the Plan. As part of such analysis, the Debtor has prepared
the Projections of, among other things, its financial performance (assuming the
transactions
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contemplated by the Plan are consummated) for the period ending January 30, 1999
(the "Projection Period"). The Projections include projected statements of
operations and cash flows and certain projected balance sheet data, and are
based on the assumption that the Effective Date will be February 1, 1997. The
Projections and the significant assumptions on which they are based are
discussed in this Disclosure Statement under "Certain Financial Projections."
Based on the Projections, the Debtor believes that it will be able to make all
payments required to be made pursuant to the Plan. See "Risk Factors --
Inherent Uncertainty In The Financial Projections."
The Debtor anticipates that the aggregate amount of cash required to
be distributed under the Plan as of the Effective Date will be approximately
$2,900,000. The sources of funds for such cash payments will be cash on hand
and funds available under the FNBB Facility at the Effective Date. The Debtor
believes that such funds will be adequate.
E. NONCONSENSUAL CONFIRMATION.
In the event that any impaired class of Claims does not accept the
Plan, the Bankruptcy Court may nevertheless confirm the Plan at the Debtor's
request if all other requirements of section 1129(a) of the Bankruptcy Code are
satisfied, and if, as to each impaired class which has not accepted the Plan,
the Bankruptcy Court determines that the Plan "does not discriminate unfairly"
and is "fair and equitable" with respect to such nonaccepting class.
1. NO UNFAIR DISCRIMINATION.
A plan of reorganization "does not discriminate unfairly" if (a) the
legal rights of a nonaccepting class are treated in a manner that is consistent
with the treatment of other classes whose legal rights are intertwined with
those of the nonaccepting class, and (b) no class receives payments in excess of
that which it is legally entitled to receive for its Claims. The Debtor
believes that under the Plan, (i) all classes of impaired Claims are treated in
a manner that is consistent with the treatment of other classes of Claims with
which their legal rights are intertwined, if any, and (ii) no class of Claims
will receive payments or property with an aggregate value greater than the
aggregate value of the Allowed Claims in such class. Accordingly, the Debtor
believes the Plan does not discriminate unfairly as to any impaired class.
2. FAIR AND EQUITABLE TEST.
The Bankruptcy Code establishes different "fair and equitable" tests
for holders of secured Claims and holders of unsecured Claims, as follows:
(a) SECURED CLAIMS. Either (i) each holder of an impaired
secured Claim either (x) retains the liens securing its secured Claim and
receives on account of its Allowed Secured Claim deferred cash payments
having a present value equal to the amount of its Allowed Secured Claim, or
(y) realizes the "indubitable equivalent" of its Allowed Secured Claim, or
(ii) the property securing the Claim is sold free and clear of liens, with
such liens to attach to the proceeds, and the liens against such proceeds
are treated in accordance with clause (i) of this subparagraph (a).
(b) UNSECURED CLAIMS. Either (i) each holder of an impaired
unsecured Claim receives or retains under the Plan property of a value
equal to the amount of its Allowed Claim, or (ii) the holders of Claims and
Equity Interests that are junior to the Claims of the nonaccepting class do
not receive any property under the Plan on account of such Claims and
Equity Interests.
IN THE EVENT OF REJECTION OF THE PLAN BY ONE OR MORE IMPAIRED CLASSES,
THE DEBTOR RESERVES THE RIGHT TO REQUEST THE BANKRUPTCY COURT TO CONFIRM THE
PLAN IN ACCORDANCE WITH SECTION 1129(b).
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VIII.
ALTERNATIVES TO CONFIRMATION AND
CONSUMMATION OF THE PLAN OF REORGANIZATION
The Debtor believes that the Plan affords holders of Claims and Equity
Interests the potential for the greatest feasible realization out of the
Debtor's assets, and, therefore, is in the best interest of such holders. The
Debtor has considered alternatives to the Plan such as a liquidation in the
context of a chapter 7 case. In the opinion of the Debtor, such alternatives
would not afford holders of Claims or Equity Interests a return as great as may
be achieved under the Plan.
A. LIQUIDATION UNDER CHAPTER 7.
If no plan can be confirmed, the Debtor's Chapter 11 Case may be
converted to a case under chapter 7 of the Bankruptcy Code, pursuant to which a
trustee would be elected or appointed to liquidate the Debtor's assets for
distribution to creditors in accordance with the priorities established by the
Bankruptcy Code. A discussion of the effects that a chapter 7 liquidation would
have on the recovery by holders of Claims and Equity Interests is set forth
under "Confirmation Procedures - Best Interests Test." In view of FNBB's liens
on substantially all of the Debtor's assets and superpriority Administrative
Claim, the Debtor believes that a chapter 7 liquidation would result in little
or no distributions being made to holders of Other Priority Claims, General
Unsecured Claims, or Old Common Stock.
B. ALTERNATIVE PLAN OF REORGANIZATION.
If the Plan is not confirmed, the Debtor (or if the Debtor's exclusive
period in which to file a plan of reorganization has expired, any other party in
interest) could attempt to formulate a different plan. Such a plan might
involve either a reorganization and continuation of the Debtor's business or an
orderly liquidation of its assets. With respect to an alternative plan, the
Debtor and the Committees have explored various other alternatives in connection
with the extensive negotiation process involved in the formulation and
development of the Plan, but each concluded that the Plan provides the best
feasible recoveries attainable under the circumstances. The Debtor has also
considered, and held some preliminary discussions concerning, the sale of its
entire business, but has concluded that (1) the merger market environment for
its business is unattractive at the present time and (2) ultimately a higher
value for the business can be obtained if the Debtor is restructured and
relieved of a material portion of the debt that currently burdens its
operations.
In a liquidation under chapter 11, the Debtor's assets could be sold
in an orderly fashion over a more extended period of time than in a liquidation
under chapter 7, probably resulting in somewhat greater (but indeterminate)
recoveries. Further, since appointment of a trustee is not required in a
chapter 11 liquidation, the expenses for professional fees would most likely be
lower than those incurred in a chapter 7 case. Although preferable to a
chapter 7 liquidation, the Debtor believes that any alternative liquidation
under chapter 11 is a much less attractive alternative to holders of Claims and
Old Common Stock than the Plan because of the substantially greater return
provided for by the Plan.
THE DEBTOR AND THE COMMITTEES BELIEVE THAT CONFIRMATION AND
IMPLEMENTATION OF THE PLAN IS PREFERABLE TO ANY OF THE ALTERNATIVES DESCRIBED
HEREIN BECAUSE IT IS EXPECTED TO PROVIDE SUBSTANTIALLY GREATER RECOVERIES AND
INVOLVE LESS DELAY AND UNCERTAINTY AND LOWER ADMINISTRATIVE COSTS.
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IX.
VOTING PROCEDURES
The Debtor is providing copies of this Disclosure Statement and
Ballots to all known holders of impaired Claims and Equity Interests, including
registered holders as of the Record Date of Old 10-1/4% Notes, Old 13-1/2%
Notes, and Old Common Stock (or, if applicable, to those holders who are listed
as participants in a clearing agency's position). Registered holders may
include brokerage firms, commercial banks, trust companies, or other nominees.
If such entities do not hold for their own account, they should provide copies
of this Disclosure Statement and appropriate Ballots to their customers and to
beneficial owners. Any beneficial owner who has not received a Ballot should
contact such owner's brokerage firm or nominee, or write to Ryan, Swanson &
Cleveland, 1201 Third Avenue, Suite 3400, Seattle, Washington 98101, Attention:
Anne K. Dudley, Legal Assistant (the "Ballot Tabulator"), or call (206) 464-
4224.
A. BENEFICIAL OWNERS.
For purposes of voting to accept or reject the Plan, the beneficial
owners of Old 10-1/4% Notes, Old 13-1/2% Notes, or Old Common Stock will be
deemed to be the "holders" of the Claims or Equity Interests, as the case may
be, represented thereby.
Any beneficial owner holding Old 10-1/4% Notes, Old 13-1/2% Notes, or
Old Common Stock in its own name can vote by completing and signing the enclosed
Ballot and returning it directly to the Ballot Tabulator.
Any beneficial owner holding Old 10-1/4% Notes, Old 13-1/2% Notes, or
Old Common Stock in "street name" through a brokerage firm, bank, trust company,
or other nominee can vote by following these instructions:
1. Fill in all the applicable information on the Ballot, including
the name of the registered holder of such securities;
2. Sign the Ballot (unless the Ballot has already been signed by the
brokerage firm, bank, trust company, or other nominee); and
3. Return the Ballot to the Ballot Tabulator so that it will be
received prior to the voting deadline specified in the Ballot.
B. BROKERAGE FIRMS, BANKS, TRUST COMPANIES AND OTHER NOMINEES.
A nominee which is the registered holder of Old 10-1/4% Notes, Old 13-
1/2% Notes, or Old Common Stock for a beneficial owner can arrange for such
beneficial owner to vote directly as discussed above by distributing a copy of
the Disclosure Statement and the Ballot to such beneficial owner.
Alternatively, a nominee which is the registered holder of Old 10-1/4%
Notes, Old 13-1/2% Notes, or Old Common Stock for a beneficial owner can vote on
behalf of such beneficial owner by distributing a copy of this Disclosure
Statement to such owner and thereafter completing a Ballot indicating the vote
of such beneficial owner as directed by such owner.
C. MISCELLANEOUS.
Unless otherwise directed by the Bankruptcy Court, Ballots which are
signed, dated, and timely received, but on which a vote to accept or reject the
Plan has not been indicated, will be disregarded.
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If a Ballot is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, or other person acting in a
fiduciary or representative capacity, such person should indicate such capacity
when signing.
Unless the Ballot being furnished is timely received by the Ballot
Tabulator on or prior to the date specified in the Order and Notice, the Ballot
will not be counted in connection with confirmation of the Plan by the
Bankruptcy Court. In no case should a Ballot be delivered to the Bankruptcy
Court or the Debtor.
X.
CAPITALIZATION
The following table sets forth, on an unaudited basis, the projected
capitalization of the Reorganized Debtor at the assumed Effective Date of
February 1, 1997, both before and after giving effect to consummation of the
Plan and the transactions contemplated thereby. The table should be read in
conjunction with the consolidated financial statements of the Debtor and related
notes thereto included in Annex B hereto and in conjunction with the projected
balance sheet at February 1, 1997 and other projections, and related notes and
assumptions, discussed under "Certain Financial Projections."
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROJECTED*
FEBRUARY 1, 1997
(IN THOUSANDS)
--------------------------
BEFORE AFTER
- ------------------------------------------------------------------------------
Current Debt
FNBB Facility $20,220 $20,544
Notes Payable 65 65
Deferred Payment Tax Liabilities 0 190
Capital Leases 880 1,330
- ------------------------------------------------------------------------------
TOTAL CURRENT DEBT $21,165 $22,129
- ------------------------------------------------------------------------------
Long-Term Debt
Liabilities Subject To Compromise 23,784 0
Capital Leases 13,120 14,519(2)
Old 10-1/4% Notes (see note 1) 67,576 0
Old 13-1/2% Notes (see note 1) 838 0
Deferred Payment Tax Liabilities 0 666
Other 1,370 1,370
- ------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT 106,688 16,555
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shareholders' Equity (Deficit) ($56,225) $18,519
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL CAPITALIZATION $71,628 $57,203
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The foregoing introductory statement and the following notes and assumptions
are integral parts of this statement. See "Certain Financial Projections --
Pro Forma Balance Sheet."
* For a discussion of certain risks and other factors regarding financial
projections, see "Risk Factors -- Inherent Uncertainty In The Financial
Projections."
(1) These notes are included in Liabilities Subject to Compromise on the
Balance Sheet.
(2) Capital Lease Obligations have been restated to reflect current market
rates of interest.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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XI.
DESCRIPTION OF FNBB FACILITY
The following is a summary of certain principal terms of the FNBB
Facility applicable after the Effective Date. This summary is qualified in its
entirety by the terms of the FNBB Facility (which is on file with the Bankruptcy
Court.)
A. AMOUNT OF FACILITY.
FNBB is providing Lamonts with a $32 million credit facility on the
terms and conditions set forth in the FNBB Facility.
B. BORROWINGS.
Lamonts is entitled to draw on the $32 million credit facility
provided by FNBB by revolving advances and letters of credit with a sublimit of
$3,000,000 in a net outstanding amount not to exceed the Borrowing Base, as
defined in the FNBB Facility.
C. BORROWING BASE.
The Borrowing Base after the Effective Date will be an amount equal to
65% of Lamonts' book value of eligible inventory, net of specified reserves (the
"Inventory Advance Rate"). The "shrink reserves" are initially set at 2.6% of
the book value of Lamonts' inventory. A "Landlord Lien Reserve" may apply under
the circumstances described in the FNBB Facility.
D. MATURITY.
The FNBB Facility will terminate two years after the Effective Date.
E. RATE AND PAYMENT OF INTEREST.
Lamonts' borrowings under the FNBB Facility bear interest at a
floating rate 1.5% above the "Base Rate," as defined in the FNBB Facility, or,
at Lamonts' option, at 2.75% above the fully reserved adjusted eurodollar rate.
The rates are subject to adjustment on June 1, 1997, and annually thereafter,
based upon Lamonts' financial results in accordance with the criteria set forth
in the FNBB Facility. Interest on loans measured by the base rate will be paid
monthly in arrears. Interest on eurodollar loans will be paid in arrears at the
end of the applicable interest period of one, two, or three months. The default
rate of interest would be 3% above the Base Rate.
F. FEES AND COSTS.
A facility fee will be payable $336,000 on the Effective Date and
$224,000 on December 31, 1997. A letter of credit fee of 1.75% per annum will
be charged quarterly in arrears based on the average daily outstanding balance
of all letters of credit. A commitment fee in the amount of 0.5% per annum will
be payable monthly in arrears based on the average daily unused amount of the
maximum facility. There will be an administrative fee of $2,500 per month. In
addition, Lamonts will reimburse certain fees, costs, and expenses incurred by
FNBB, as set forth in the FNBB Facility.
G. SECURITY.
Advances by FNBB under the FNBB Facility are secured by all real and
personal property, rights, and assets of Lamonts, excluding any proceeds of
bankruptcy causes of action under sections 544 through 550 of the Bankruptcy
Code and the Escrow Account for unpaid professional fees as set forth in the
FNBB Facility. Notwithstanding the entry of the Confirmation Order and the
implementation of the Plan on the Effective Date, the FNBB Claim will not be
discharged, and the FNBB Liens will continue in full force and effect. The
validity and enforceability
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of the FNBB Claim and the validity, enforceability, perfection, and priority of
the FNBB Liens will be automatically ratified and confirmed in all respects and
will continue without any further action by FNBB. Without limiting the
foregoing, the FNBB Liens will not be subject to any present or future
contractual, statutory, or common law lien, security interest, or mortgage which
might be avoided and preserved for the benefit of the estate pursuant to section
551 of the Bankruptcy Code. In furtherance of (and without limiting) the
foregoing, the FNBB Liens in any of the Reorganized Debtor's non-fixture
personal property will be superior and senior in priority to any and all liens
arising by operation of law in favor of lessors and landlords for obligations
relating to or arising in connection with rental agreements for the use of real
property.
H. AFFIRMATIVE AND NEGATIVE COVENANTS.
The FNBB Facility contains affirmative and negative covenants,
including, without limitation, the following: (a) Lamonts may not incur or
permit to exist any Indebtedness (as defined) or make any Investment (as
defined), except as permitted in the FNBB Facility; (b) Lamonts may not make or
incur obligations for Capital Expenditures (as defined) except as permitted in
the FNBB Facility; (c) with certain exceptions, Lamonts may not allow any Liens,
other than Permitted Liens (both as defined), to exist with respect to its
assets and properties; (d) Lamonts may not enter into transactions with any
related party on terms that are less favorable to the Company than those that
might be obtained from a third party; (e) with certain exceptions provided in
the FNBB Facility, Lamonts may not engage in certain specified corporate
transactions or sell or dispose of assets other than in the ordinary and usual
course of business; and (f) Lamonts must satisfy certain financial covenants,
including with respect to its inventory levels and debt service coverage ratio.
Although the Company failed to comply with certain covenants related to
inventory levels, the Company requested and received a waiver relating to such
breaches for the months ending July 6, 1996 and August 3, 1996.
I. EVENTS OF DEFAULT.
Events of Default will be as specifically set forth in the FNBB
Facility and will generally include, among others, failure to pay interest,
principal, or fees when due; change of control as defined in the FNBB Facility;
any final judgment in excess of $100,000 and certain other cross defaults; an
injunction against conducting business; disruption of business for more than 10
days and that results in an impairment or decrease in the value of Lamonts'
assets in an amount that exceeds $100,000; failure to deliver required reports
to FNBB when due; certain bankruptcy and insolvency events; any representation
or warranty is found to be incorrect in any material respect; or breach of any
financial covenant, any negative covenant, or any affirmative covenant, subject
to specified grace and cure periods, all as more particularly set forth in the
FNBB Facility. Upon the occurrence of any Event of Default, in addition to
other remedies, all unpaid principal and accrued interest would, with respect to
certain Events of Default, become immediately due and payable without the giving
of notice and, with respect to other Events of Default, would become immediately
due and payable upon notice from FNBB to that effect.
J. CASH COLLATERAL.
Under the terms of the FNBB Facility, all cash proceeds of FNBB's
collateral are to be deposited into a blocked bank account and forwarded to FNBB
on a daily basis for application to the outstanding balance of the obligations
to FNBB.
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XII.
DESCRIPTION OF NEW COMMON STOCK
A. NEW COMMON STOCK.
The Amended and Restated Certificate of Incorporation provides for an
authorized capital stock consisting of 40,000,000 shares of New Common Stock.
The shares of New Common Stock to be issued pursuant to the Plan will be, when
issued, fully paid and nonassessable. The holders of shares of New Common Stock
elect all directors and are entitled to one vote per share. Shareholders are
entitled to receive dividends when and if declared by the Board of Directors out
of legally available funds, although the Reorganized Debtor's ability to pay
dividends is substantially limited. See "Risk Factors - Dividends." Upon any
possible liquidation, dissolution, or winding up of the Reorganized Debtor,
holders of New Common Stock are entitled to share pro rata in any distribution
to the shareholders remaining after distribution to holders of preferred stock,
if any. Holders of New Common Stock have no preemptive, subscription,
redemption, or conversion rights.
B. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND
RESTATED BYLAWS.
The following description of certain provisions of the Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws is
qualified in its entirety by reference to the Amended and Restated Certificate
of Incorporation and Amended and Restated Bylaws, copies of which have been
included in the Plan Documentary Supplement.
Adoption of the Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws pursuant to the Plan has two primary purposes:
(1) To increase the Company's authorized capital to provide for the
issuance of New Common Stock pursuant to the Plan (including upon
exercise of New Warrants and New Employee Stock Options authorized and
issued pursuant to the Plan); and
(2) To prohibit the issuance of non-voting equity securities to the
extent required by section 1123(a)(6) of the Bankruptcy Code.
All of the provisions of the Amended and Restated Certificate of
Incorporation and the Amended and Restated Bylaws will automatically become
effective as of the Effective Date.
C. TRANSFER AGENT AND REGISTRAR.
The Transfer Agent and Registrar for the New Common Stock will be
Keycorp Shareholder Services, Inc.
XIII.
DESCRIPTION OF NEW WARRANTS
A. GENERAL.
New Class A Warrants exercisable for a total of 2,203,320 shares of
New Common Stock will be issued pursuant to the Plan, and New Class B Warrants
exercisable for a total of 800,237 shares of New Common Stock will be issued
pursuant to the Plan. The New Warrants will be issued pursuant to a Warrant
Agreement (the "Warrant Agreement") between the Debtor and a Warrant Agent to be
determined, in substantially the form contained in the Plan Documentary
Supplement. The following summary of the principal terms of the New
55
<PAGE>
Warrants is qualified in its entirety by reference to the Warrant Agreement and
the form of New Warrants attached thereto.
B. EXERCISE; PURCHASE PRICE.
The New Class A Warrants will be exercisable at any time after the
first date on which the Aggregate Equity Trading Value (as defined in the
Warrant Agreement) equals or exceeds $20,000,000 until the tenth anniversary of
the Effective Date. The New Class B Warrants will be exercisable at any time
after the first date on which the Aggregate Equity Trading Value equals or
exceeds $25,000,000 until the tenth anniversary of the Effective Date.
Each New Warrant will initially represent the right to purchase one
share of New Common Stock at a price (the "Purchase Price") initially equal to
$0.01 per share.
C. ADJUSTMENTS.
The number and type of securities issuable upon exercise of the New
Warrants and the Purchase Price payable upon exercise thereof are subject to
customary anti-dilution protection as provided in the Warrant Agreement in the
event of (a) stock dividends, subdivisions, combinations, and reclassifications
affecting the New Common Stock, (b) issuances of rights, options, or warrants to
all holders of New Common Stock entitling them to subscribe for or purchase New
Common Stock (or securities convertible into New Common Stock) at a price per
share of New Common Stock (or having a conversion price per share of New Common
Stock, if a security convertible into New Common Stock) less than the Fair
Market Value per share of New Common Stock (as defined in the Warrant
Agreement), (c) distributions to all holders of New Common Stock of evidences of
indebtedness or assets, including capital stock other than New Common Stock, or
subscription rights, options or warrants (other than cash dividends or cash
distributions payable out of consolidated earnings or earned or capital surplus
or dividends payable in New Common Stock); and (d) subject to certain
exceptions, issuances to any person of New Common Stock or rights, options or
warrants to purchase New Common Stock (or securities convertible into New Common
Stock) at a price per share of New Common Stock (or having a conversion price
per share of New Common Stock, if a security convertible into New Common Stock)
less than the Closing Price (as defined in the Warrant Agreement) per share of
New Common Stock on the date of issuance.
In addition to the foregoing provisions, if the Reorganized Debtor at
any time consolidates with or merges with or into another corporation or the
property of the Reorganized Debtor is sold substantially as an entirety, the
holder of any outstanding New Warrants would be entitled to receive, upon the
exercise thereof in accordance with their terms, the securities, property, or
cash to which the holder of the number of shares of New Common Stock deliverable
upon the exercise of such New Warrants immediately prior to such transaction
would have been entitled upon such transaction. The Reorganized Debtor is
obligated to take such steps in connection with any such transaction as may be
necessary to assure that the provisions of the Warrant Agreement will thereafter
be applicable, as nearly as possible, in relation to any securities or property
thereafter deliverable upon the exercise of the New Warrants.
Notwithstanding any contrary provision of the Warrant Agreement, the
Reorganized Debtor will not be required to issue Warrant Certificates which
evidence New Warrants to acquire fractional shares of New Common Stock upon the
exercise of New Warrants. In lieu of New Warrants to acquire fractional shares
of New Common Stock, the Reorganized Debtor will, as necessary, pay to the
registered holder of a Warrant Certificate
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<PAGE>
with respect to which New Warrants to acquire fractional shares of New Common
Stock would otherwise be issuable, an amount of cash equal to the same fraction
of the Closing Price of a whole share of New Common Stock as of the business day
immediately preceding the date of exercise.
D. NOTICE OF PROPOSED ACTIONS.
In case the Reorganized Debtor proposes to take certain actions,
including, without limitation, (a) declare any dividends or other distributions
(other than cash dividends on its New Common Stock, (b) offer to holders of New
Common Stock of rights to subscribe for or purchase shares of New Common Stock
or other securities, (c) effect certain reclassifications of the New Common
Stock, or any capital reorganization, consolidation, or merger or sale or other
disposition of all or substantially all of the assets, properties, and business
of the Reorganized Debtor, or any liquidation, dissolution or winding up of the
Reorganized Debtor, then the Reorganized Debtor will give advance notice (in the
manner provided in the Warrant Agreement) to the Warrant Agent and shall cause
the Warrant Agent to provide such notice to the registered holders of New
Warrants.
E. WARRANT AGENT.
The Warrant Agreement provides that the Reorganized Debtor will
indemnify the Warrant Agent against any and all losses, expenses, or liabilities
(including judgments, costs, and counsel fees and expenses) arising out of its
agency under the Warrant Agreement, except as a direct result of the gross
negligence or willful misconduct of the Warrant Agent.
F. REGISTRATION RIGHTS.
The New Warrants and the New Common Stock issuable upon exercise of
the New Warrants will be registered under the Securities Act to the extent, and
pursuant to the provisions, of the Registration Rights granted pursuant to the
Plan. See "The Plan of Reorganization -- Summary of Certain Other Provisions of
the Plan -- Resale of Securities."
XIV.
COMMON STOCK OWNERSHIP
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of July 22, 1996 information known
to the management of the Company concerning the beneficial ownership of Old
Common Stock by (i) each person who is known by the Company to be the beneficial
owner of more than five percent of the outstanding shares of Old Common Stock,
(ii) each current director and executive officer of the Company, (iii) each
person who will serve as a director or executive officer of the Reorganized
Debtor following consummation of the Plan and who is known by the Debtor to own
shares of Old Common Stock, and (iv) all directors and executive officers of the
Company as a group. The table also shows, as of the Effective Date, the number
of shares and percentage of the outstanding New Common Stock expected to be
received by each such person under the Plan. In addition, the table shows, to
the best of the Debtor's knowledge, all persons who will be a holder of at least
5% of the shares of New Common Stock outstanding as of the Effective Date
(calculated on a primary basis).
57
<PAGE>
<TABLE>
<CAPTION>
AS OF JULY 22, 1996 AS OF THE EFFECTIVE DATE
--------------------------------------------------------------------
AMOUNT AND PERCENTAGE OF AMOUNT AND PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER NATURE OF CLASS NATURE OF OF CLASS (11)
BENEFICIAL BENEFICIAL
OWNERSHIP (1) OWNERSHIP (9)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alan R. Schlesinger -- -- 300,000 3.2%
12413 Willows Road N.E.
Kirkland, WA 98034
- -----------------------------------------------------------------------------------------------------------------
Loren R. Rothschild -- -- 75,000 *
12413 Willows Road N.E.
Kirkland, WA 98034
- -----------------------------------------------------------------------------------------------------------------
Peter Aaron (2) 22,067 * 27,500 *
12413 Willows Road N.E.
Kirkland, WA 98034
- -----------------------------------------------------------------------------------------------------------------
Debbie A. Brownfield (3) 6,737 * 22,500 *
12413 Willows Road N.E.
Kirkland, WA 98034
- -----------------------------------------------------------------------------------------------------------------
E.H. Bulen -- -- 15,000 *
12413 Willows Road N.E.
Kirkland, WA 98034
- -----------------------------------------------------------------------------------------------------------------
Jim Ferree -- -- 12,500 *
12413 Willows Road N.E.
Kirkland, WA 98034
- -----------------------------------------------------------------------------------------------------------------
All directors and executive officers as 28,804 * 500,000 5.3%
group (9 persons) (4)
- -----------------------------------------------------------------------------------------------------------------
Apollo Retail Partners, L.P. (5) 6,887,133 38.5% 77,000 **
c/o Apollo Advisors, L.P.
2 Manhattanville Road
Purchase, New York 10577
- -----------------------------------------------------------------------------------------------------------------
BEA Associates (6) 1,104,357 6.2% 12,400 **
153 East 53rd St.
One Citicorp Center
New York, NY 10022
- -----------------------------------------------------------------------------------------------------------------
Executive Life Insurance Company 898,406 5.0% 471,257 5.2%
of New York
c/o First Boston Asset Management
12 E. 49th Street - 30th Floor
New York, New York 10017
- -----------------------------------------------------------------------------------------------------------------
FMR Corp. 2,734,938 14.0% 4,014,733 44.6%
Fidelity Management Trust Company (10) (10)
Fidelity Management & Research
Company (7)
82 Devonshire Street
Boston, Massachusetts 02109
- -----------------------------------------------------------------------------------------------------------------
Morgens Waterfall Vintiadis & Co., Inc. (8) 3,082,906 17.2% 34,400 **
610 Fifth Avenue, 7th Floor
New York, New York 10020
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
THE FOLLOWING NOTES ARE AN INTEGRAL PART OF THIS TABLE.
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<PAGE>
* Percentage equal to less than 1%
** Percentage equal to less than 5%
(1) Except for applicable community property laws, with respect to the
matters covered by the Voting Agreement (hereinafter defined), and as
otherwise indicated, each person has the sole power to vote and dispose of
all shares of Old Common Stock listed opposite his, her, or its name. Under
the Voting Agreement, these beneficial owners and certain other persons,
holding approximately 8,717,000 shares or 48.7% of the outstanding Old Common
Stock, have the right to vote in concert with respect to the election of
directors. Since the filing of the Petition, none of the parties to the
Voting Agreement has exercised any rights thereunder. Lamonts' obligations
under the Voting Agreement will be rejected as of the Effective Date under
the Plan. See "Certain Transactions."
(2) Includes 1,047 shares of Old Common Stock issuable upon exercise of Old
Warrants that have an exercise price of $5.01 per share and 20,782 shares of Old
Common Stock subject to immediately exercisable, non-qualified Old Employee
Stock Options that have an exercise price of $.01 per share.
(3) Includes 4,637 shares of Old Common Stock subject to immediately
exercisable, non-qualified Old Employee Stock Options that have an exercise
price of $.01 per share.
(4) Includes 1,047 shares of Old Common Stock issuable upon the exercise of Old
Warrants that have an exercise price of $5.01 per share and 25,419 shares of Old
Common Stock subject to immediately exercisable, non-qualified Old Employee
Stock Options that have an exercise price of $.01 per share.
(5) The sole general partner of Apollo Retail Partners ("ARP") is AIF II,
L.P. ("AIF II"); the managing general partner of AIF II is Apollo Advisors,
L.P. ("Apollo Advisors"); and the general partner of Apollo Advisors is
Apollo Capital Management, Inc.
(6) According to the Schedule 13G filed by BEA Associates on January 15, 1996,
CS Holding directly owns 80% of the partnership units in BEA Associates. CS
Holding and its direct and indirect subsidiaries, in addition to BEA Associates,
may beneficially own shares of the Company and such shares are not reported in
such Schedule 13G. CS Holding disclaims beneficial ownership of shares of the
Company beneficially owned by its direct and indirect subsidiaries, including
BEA Associates, and BEA Associates disclaims beneficial ownership of all the
shares of Old Common Stock, which shares are held in discretionary accounts
which BEA Associates manages.
(7) Fidelity Management & Research Company ("Fidelity") is the investment
advisor to various registered investment companies (the "Fidelity Funds") and
is a wholly owned subsidiary of FMR Corp. Fidelity Management Trust Company
("FMTC") is the trustee or managing agent for various private investment
accounts (the "Accounts") and is a wholly owned subsidiary of FMR Corp.
According to the Schedule 13G Filed by FMR Corp. on July 10, 1996, FMR Corp.
beneficially owns (i) through Fidelity, as investment advisor to the Fidelity
Funds, 2,578,526 shares of Old Common Stock (approximately 13.18%), including
1,586,860 shares of Old Common Stock subject to immediately exercisable Old
Warrants that have an exercise price of $1.00 per share and (ii) through
FMTC, the managing agent for the Accounts, 156,412 shares of Old Common Stock
(approximately .80%), including 105,904 shares of Old Common Stock subject to
immediately exercisable Old Warrants that have an exercise price of $1.00 per
share.
(8) Morgens Waterfall Vintiadis & Company, Inc. ("Morgens") renders
discretionary investment advisory services to (i) Morgens Waterfall Vintiadis
N.V. which holds 95,450 shares of Old Common Stock, (ii) the Bond Fund of the
Common Fund for Nonprofit Organizations which holds 211,362 shares of Old
Common Stock and (iii) Betje Partners, which holds 102,264 shares of Old
Common Stock. Messrs. Morgens and Waterfall are the general partners of (i)
Morgens Waterfall Income Partners which holds 98,260 shares of Old Common
Stock and (ii) Phoenix Partners which holds 287,089 shares of Old Common
Stock. Messrs. Morgens and Waterfall are officers, directors and
stockholders of Prime, Inc., which is the corporate general partner of three
limited partnerships, each of which serves as a general partner of (i)
Restart Partners, L.P., which holds 623,586 shares of Old Common Stock, (ii)
Restart Partners II, L.P., which holds 1,022,800 shares of Old Common Stock
and (iii) Restart Partners III, L.P., which holds 642,095 shares of Old
Common Stock.
(9) Assumes each director and executive officer has fully exercised his or her
vested New Employee Stock Options.
(10) Assumes that FMR Corp., through Fidelity and FMTC, will receive the maximum
number of shares of New Common Stock possible under the Plan. The actual number
of shares to which Fidelity and FMTC will be entitled may be less depending on
the actual aggregate amount of Allowed Senior Claims and the allowed amounts of
Claims of the other holders of General Unsecured Claims.
(11) For purposes of this table, the effect of possible exercise of New Warrants
and Gordian Warrants has been disregarded.
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<PAGE>
B. DILUTION.
The following table illustrates the ownership of Old Common Stock
before giving effect to the Plan and the consummation of the transactions
contemplated thereby and (both on a primary and a fully diluted basis) the
ownership of New Common Stock on the Effective Date:
PERCENTAGE OF OUTSTANDING SHARES
----------------------------------------------
BEFORE(1) AFTER(2)
----------------------------------------------
FULLY
PRIMARY DILUTED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Holders of Old Common Stock 100.00% 2.22%(3) 2.25%(3)
- --------------------------------------------------------------------------------
Holders of General Unsecured
Claims -- 97.78%(4) 87.75%(4)
- --------------------------------------------------------------------------------
New Employee Stock Options -- -- 10.00%
- --------------------------------------------------------------------------------
100.00% 100.00% 100.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Subject to dilution upon exercise of Old Employee Stock Options and Old
Warrants.
(2) "Primary" data are before giving effect to, and "Fully Diluted" data are
after giving effect to, (a) the exercise of New Warrants to purchase shares
of New Common Stock equivalent to 33.37% of the outstanding shares as of the
Effective Date (calculated on a primary basis) issued to the holders of
General Unsecured Claims and holders of Old Common Stock pursuant to the Plan,
and (b) the exercise of New Employee Stock Options to purchase shares of New
Common Stock equivalent to 14.82% of the shares outstanding on the Effective
Date (calculated on a primary basis). The effect of possible exercise of
Gordian Warrants has been disregarded.
(3) Excludes shares of New Common Stock issued to such persons pursuant to the
Plan in respect of General Unsecured Claims held by them.
(4) Excludes shares of New Common Stock issued to such persons pursuant to the
Plan in respect of Old Common Stock held by them.
XV.
MARKET AND TRADING INFORMATION
A. OLD COMMON STOCK.
The Old 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 Old 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 and over the counter quotes. 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.
60
<PAGE>
Fiscal 1994: High Low
- ---------------------------------- ------------ -----------
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
January Quarter High Low
- ---------------------------------- ------------ -----------
Quarter ended January 28, 1995 2 1/8
Fiscal 1995: High Low
- ---------------------------------- ------------ -----------
Quarter ended April 29 1/2 1/8
Quarter ended July 29 7/16 1/8
Quarter ended Oct. 28 1/4 1/16
Quarter ended February 3 1/4 1/16
Fiscal 1996: High Low
- ---------------------------------- ------------ -----------
Quarter ended May 4 1996 1/4 1/8
Quarter ended August 3 1996 1/4 1/4
At August 31, 1996, there were 153 holders of record of the Old Common
Stock.
B. OLD 10-1/4% NOTES AND OLD 13-1/2% NOTES.
The Old 10-1/4% Notes and Old 13-1/2% Notes are traded infrequently in
the over-the-counter market. Holders of such Notes are urged to contact their
broker to obtain a current quote.
61
<PAGE>
XVI.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A. INTRODUCTION.
The implementation of the Plan may have federal, state, and local tax
consequences to Debtor and its subsidiaries filing a consolidated federal income
tax return (collectively, the "Debtor Consolidated Group") and Debtor's
creditors and stockholders. No tax opinion has been sought or will be obtained
with respect to any tax consequences of the Plan. This Disclosure Statement
does not constitute and is not intended to constitute either a tax opinion or
tax advice to any person, and the summary contained herein is provided for
informational purposes only.
The discussion below summarizes only certain of the federal income tax
consequences associated with the Plan's implementation. This discussion does
not attempt to comment on all aspects of the federal income tax consequences
associated with the Plan, nor does it attempt to consider various facts or
limitations applicable to any particular creditor or stockholder which may
modify or alter the consequences described herein. This discussion does not
address state, local or foreign tax consequences or the consequences of any
federal tax other than the federal income tax.
The following discussion is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code"), the regulations
promulgated thereunder, existing judicial decisions and administrative rulings.
In light of the numerous recent amendments to the Internal Revenue Code, no
assurance can be given that legislative, judicial or administrative changes will
not be forthcoming that would affect the accuracy of the discussion below. Any
such changes could be material and could be retroactive with respect to the
transactions entered into or completed prior to the enactment or promulgation
thereof. The tax consequences of certain aspects of the Plan are uncertain due
to the lack of applicable legal authority and may be subject to judicial or
administrative interpretations that differ from the discussion below.
Tax legislation has been introduced into Congress which, if enacted,
would fundamentally alter the basic scheme of federal taxation by replacing the
federal income tax with a national retail sales tax or a form of value added
tax. Other proposed tax legislation would transform the current graduated-rate
federal income tax into an income-based flat tax. Although fundamental tax
reform of the type described above is unlikely to be enacted in 1996, it may be
enacted in 1997 or subsequent years. Insofar as the discussion below addresses
income tax consequences in 1997 and/or subsequent years, such discussion may be
completely invalidated if fundamental tax reform is enacted.
CREDITORS AND STOCKHOLDERS ARE ADVISED TO CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM AND TO DEBTOR OF THE
TRANSACTIONS CONTEMPLATED BY THE PLAN, INCLUDING FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES.
B. FEDERAL INCOME TAX CONSEQUENCES TO DEBTOR AND ITS SUBSIDIARIES.
1. TAX REORGANIZATION.
Section 368 defines certain tax reorganizations under the Internal
Revenue Code, including reorganizations under the Bankruptcy Code. Tax
reorganizations usually involve exchanges of stock and tax securities in which
the issuing corporation (or another corporation that is a party to the
reorganization) and the holders of stock and tax securities participate.
62
<PAGE>
Debtor believes that the transactions contemplated by the Plan
constitute a recapitalization tax reorganization under section 368(a)(1)(E) of
the Internal Revenue Code (an "E" reorganization). However, no assurances can
be given that such an interpretation ultimately will be sustained by the courts
if challenged.
2. CARRYOVER AND AVAILABILITY OF THE DEBTOR CONSOLIDATED GROUP'S NET
OPERATING LOSSES.
a. GENERAL.
Based on preliminary estimates, the Debtor Consolidated Group will
have approximately $90 million of consolidated NOLs carrying forward from the
tax year ending February 3, 1996 into the tax year ending February 1, 1997. All
or nearly all of such NOLs are attributable to Debtor (as opposed to other
members of the Debtor Consolidated Group). Debtor is uncertain whether the
Debtor Consolidated Group will have a consolidated net operating loss in the
current tax year.
The NOL amounts of the Debtor Consolidated Group are subject to review
and significant adjustment upon audit by the IRS. In addition, the foregoing
estimates of the Debtor Consolidated Group's NOLs are subject to legal and
factual uncertainty. The tax attribute reduction rules of section 108 of the
Internal Revenue Code will have the effect of severely reducing the Debtor
Consolidated Group's NOLs.
b. SECTION 382.
Section 382 of the Internal Revenue Code places potentially severe
limitations upon the use of a corporation's NOLs and certain other tax
attributes if an "ownership change" occurs with respect to such corporation's
stock. This limitation is in addition to, not in lieu of, the severe reduction
of the NOLs that will occur as a result of attribute reduction. Based upon the
anticipated stock ownership of the Reorganized Debtor, Debtor believes that an
"ownership change" will occur with respect to Debtor's stock and, accordingly,
that the limitations and restrictions of section 382 should apply.
Under section 382 of the Internal Revenue Code, following an
"ownership change," the amount of a loss corporation's income that can be offset
by pre-ownership change NOLs cannot exceed an annual amount equal to the sum of
(i) the value of the loss corporation's equity immediately before the ownership
change (excluding proscribed contributions to capital) multiplied by a
prescribed rate of return, and (ii) recognized built-in gains, if any (as
hereinafter described). Moreover, no NOLs will survive if the loss corporation
does not continue its historic business or use a significant portion of its
assets in such a business during the two-year period beginning on the date of
the ownership change. If the loss corporation has more than one line of
business, continuity of business enterprise requires only that it continue a
significant line of business.
As noted, the limitations of section 382 arise upon the occurrence of
an "ownership change." An ownership change occurs if, following either an
"owner shift" or an "equity structure shift" affecting the holdings of a "5
percent shareholder" during a three year testing period, there is more than a 50
percentage point aggregate increase in the total value of the stock of the loss
corporation held at the close of the testing period by "5 percent shareholders"
over the lowest percentage holdings by such shareholders during the testing
period.
The Debtor underwent an ownership change in 1992 that limited the use
of NOLs that had accumulated in the tax year that ended October 1992 and earlier
tax years. The annual NOL limitation under section 382 with respect to such
ownership change is approximately $285,000. As discussed above, the Debtor will
undergo another ownership change as a result of
63
<PAGE>
transactions contemplated by the Plan. The section 382 limitations discussed
above regarding the second ownership change may, however, be ameliorated by
certain provisions of section 382 that provide a more liberal rule for a
corporation that is in a title 11 case when the ownership change occurs. These
provisions -- section 382(l)(5) and section 382(l)(6) of the Internal Revenue
Code -- are discussed below.
Section 382(l)(5) generally provides that the limitations of section
382 shall not apply to any ownership change occurring in a case under the
jurisdiction of a bankruptcy court under title 11 of the United States Code if
qualifying creditors and shareholders own 50 percent or more of the loss
corporation's stock after such ownership change. Under section 382(l)(5), the
loss corporation's NOLs and specified credits must be recomputed to eliminate
deductions for interest paid or accrued by the loss corporation on the portion
of the debt that was exchanged for stock, and for which the loss corporation had
previously claimed deductions during (i) the three taxable years prior to the
taxable year in which the ownership change occurs, and (ii) the portion of the
taxable year of the ownership change up to, but not including, the "change
date." If section 382(l)(5) applies to an ownership change and a second
ownership change occurs within two years, the section 382 limitation is reduced
to zero (i.e., NOLs attributable to any period before the second ownership
change cannot be utilized at all after the second ownership change).
The Debtor has not yet determined whether it will be able to meet the
threshold requirements for qualifying for section 382(l)(5). Nor has Debtor
determined whether the application of section 382(l)(5) would be beneficial for
Debtor. However, the issuance of stock to creditors in exchange for debt
pursuant to the Plan should enable the Debtor to utilize the provisions of
section 382(l)(6).
Under section 382(l)(6), the usual section 382 loss limitation rules
apply except that the value of the loss corporation's stock is increased (for
purposes of calculating the limitation) by the increase in value that results
from the surrender or cancellation of creditors' claims in the reorganization
transaction.
Any shift (deemed or actual) in the ownership of stock of the Debtor,
directly or by attribution, outside the scope of the Plan may trigger (or may
have already triggered) the application of section 382 and other provisions of
the Internal Revenue Code which may affect the availability of the Debtor
Consolidated Group's NOLs. Because the federal income tax consequences of any
such shift would depend on the particular facts and circumstances at such time
and the application of complex legislation and regulations, Debtor expresses no
views as to the effect of any transactions outside the scope of the Plan or the
survival of any carryovers.
3. REDUCTION OF DEBTOR'S INDEBTEDNESS.
As a result of the Plan's implementation, the amount of Debtor's
aggregate outstanding indebtedness will be reduced substantially. (Any amount
of potential discharged indebtedness for federal income tax purposes will be
referred to herein as a "Debt Discharge Amount.") In general, the Internal
Revenue Code provides that a taxpayer who realizes a discharge of indebtedness
must include the Debt Discharge Amount in its gross income in the taxable year
of discharge to the extent that the Debt Discharge Amount exceeds any
consideration given for such discharge. No income from the discharge of
indebtedness is realized to the extent that payment of the liability being
discharged would have given rise to a deduction.
If a taxpayer is in a title 11 case and the discharge of indebtedness
occurs pursuant to a plan approved by the court, such discharge of indebtedness
is specifically excluded from gross income.
64
<PAGE>
Accordingly, Debtor will not be required to include in income any Debt
Discharge Amount as a result of Plan transactions. The Internal Revenue Code
requires certain tax attributes of Debtor to be reduced by the Debt Discharge
Amount excluded from income. Tax attributes are reduced in the following order
of priority: net operating losses and net operating loss carryovers; general
business credits; minimum tax credits; capital loss carryovers; basis of
property of the taxpayer; passive activity loss or credit carryovers; and
foreign tax credit carryovers. Tax attributes are generally reduced by one
dollar for each dollar excluded from gross income, except that general tax
credits, minimum tax credits and foreign tax credits are reduced by 33.3 cents
for each dollar excluded from gross income. As discussed above, the tax
attribute reduction rules may eliminate all or a large portion of the Debtor
Consolidated Group's NOLs and other Debtor tax attributes.
An election can be made to alter the order of priority of attribute
reduction by first applying the reduction against depreciable property held by
the taxpayer in an amount not to exceed the aggregate adjusted basis of such
property. Debtor has not yet decided whether to make such election. The
deadline for making such election is the due date (including extensions) of
Debtor's federal income tax return for the taxable year in which such debt is
discharged pursuant to the Plan.
Any Claim against Debtor (except a Claim that would give rise to a
deduction if paid) that is discharged by payment to a creditor of Cash and/or
property will result in the creation of a Debt Discharge Amount reducing tax
attributes to the extent that the adjusted issue price of the debt discharged
(plus accrued interest) exceeds the fair market value of the payment made in
cancellation thereof.
Debtor's Debt Discharge Amount may be increased to the extent that
unsecured creditors holding unscheduled Claims fail to timely file a proof of
Claim and have their Claims discharged on the Confirmation Date pursuant to
section 1141 of the Bankruptcy Code.
C. TAX CONSEQUENCES TO CREDITORS.
The tax consequences of the Plan's implementation to a creditor will
depend on whether the creditor's present debt claim constitutes a "security" of
Debtor for federal income tax purposes and the type of consideration received by
the creditor in exchange for its Claim, whether the creditor reports income on
the cash or accrual method, whether the creditor receives consideration in more
than one tax year of the creditor, and whether all the consideration received by
the creditor is deemed to be received by that creditor in an integrated
transaction. The tax consequences upon the receipt of Cash, debt instruments or
other property allocable to interest are discussed below under "Receipt of
Interest."
1. CLAIMS CONSTITUTING TAX SECURITIES.
a. DEFINITION OF "SECURITY" FOR TAX PURPOSES.
The determination whether a Claim of any particular creditor
constitutes a "security" for federal income tax purposes is based upon the facts
and circumstances surrounding the origin and nature of the Claim and its
maturity date. Generally, Claims arising out of the extension of trade credit
have been held not to be "securities" for federal income tax purposes ("Tax
Securities"). Instruments with a term of five years or less rarely qualify as
Tax Securities. On the other hand, bonds or debentures with an original term in
excess of ten years have generally been held to be Tax Securities. The Debtor
expresses no view with respect to whether a Claim based on any pre-Effective
Date obligation of the Debtor constitutes a Tax Security. EACH CREDITOR IS
URGED TO CONSULT ITS OWN TAX ADVISOR IN THIS REGARD.
65
<PAGE>
b. RECEIPT OF TAX SECURITIES.
Section 354 of the Tax Code provides for nonrecognition of gain or
loss by holders of Tax Securities of a corporation who exchange these Claims
solely for stock or Tax Securities, pursuant to certain tax reorganizations,
including a recapitalization pursuant to section 368(a)(1)(E) of the Tax Code.
In the context of the Plan, such section would apply where a holder of Tax
Securities of the Debtor exchanges such items for stock of the Debtor. The
nonrecognition rule of Section 354 is not applicable by its terms if: (i) the
principal amount of Tax Securities received exceeds the principal amount of Tax
Securities surrendered; or (ii) Tax Securities are received, but none are
surrendered; or (iii) stock or Tax Securities are received for accrued interest.
If solely stock or Tax Securities of the Debtor are received, but clause (i) or
(ii) applies, gain (but not loss) will be recognized to the extent of the fair
market value of the amounts described in clauses (i) or (ii), as applicable.
The treatment of Tax Securities received for accrued interest is described in
"Receipt of Interest" below.
c. RECEIPT OF CASH OR DEBT NOT CONSTITUTING TAX SECURITIES FOR
TAX SECURITIES.
A creditor whose existing Claims constitute Tax Securities of the
Debtor may recognize gain (but not loss) if, in addition to stock or Tax
Securities of the Debtor, such creditor receives: cash, debt of the Debtor not
constituting Tax Securities, or other property ("Boot"). The amount of such
gain, if any, to a cash basis taxpayer will equal the lesser of (i) the excess,
if any, of the sum of cash and fair market value of all other consideration
received over the basis of the creditor in such creditor's existing Claims
(other than any Claims in respect of accrued interest); or (ii) the amount of
cash and the fair market value of other Boot items.
d. DETERMINATION OF CHARACTER OF GAIN.
In the case of a creditor whose existing Claims constitute capital
assets in such creditor's hands, the gain required to be recognized will be
classified as a capital gain, except to the extent of interest (including
accrued market discount, if any). Any gain recognized will be treated as
ordinary income to the extent of accrued market discount. To the extent gain at
least equal to any accrued market discount is not recognized by the holder, such
unrecognized accrued market discount will be attributed to the Tax Securities
and New Common Stock received. Any gain recognized by the creditor upon a
subsequent sale or exchange of such Tax Securities or New Common Stock will be
ordinary income to the extent of such accrued market discount. See "Other Tax
Considerations - Market Discount." In this regard, it should be noted that
section 582(c) of the Tax Code provides that the sale or exchange of a bond,
debenture, note or certificate, or other evidence of indebtedness by a bank or
certain other financial institutions shall not be considered the sale or
exchange of a capital asset. Accordingly, any gain recognized by such creditors
as a result of the Plan's implementation will be ordinary income,
notwithstanding the nature of their Claims. Any capital gain recognized by a
creditor will be long-term capital gain with respect to those Claims for which
the creditor's holding period is more than one year, and short-term capital gain
with respect to such Claims for which the creditor's holding period is one year
or less. As a result of the Revenue Reconciliation Act of 1990, there may be a
favorable tax rate applied to capital gains for certain holders.
e. TAX BASIS AND HOLDING PERIOD OF ITEMS RECEIVED.
The aggregate tax basis of any stock or Tax Securities of the Debtor
received by a cash basis creditor, other than amounts received on account of
interest, will be a substituted basis equal to the creditor's basis in the Claim
surrendered (other than any Claims in respect of accrued interest), increased by
any gain recognized on the exchange, and decreased by the amount of any cash and
the fair market value of any other Boot items received. If a creditor
subsequently
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<PAGE>
recognizes any gain on the sale or exchange of stock received, the gain
recognized by such creditor on such sale or exchange will be treated as ordinary
income to the extent of any bad debt deduction attributable to such creditor's
Claim or ordinary loss deduction previously claimed by such creditor, provided
that the stock constitutes a capital asset in the creditor's hands.
A creditor's holding period for any stock or Tax Securities of Debtor
(other than stock or Tax Securities received on account of interest) received
pursuant to the Plan will include the period during which such creditor held the
exchanged Tax Security.
f. RECEIPT SOLELY OF BOOT.
A creditor holding Tax Securities who receives solely cash and/or
other Boot items in full satisfaction of such creditor's Claim will be required
to recognize gain or loss on the exchange. The creditor will recognize gain or
loss equal to the difference between the amount realized in respect of such
Claim and the creditor's tax basis in the Claim, and the tax treatment will
parallel the tax treatment set forth below in "Claims Not Constituting Tax
Securities".
2. CLAIMS NOT CONSTITUTING TAX SECURITIES.
a. GAIN/LOSS ON EXCHANGE.
A creditor whose existing Claims do not constitute Tax Securities
(such as most or all trade Claims) will recognize gain or loss on the actual or
constructive exchange of such creditor's existing Claims (other than Claims for
accrued interest) for Cash and any other consideration received (including New
Common Stock) equal to the difference between (i) the "amount realized" in
respect of such Claims and (ii) the creditor's tax basis in such Claims. The
"amount realized" will be equal to the sum of the Cash and (i) as to a cash-
basis taxpayer, the fair market value of all other consideration received, and
(ii) as to an accrual-basis taxpayer, the face amount of any new debt
instruments and fair market value of the other consideration received, less any
amounts allocable to interest, unstated interest or original issue discount.
b. TAX BASIS AND HOLDING PERIOD OF ITEMS RECEIVED.
The aggregate tax basis in the items received by a creditor will equal
the amount realized in respect of such items (other than amounts allocable to
any accrued interest). The holding period for items received in the exchange
will begin on the day following the exchange.
c. BAD DEBT DEDUCTION ON DISCHARGE OF CLAIM.
A creditor whose existing Claim does not constitute a Tax Security and
who receives no consideration under the Plan with respect to such Claim may be
entitled to a bad debt deduction equal in amount to such creditor's adjusted
basis in such Claim. A bad debt deduction is allowed in the taxable year of the
creditor in which a debt becomes wholly worthless. The discharge of a Claim
pursuant to the Plan establishes that such Claim is wholly worthless as of the
date of discharge (assuming the holder of the Claim receives no consideration
under the Plan with respect to such Claim and the Debtor does not reaffirm the
obligation). It is possible, however, that such Claim may have become wholly
worthless on an earlier date, depending upon all the facts and circumstances.
Debtor expresses no opinion regarding the date or dates on which Claims
discharged under the Plan became worthless.
3. RECEIPT OF INTEREST.
Income attributable to accrued but unpaid interest will be treated as
ordinary income, regardless of whether the creditor's existing Claims are
capital assets in its hands.
A creditor who, under its accounting method, was not previously
required to include in income accrued but unpaid interest attributable to
existing Claims, and who exchanges its
67
<PAGE>
interest Claim for Cash, or other property pursuant to the Plan, will be treated
as receiving ordinary interest income to the extent of any consideration so
received allocable to such interest, regardless of whether that creditor
realizes an overall gain or loss as a result of the exchange of its existing
Claims. A creditor who had previously included in income accrued but unpaid
interest attributable to its existing Claims will recognize a loss to the extent
such accrued but unpaid interest is not satisfied in full. For purposes of the
above discussion, "accrued" interest means interest which was accrued while the
underlying Claim was held by the creditor. The extent to which consideration
distributable under the Plan is allocable to such interest is uncertain.
4. OTHER TAX CONSIDERATIONS.
a. MARKET DISCOUNT.
If a creditor has a lower tax basis in a Debtor obligation than its
face amount, the difference may constitute market discount under section 1276 of
the Internal Revenue Code. (Certain Debtor obligations are excluded from the
operation of this rule, such as obligations with a fixed maturity date not
exceeding one year from the date of issue, installment obligations to which
Internal Revenue Code section 453B applies and, in all likelihood, demand
instruments).
Holders in whose hands Debtor obligations are market discount bonds
will be required to treat as ordinary income any gain recognized upon the
exchange of such obligations to the extent of the market discount accrued during
the holder's period of ownership, unless the holder has elected to include such
market discount in income as it accrued.
b. ORIGINAL ISSUE DISCOUNT.
The actual or constructive exchange of a Reorganized Debtor debt
instrument for an existing Debtor debt instrument (including certain
constructive exchanges that occur when an existing debt instrument is
significantly or materially modified) may result in the creation of original
issue discount ("OID") to the extent that the issue price of the new debt
instrument is less than its stated redemption price at maturity (generally, its
face amount).
The holder of an OID instrument must include in income the sum of the
daily portion of the OID accretion during the taxable year for each year it
holds the instrument even in the absence of payments during such year. The
daily portion of the OID accretion on an instrument is determined by allocating
to each day in the period the ratable portion of the increase in the adjusted
issue price of the instrument during that period.
c. WITHHOLDING.
The Disbursing Agent will withhold any amounts required by law from
payments made to creditors. This may require payments by certain creditors of
the required withholding tax on the non-Cash consideration issuable under the
Plan. In addition, creditors may be required to provide general tax information
to Reorganized Debtor or a Disbursing Agent.
d. TAXATION OF CERTAIN RESERVES.
Section 468B(g) of the Internal Revenue Code provides that escrow
accounts, settlement funds or similar funds are subject to current taxation. It
also provides that the IRS shall prescribe regulations for the taxation of any
such account or fund, whether as a grantor trust or otherwise. The IRS issued
final regulations regarding settlement funds on December 18, 1992. However,
such regulations specifically reserve the tax treatment of settlement funds in
bankruptcy and the treatment of stock of the issuer to satisfy such obligations.
It is thus uncertain as to who is responsible for reporting income generated by
the funds in any unclaimed property or Disputed Claims Reserve formed pursuant
to the Plan. If any reserves are treated as a grantor trust created by Debtor,
then the income generated by such reserves would likely be reported on the
Debtor
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<PAGE>
Consolidated Group's federal income tax return. If the reserves are not treated
as such a grantor trust, they will likely be treated as an association or trust
taxable currently as separate entities on their income. It is also possible
that the reserves could be treated as a grantor trust for which the creditor
beneficiaries are treated as grantors. As such, the creditor beneficiaries
would be subject to current taxation on the income generated by such reserves.
Pursuant to the Plan and related documents, any party responsible for
administering such reserves will also be required to file appropriate income tax
returns and pay any tax due out of such reserves as a result of any income
earned in such reserves.
D. TAX CONSEQUENCES TO SHAREHOLDERS.
The holders of Old Common Stock should not recognize any gain or loss
as a result of the exchange of such interests under the Plan. A shareholder's
holding period for any New Common Stock issued in exchange for Old Common Stock
will include the period during which such shareholder held the exchanged Old
Common Stock.
XVII.
CERTAIN FINANCIAL PROJECTIONS
A. PRO FORMA BALANCE SHEET.
Set forth below is the projected unaudited balance sheet of the
Reorganized Debtor as of the assumed Effective Date of February 1, 1997, both
prior to and, on a pro forma basis, after giving effect to the transactions
contemplated by the Plan.
THE ACTUAL BALANCE SHEET AS OF THE EFFECTIVE DATE MAY VARY MATERIALLY
FROM THE AMOUNTS SET FORTH BELOW, BASED UPON, AMONG OTHER THINGS: (i) OPERATING
RESULTS AND OTHER FACTORS OCCURRING BEFORE THE EFFECTIVE DATE; (ii) INACCURACIES
IN THE ASSUMPTIONS UNDERLYING THE PROJECTED BALANCE SHEET; (iii) CHANGES IN THE
ESTIMATED PRO FORMA ADJUSTMENTS WHICH HAVE BEEN ESTIMATED BASED UPON THE BEST
INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT BUT WHICH MAY CHANGE WITH THE
PASSAGE OF TIME AND THE ACCUMULATION OF ADDITIONAL AND MORE COMPLETE
INFORMATION; AND (iv) OTHER FACTORS BEYOND THE DEBTOR'S CONTROL. IN ADDITION,
THE PROJECTED BALANCE SHEET ASSUMES AN EFFECTIVE DATE OF FEBRUARY 1, 1997. AN
EFFECTIVE DATE MATERIALLY DIFFERENT FROM THIS DATE COULD SUBSTANTIALLY AFFECT
THE PROJECTED BALANCE SHEET.
Readers are urged to review carefully the Description of Pro Forma
Adjustments accompanying the projected balance sheet, which forms an integral
part thereof. The projected balance sheet has been prepared by the Debtor's
management in accordance with generally accepted accounting principles, except
that notes required under generally accepted accounting principles have not been
included. Readers are therefore encouraged to refer to the notes to the
historical financial statements included in Annex B hereto. Also see "Risk
Factors -- Inherent Uncertainty In The Financial Projections."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: The information
contained in the projected unaudited balance sheet and certain other statements
contained or incorporated by reference herein, including, without limitation,
statements containing the words "believes," "anticipates," "expects," and words
of similar import, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act
69
<PAGE>
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause the actual results, performance,
or achievements of the Company, or industry results, to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: national and local general economic and market conditions;
demographic changes; liability and other claims asserted against the Company;
competition; the loss of significant customers or suppliers; fluctuations in
operating results; changes in business strategy or development plans; business
disruptions; the ability to attract and retain qualified personnel; ownership of
Common Stock; volatility of stock price; and other factors referenced herein.
Certain of these factors are discussed in more detail elsewhere herein,
including, without limitation, under the captions "Risk Factors," "The Company,"
and "Capitalization." GIVEN THESE UNCERTAINTIES, THOSE READING THIS DISCLOSURE
STATEMENT ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. The Company disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained or incorporated by reference herein to reflect untrue
events or developments.
70
<PAGE>
PROJECTED UNAUDITED BALANCE SHEET AS OF EFFECTIVE DATE
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Projected Pro Forma Pro Forma
February 1,1997 Adjustment(a) February 1, 1997
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 1,263 $ 1,263
(230) (b)
(336) (f)
324 (g)
242 (h)
FNBB Facility Fee - current 280 (f) 280
Inventory 36,353 36,353
Other Current Assets 3,219 (242) (h) 2,977
-------------------------------------------------------------
Total Current Assets 40,835 38 40,873
FNBB Facility Fee - noncurrent 125 280 (f) 405
OTHER NONCURRENT ASSETS 52,084 (14,519) (e) 37,565
-------------------------------------------------------------
TOTAL ASSETS $ 93,044 $ (14,201) $ 78,843
------------- ----------- -------------
------------- ----------- -------------
CURRENT LIABILITIES:
Short Term Revolver $ 20,220 $ 324 (g) $ 20,544
Capital Leases -- Current portion 880 450 (e) 1,330
Deferred Payment Tax Liabilities -- 0 190 (c) 190
Current portion
Other Current Liabilities 21,481 21,481
FNBB Facility Fee 0 224 (f) 224
-------------------------------------------------------------
Total Current Liabilities 42,581 1,188 43,769
-------------------------------------------------------------
LONG-TERM LIABILITIES
Liabilities subject to compromise 92,198 (230) (b) 0
(856) (c)
(91,112) (d)
Capital Leases 13,120 1,399 (e) 14,519
Deferred Payment Tax Liabilities 0 666 (c) 666
Other 1,370 1,370
-------------------------------------------------------------
Total Long-Term Liabilities 106,688 (90,133) 16,555
-------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common Stock & Additional Paid-in 63,153 18,519
Capital
(62,980) (d)
18,346 (d)
Minimum Pension Liability Adjustment (250) 250 (e) 0
Accumulated Earnings (Deficit) (119,128) (1,849) (e) 0
62,980 (d)
72,766 (d)
(14,769) (e)
-------------------------------------------------------------
Total Stockholders' Equity (56,225) $ 74,744 18,519
------------- ----------- -------------
TOTAL LIABILITIES & EQUITY $ 93,044 $ (14,201) $ 78,843
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
(See Accompanying Description of Pro Forma Adjustments)
71
<PAGE>
DESCRIPTION OF PRO FORMA ADJUSTMENTS TO
PROJECTED UNAUDITED BALANCE SHEET
(a) The pro forma adjustments do not necessarily include all adjustments
required by AICPA Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code." The total pro forma
stockholders' equity of $18,519,000 is based upon a preliminary estimate by
management and is not necessarily indicative of the actual trading value of
the Reorganized Debtor's equity securities or of the fair market value of
the stockholders' equity. The Company expects to obtain an independent
evaluation of its assets as of the Effective Date. To the extent that such
evaluation differs from management's estimate, the balance sheet as of the
Effective Date will be revised accordingly.
(b) To record or reserve for cash payments required as of the Effective Date
for the payment of certain Allowed Administrative Expenses, certain
Priority Tax Claims, and Cure Payments on assumed executory contracts and
unexpired leases.
(c) To account for the liability for Deferred Payment Tax Claims.
(d) To reflect the issuance of 200,000 shares of New Common Stock to the
holders of Old Common Stock and the issuance of 8,800,000 shares of New
Common Stock to holders of General Unsecured Claims and the resulting gain
on the extinguishment of indebtedness.
(e) To adjust the carrying value of non-current assets and liabilities in
accordance with fresh start reporting required under AICPA Position 90-7
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code." No adjustments have been made to specific asset values as
valuations of these assets have not been completed.
(f) To record FNBB facility fee of $560,000 ($336,000 payable on the Effective
Date and $224,000 payable on December 31, 1997.)
(g) To record the application of excess cash to the FNBB Claims.
(h) To reflect transfer from restricted cash to cash.
72
<PAGE>
B. PRO FORMA PROJECTIONS OF INCOME STATEMENT, BALANCE SHEET DATA AND
CASH FLOWS.
Set forth below are the Projections of the Reorganized Debtor's net
income, balance sheet data, and cash flows for each of the fiscal years in the
period ending January 30, 1999, assuming an Effective Date of February 1, 1997.
The purpose of the Projections is to set forth the Debtor's estimates of the
future net income, assets, liabilities, shareholders' equity, and cash flows of
the Reorganized Debtor. Actual results may differ substantially from the
Projections as a result, among other things, of changing market and economic
conditions in the future. There is no assurance that the results projected will
be achieved. THE PROJECTIONS HAVE BEEN PREPARED BY OR UNDER THE SUPERVISION OF
DEBTOR'S MANAGEMENT AND HAVE NOT BEEN REVIEWED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS OR PREPARED IN COMPLIANCE WITH PUBLISHED GUIDELINES OF THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS OR IN ACCORDANCE
IN WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. MOREOVER, SUBSTANTIAL
UNCERTAINTIES ARE INVOLVED IN PROJECTING NET INCOME AND CASH FLOW. THE
PROJECTIONS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE DISCUSSION SET FORTH
ABOVE UNDER "RISK FACTORS -- INHERENT UNCERTAINTY IN THE FINANCIAL PROJECTIONS."
THE PROJECTIONS REPRESENT AN ESTIMATE BY THE DEBTOR'S MANAGEMENT OF
FUTURE EVENTS BASED UPON CERTAIN ASSUMPTIONS SET FORTH BELOW. THESE FUTURE
EVENTS MAY OR MAY NOT OCCUR, AND THE PROJECTIONS MAY NOT BE RELIED UPON AS A
GUARANTEE OR OTHER ASSURANCE OF THE ACTUAL RESULTS WHICH WILL OCCUR. BECAUSE OF
THE UNCERTAINTIES INHERENT IN PROJECTIONS OF FUTURE EVENTS, THE ACTUAL RESULTS
OF OPERATIONS MAY WELL BE DIFFERENT FROM THOSE PROJECTED, AND SUCH DIFFERENCES
MAY BE MATERIAL AND ADVERSE.
THE PROJECTIONS ARE INTENDED TO ASSESS FUTURE INCOME AND CASH FLOW
AVAILABLE FOR DEBT SERVICE AND TO FORM THE BASIS FOR DETERMINING THE FEASIBILITY
OF THE PLAN.
THE ASSUMPTIONS INCLUDED WITH THE PROJECTIONS ARE AN INTEGRAL PART OF
THE PROJECTIONS. THEY SHOULD BE THOROUGHLY ANALYZED. SEE "RISK FACTORS --
INHERENT UNCERTAINTY IN THE FINANCIAL PROJECTIONS."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: The information
contained in the Projections and certain other statements contained or
incorporated by reference herein, including, without limitation, statements
containing the words "believes," "anticipates," "expects," and words of similar
import, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance, or achievements of the Company,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: national and
local general economic and market conditions; demographic changes; liability and
other claims asserted against the Company; competition; the loss of significant
customers or suppliers; fluctuations in operating results; changes in business
strategy or development plans; business disruptions; the ability to attract and
retain qualified personnel; ownership of Common Stock; volatility of stock
price; and other factors referenced
73
<PAGE>
herein. Certain of these factors are discussed in more detail elsewhere herein,
including, without limitation, under the captions "Risk Factors," "The Company,"
and "Capitalization." GIVEN THESE UNCERTAINTIES, THOSE READING THIS DISCLOSURE
STATEMENT ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. The Company disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained or incorporated by reference herein to reflect untrue
events or developments.
74
<PAGE>
<TABLE>
<CAPTION>
PROJECTIONS
(IN THOUSANDS OF DOLLARS)
As of or for the fiscal year ending
- ------------------------------------------------------------------------------------------------
2/1/97(a) 1/31/98 1/30/99
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME STATEMENT
Total Sales $205,337 $202,116 $220,928
Gross Profit 74,584 73,610 80,395
Operating & Administrative Expenses 75,656 69,858 73,617
Operating Income (Loss) (1,072) 3,752 6,778
Other Income (Expense) (See Note (b)) (12,650) (4,540) (4,416)
Net Income (Loss) (13,722) (788) 2,362
EBITDA 7,178 10,205 13,201
- ------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Inventory 36,353 35,429 37,939
Other Current Assets 4,520 4,250 4,693
Total Assets 78,843 73,267 74,967
FNBB Facility 20,544 21,131 23,756
Other Current Liabilities 23,225 19,322 17,665
Total Liabilities 60,324 55,590 55,034
Shareholders' Equity 18,519 17,678 19,932
- ------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
Net Cash provided by (used in)
Operating Activities (3,760) 2,331 3,759
Reorganization Expenses -- Cash Paid (2,909) (1,836) 0
Capital Expenditures (624) (1,500) (4,850)
Other Cash provided by Investing
Activities(c) 4,645 0 0
Net Cash provided by (used in)
Financing Activities (579) (831) 1,102
- ------------------------------------------------------------------------------------------------
</TABLE>
The foregoing introductory statement and the following notes and assumptions are
integral parts of this statement.
(a) Estimates are based on actual year-to-date results through September 1996
and projections for October 1996 to January 1997.
(b) Includes Reorganization and restructuring expenses of $7,550 for 2/1/97.
(c) Includes $4,460 net proceeds from sale and leaseback of Alderwood Mall
Store.
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<PAGE>
SIGNIFICANT ASSUMPTIONS
(DOLLARS IN THOUSANDS)
FOR THE FISCAL YEAR ENDING
- --------------------------------------------------------------------------------
2/1/97 1/31/98 1/30/99
- --------------------------------------------------------------------------------
Sales Growth vs. Previous Year 2.9% (1.6%) 9.3%
- --------------------------------------------------------------------------------
Same Store Sales Growth vs. Previous
Year 6.5% 5.7% 5.0%
- --------------------------------------------------------------------------------
Gross Profit as a % of Sales 36.3% 36.4% 36.4%
- --------------------------------------------------------------------------------
Operating & Administrative expenses as
a % of Sales 36.8% 34.6% 33.3%
- --------------------------------------------------------------------------------
Inflation Rate N/A 1.0% 2.0%
- --------------------------------------------------------------------------------
Interest Rate (Average) 10.4% 9.0% 9.0%
- --------------------------------------------------------------------------------
Licensee Shoe Sales as a % of Total
Sales 6.3% 7.1% 7.6%
- --------------------------------------------------------------------------------
Number of Stores 38 38 42
- --------------------------------------------------------------------------------
Total Selling Square Footage 1,457,372 1,457,372 1,585,372
- --------------------------------------------------------------------------------
Merchandise Vendor Credit Terms
(average in # of days) 23 30 30
- --------------------------------------------------------------------------------
Capital Expenditures $624 $1,500 $4,850
- --------------------------------------------------------------------------------
Inventory Method LIFO/FIFO LIFO/FIFO LIFO/FIFO
- --------------------------------------------------------------------------------
76
<PAGE>
XVIII.
MANAGEMENT
A. GENERAL.
Certain information with respect to the persons expected to serve as
directors and senior executive officers of the Reorganized Debtor upon
consummation of the Plan is set forth below:
NAME AGE POSITION
Alan R. Schlesinger 53 Director, Chairman of the Board,
President, and Chief Executive
Officer
Loren R. Rothschild 57 Director and Vice Chairman of the
Board
Peter Aaron 46 Executive Vice President
Debbie A. Brownfield 41 Senior Vice President , Chief
Financial Officer, and Secretary
Ed Bulen 46 Senior Vice President and General
Merchandise Manager
Jim Ferree 38 Senior Vice President and General
Merchandise Manager
Mr. Schlesinger joined Lamonts as President and Chief Executive
Officer in November 1994. In December 1994, Mr. Schlesinger was appointed
Director and Chairman of the Board. From 1991 to 1994, Mr. Schlesinger was a
Senior Vice President with The May Company Department Stores.
Mr. Rothschild, a Director of the Company since October 1992, became
Vice Chairman of the Board in December 1994. In addition, Mr. Rothschild has
served as President and director of Sycamore Hill Capital Group since September
1993. Prior to that time, he served as Vice Chairman and President of American
Protection Industries Inc. ("API"), a privately held company engaged in direct
marketing of collectibles, home decor products, flowers by wire clearing house,
and real estate and agribusiness, and Vice Chairman of The Franklin Mint from
1985 to June 1992. From 1988 to June 1992, Mr. Rothschild also served as
Chairman and Chief Executive Officer of API's Agribusiness division.
Mr. Aaron joined the Company as Executive Vice President in November
1983 and was Acting Secretary of the Company from January 1993 through August
1993.
Ms. Brownfield joined the Company as Vice President of Finance,
Secretary, and Treasurer in September 1985 and served as Acting Chief Financial
Officer of the Company from January 1993 through August 1993. Ms. Brownfield
was named Senior Vice President and Chief Financial Officer in December 1995.
Mr. Bulen joined Lamonts in November 1995 as Senior Vice President and
General Merchandise Manager. Prior to joining the Company, Mr. Bulen was Vice
President,
77
<PAGE>
Retail Stores, with Vans, Inc. from April 1993. He also has an extensive retail
background with May Company -- California, where he served in a variety of
merchandising roles.
Mr. Ferree joined Lamonts in June 1996 as Senior Vice President and
General Merchandise Manager. Prior to joining the Company, Mr. Ferree was Vice
President and General Merchandise Manager with Sycamore Stores in Indianapolis,
Indiana from August 1994. Prior to Sycamore, Mr. Ferree served as Divisional
Vice President and Merchandise Manager with Famous Barr, a division of May
Department Stores from February 1989.
All directors and executive officers are elected for a term of one
year and serve until their successors are duly elected and qualified.
In order to assist it in carrying out its duties, the Board of
Directors of the Reorganized Debtor will delegate certain authority to an Audit
and Compensation Committee, the members of which will be selected by the Board.
The initial members will be selected by the Board as constituted pursuant to the
Plan. With respect to its audit function, the committee's duties and
responsibilities will include, among other things, meetings with the independent
accountants to review the scope and results of audits and other activities of
the Reorganized Debtor, evaluating the independent accountants' performance, and
recommending to the Board of Directors as to whether the accounting firm should
be retained by the Reorganized Debtor for the ensuing fiscal year. In addition,
the committee will review the Reorganized Debtor's internal accounting and
financial controls and reporting systems and practices. With respect to its
compensation function, its duties and responsibilities will include, among other
things, reviewing, approving and recommending to the full Board of Directors the
salaries and other compensation arrangements of all other officer-employees of
the Reorganized Debtor and administering the Employee Stock Option Plan.
Members of the Audit and Compensation Committee may be addressed at 12413
Willows Road N.E., Kirkland, Washington 98034.
The Reorganized Debtor will pay each of its outside directors an
annual fee to be determined. Directors will also be reimbursed for reasonable
expenses incurred in connection with attending meetings of the Board or the
Audit and Compensation Committee.
B. EXECUTIVE COMPENSATION.
1. SUMMARY COMPENSATION TABLE.
The following table sets forth certain information regarding estimated
compensation to be paid during the 1996 fiscal year, and actual compensation
previously paid during the 1995, 1994, and 1993 fiscal years, to (i) the
Company's Chief Executive Officer, (ii) the Company's four other most highly
compensated senior executive officers, and (iii) three additional individuals
who would have qualified for inclusion had their employment not been terminated
(collectively, the "Named Executive Officers"):
78
<PAGE>
<TABLE>
<CAPTION>
Long Term All Other Compensation
Annual Compensation Compensation ($)
Awards
------------------------------------------------
Name and Fiscal Securities
Principal Position Year Salary ($) Bonus ($) Underlying TRIP Other Group Total
Options/SARs Plan (1) Plan (2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alan R. Schlesinger, 1996 450,000 500,000 (3) 1,500 7,200 (4) 2,430 11,130
Director, Chairman of the 1995 450,000 100,000 7,230 (4) 3,600 10,830
Board, President and 1994 58,270 125,000
Chief Executive Officer
Loren R. Rothschild, 1996 240,000 187,000 (5)
Director and Vice 1995 240,000 ---- 2,789 2,789
Chairman of the Board 1994 6,462 125,000 16,667 (6) 16,667
Peter Aaron, 1996 210,000 60,000 (7) 1,500 1,890 3,390
Executive Vice President 1995 207,917 30,000 1,500 --- 1,747 3,247
1994 183,836 8,160 1,890 42 (8) 1,650 3,582
1993 183,836 18,160(9) 2,020 --- 1,671 3,691
Debbie A. Brownfield, 1996 160,000 65,000 (7) 1,500 1,286 2,786
Senior Vice President, 1995 119,521 30,000 967 530 1,497
Chief Financial Officer
and Secretary
Ed Bulen, 1996 151,998 15,000 1,037 1,037
Senior Vice President, 1995 48,930 -----
General Merchandise (10)
Manager
Jim Ferree 1996 116,664 30,000 112,615 (11) 443 113,058
Senior Vice President,
General Merchandise
Manager (12)
Earle J. Spokane, 1995 156,987 358 --- 852 1,210
Executive Vice President, 1994 215,004 ----- 896 --- 1,791 2,687
and Chief Administrative 1993 89,585 25,000(15) --- --- 1,579 1,579
Officer (16)
Wallace D. Holznagel, 1995 202,053 1,500 --- 3,194 4,694
Executive Vice President 1994 188,664 20,000 950 283 (8) 1,758 2,991
(16) 1993 188,664 30,000 (9) 1,900 --- 1,770 3,670
Carolyn Morris, 1996 100,256 ------ 543 543
Senior Vice President, 1995 177,440 70,000 104,379 (13) 425 104,804
General Merchandise
Manager (14)
</TABLE>
79
<PAGE>
NOTES TO SUMMARY COMPENSATION TABLE
(1) Consists of Company contributions to a tax qualified trust under the
Company's Tax Relief Investments Protection Plan, as amended and
restated effective July 1, 1991.
(2) Premiums paid by the Company pursuant to the Lamonts Apparel Group
Life and Long-Term Disability Plan, effective July 7, 1977.
(3) Includes a $400,000 bonus upon exit from Chapter 11 and $100,000
annual guaranteed bonus.
(4) Annual car allowance.
(5) $187,000 bonus upon exit from Chapter 11.
(6) Directors' fees from 1/1/94 to 10/31/94.
(7) Includes a $30,000 bonus upon exit from Chapter 11.
(8) Company contributions to a grantor trust under the Company's
Supplemental (TRIP) Benefit Plan effective January 1, 1991. The
Company intends to reject this Plan and recover all amounts
contributed.
(9) Includes a bonus of $30,000 and $18,160 respectively pursuant to each
of Messrs. Holznagel and Aaron's employment agreements.
(10) Includes $24,430 in consulting fees for the period from 9/27/95 to
11/30/95.
(11) Relocation expenses.
(12) Mr. Ferree commenced his employment with Lamonts on 6/3/96.
(13) Relocation expenses.
(14) Ms. Morris resigned as Senior Vice President and General Merchandise
Manager effective 6/11/96.
(15) Mr. Spokane was granted 25,000 options upon joining the Company on
June 1, 1993.
(16) In May 1995, Mr. Holznagel resigned his position as Executive Vice
President of the Company. Mr. Spokane ceased to be employed by the
Company in February 1995.
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2. OLD EMPLOYEE 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 Old Employee Stock
Options to purchase up to 1,972,845 shares of Old 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:
NUMBER OF OLD
EMPLOYEE STOCK
OPTIONS OUTSTANDING
-------------------
Balance, October 30, 1993 420,650
Granted 200,000
Exercised (11,334)
Canceled (16,644)
-------------------
Balance, October 29, 1994 592,672
Granted 0
Exercised (12,545)
Canceled (205,387)
-------------------
Balance, January 28, 1995 374,740
Granted 0
Exercised (11,774)
Canceled (43,902)
-------------------
Balance, February 3, 1996 319,064
-------------------
-------------------
Granted 0
Exercised (504)
Canceled (39,994)
-------------------
Balance, August 3, 1996 278,566
-------------------
-------------------
At August 3, 1996, Old Employee Stock Options to purchase 278,566
shares of Old Common Stock at an exercise price of $.01 per share were issued
and outstanding, of which 258,787 are currently exercisable and the balance
thereof, subject to certain conditions, were to 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.
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The following table provides information related to the number of Old
Employee Stock Options held by the Named Executive Officers. There were no Old
Employee Stock Options granted to Named Executive Officers during the 1995
fiscal year. None of the Named Executive Officers exercised any Old Employee
Stock Options during the 1995 fiscal year.
Number of Securities
Underlying Unexercised
Options/SARs at 1995
Fiscal Year End (#)(1)
----------------------------------------
Name Exercisable / Unexercisable
- ----------------------- ----------------------------------------
Peter Aaron 20,782 / 6,286
Debbie Brownfield 4,637 1,346
- --------------------
(1) Consists of 1992 Options granted to the Named Executive Officers under the
1992 Option Plan.
All unexercised Old Employee Stock Options will be rejected under the
Plan as of the Effective Date, and no consideration will be provided on account
thereof. Under the terms of the Plan, the Company's obligations under the 1992
Stock Option Plan will be deemed rejected as of the Effective Date.
3. NEW EMPLOYEE STOCK OPTIONS.
On and after the Effective Date, the Reorganized Debtor will, pursuant
to the Plan, issue from time to time New Employee Stock Options exercisable for
the purchase of 1,000,000 shares (subject to adjustment to prevent dilution upon
certain events, including among other things any exercise of New Class A
Warrants or New Class B Warrants) of New Common Stock with an exercise price of
$1,000,000 in the aggregate, for distribution to specified employees of the
Reorganized Debtor. For a description of the New Employee Stock Options, see
"Employee Stock Option Plan; Description of New Employee Stock Options." Those
New Employee Stock Options which are expected to be allocated as of the
Effective Date will be allocated as follows:
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NAME ALLOCATION OF NEW POSITION
EMPLOYEE STOCK OPTIONS
Alan R. Schlesinger 600,000 Director, Chairman of the Board,
President, and Chief Executive
Officer
Loren R. Rothschild 150,000 Director and Vice Chairman of
the Board
Peter Aaron 55,000 Executive Vice President
Debbie A. Brownfield 45,000 Senior Vice President, Chief
Financial Officer, and Secretary
Ed Bulen 30,000 Senior Vice President and
General Merchandise Manager
Jim Ferree 25,000 Senior Vice President and
General Merchandise Manager
Others 95,000 Employees
Under the terms of the Employee Stock Option Plan, the Reorganized
Debtor will have available, in addition to the New Employee Stock Options, an
additional 375,000 shares (subject to adjustment to prevent dilution upon
certain events, excluding any exercise of New Class A Warrants, New Class B
Warrants, or New Employee Stock Options) of new Common Stock for possible grants
of additional stock options from time to time after the Effective Date if, and
to the extent, the disinterested committee administering the Employee Stock
Option Plan may determine that such additional grants would be in the best
interest of the Reorganized Debtor.
4. QUALIFIED PENSION PLANS.
(a) DEFINED BENEFIT PLAN. The Company established a defined
benefit pension plan for certain of its employees known as the Lamonts Apparel,
Inc. Employees' Retirement Trust, effective January 1, 1986, (as amended to
date, the "Pension Plan"). This Pension Plan is a non contributory 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.
This Pension Plan is covered by Title IV of the Employee Retirement
Income Security Act of 1974, AS AMENDED ("ERISA,"); 29 U.S.C. Section 1301 ET
SEQ. ERISA provides for certain minimum funding standards, ERISA Section 302,
29 U.S.C. Section 1082; Internal Revenue Code of 1954 ("I.R.C.") Section 412,
26 U.S.C. Section 412. In addition, in the event of a termination of the
Pension Plan, the Debtor and certain other parties may be jointly and severally
liable for the unfunded benefit liabilities of the Pension Plan. ERISA Section
4062, 29 U.S.C., Section 1362(a). The Pension Plan may be terminated only if
the statutory requirements of either ERISA Section 4041, 29 U.S.C. Section 1341,
or ERISA Section 4042, 29 U.S.C. Section 1342, are met.
Information about the funding status of the Pension Plan is as
follows:
The Pension Plan's ongoing pension liability is $5,256,352, and the
present value of accumulated benefits is $4,577,367. The Pension Plan's
actuarial value of assets is $5,648,039, resulting in a zero unfunded liability.
The Pension Plan has no minimum contribution requirement for the 1996 plan year.
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The above information is as of January 1, 1996, and is contained in
the January 1, 1996 actuarial valuation of the Pension Plan.
The Pension Benefit Guaranty Corporation ("PBGC") is a wholly-owned
United States Government corporation created under Title IV of ERISA which
guarantees the payment of certain pension benefits upon termination of a pension
plan. It should be noted that in the event of a termination, the PBGC would
review the determination of the Pension Plan's enrolled actuary as to asset
sufficiency, including all actuarial assumptions. 29 C.F.R. Section 2617.1 ET
SEQ. The PBGC estimates that the Pension Plan is underfunded on a termination
basis as of April 28, 1995 in the total amount of approximately $2,843,900.00.
The Debtor disputes this estimate.
Information about the claims filed by the PBGC on its own behalf and
on behalf of the Pension Plan is as follows:
The PBGC has filed three Proofs of Claim in the Chapter 11 Case based
on an assumed Pension Plan termination date of April 28, 1995. These Claims
consist of the following components: (a) a Claim for minimum funding
contributions ("Minimum Funding Contributions") under Sections 302 and 4062(c)
of ERISA, 29 U.S.C. Sections 1082 and 1362(c), and Section 412 of the Internal
Revenue Code, 26 U.S.C. Section 412; (b) a Claim for unfunded benefit
liabilities ("Unfunded Benefit Liabilities") as defined in ERISA Section
4001(a)(18), 29 U.S.C. Section 1301(a)(18); and (c) a Claim for unpaid premiums
with interest and penalties ("Premiums"), under ERISA Section 4007(a), (b), and
(e), 29 U.S.C. Section 1307(a), (b), and (e); 29 C.F.R. Section 2610.26(a).
The estimated amount of the Minimum Funding Contribution Claim filed
by the PBGC is $155,179.00; the estimated amount of the Unfunded Benefit
Liabilities Claim filed by the PBGC is $2,843,900.00; and the estimated amount
of the Premium Claim filed by the PBGC is $33,749.07. Of the three Claims, both
the Claim for Minimum Funding Contributions and Premiums were filed as
unliquidated in part.
The PBGC asserts that (a) the Minimum Funding Contribution Claim is
entitled to priority under Sections 507(a)(1), 507(a)(4), and/or 507(a)(8) of
the Bankruptcy Code; (b) the Unfunded Benefit Liabilities Claim is entitled to
priority under Section 507(a) (1) or, in the alternative, Section 507(a)(8) of
the Bankruptcy Code; and (c) portions of the Premium Claim are entitled to
priority as an Administrative Claim under Section 507(a)(1) of the Bankruptcy
Code.
On December 4, 1995 the Court approved a Joint Stipulation filed by
the PBGC, the Debtor, the Unsecured Creditors' Committee, and the Bondholders'
Committee regarding the PBGC's claim for Unfunded Benefit Liabilities. Under
the terms of this stipulation, the PBGC agreed to withdraw its Claim without
prejudice and reserved the right to refile a proof of Claim for Unfunded Benefit
Liabilities if the circumstances surrounding the case require such a Claim be
filed. Such refiling will be treated as timely. Simultaneously, the Debtor
withdrew its objection to the PBGC's Claim for Unfunded Benefit Liabilities also
without prejudice. The Debtor retained the right to require the PBGC to refile
its proof of Claim on not less than 30 days' notice. This stipulation had no
effect on the PBGC's Claim for minimum funding contributions or its Claim for
premiums due to the PBGC and those Claims remain on the Claims Register, subject
to the Debtor's right to object to said Claims in the future.
The Debtor stated in the Joint Stipulation that it intends to maintain
the Pension Plan after confirmation of its Plan. The PBGC asserts that, in such
circumstances, the sponsor of a pension plan should make every attempt to
rectify any unpaid balance attributable to minimum funding contributions owed to
the Plan and premiums owed to the PBGC prior to confirmation of the Plan. It is
the Debtor's position that it is current on all amounts owed to the
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Pension Plan for minimum funding contributions and to the PBGC for premiums
under the Tittle IV insurance program.
Unless the Pension Plan has been terminated prior to the Effective
Date of the Plan, the Debtor's liability under ERISA Section 4062, 29 U.S.C.
Section 1362, will not be affected in any way by confirmation of the Plan or by
discharge. Thus, neither the Pension Plan, nor the PBGC, will be precluded by
confirmation of the Plan from commencing any litigation, or from taking any
other action, to collect, enforce, or recover from the Reorganized Debtor, its
successors, or its assets or properties, any rights or claims under ERISA or
otherwise. For example, the Plan will have no effect upon any liability that
may arise under ERISA Section 4062, 29 U.S.C. Section 1362, for the amount by
which the assets of the Plan are insufficient to cover benefit liabilities under
the Pension Plan on the date of termination, and for any liability under ERISA
Section 4062(c), 29 U.S.C. Section 2362(c), for the outstanding balance, if any,
of the accumulated funding deficiencies of the Pension Plan, as determined in
accordance with ERISA Section 302(a)(2), 29 U.S.C. Section 1082(a)(2), and
I.R.C. Section 412(a), 26 U.S.C. Section 412(a).
Under the terms of the Plan, as of the Effective Date, Lamonts will
assume its obligations under the Pension Plan.
(b) 401(k) PLAN. The Company established the Lamonts Apparel
Inc. Tax Relief Investments Protection Plan, effective December 1, 1986, (as
amended to date, the "401(k) Plan"). The 401(k) Plan provides participants the
opportunity to elect to defer an amount from 1% to 15% (10% for highly
compensated employees) of their compensation in increments of 1%. Under the
401(k) Plan, the Company matches contributions equal to 50% of each
Participant's deferred pay contributions (such contributions not to exceed 1% of
the Participant's compensation). The Company contributed approximately $0.15
Million, $0.04 Million, $0.2 Million, and $0.2 Million during the 1995 fiscal
year, the quarter ended January 28, 1995, the 1994 fiscal year, and the 1993
fiscal year, respectively.
Under the terms of the Plan, as of the Effective Date, Lamonts will
assume its obligations under the 401(k) Plan.
5. NONQUALIFIED PENSION PLANS.
(a) SUPPLEMENTAL RETIREMENT PLAN. The Company established the
Lamonts Apparel, Inc. Supplemental Executive Retirement Plan, effective
January 1, 1994, (as amended to date, the "SERP"). The SERP in a non-qualified,
unfunded plan maintained primarily for providing supplemental retirement
compensation for a select group of management or highly compensated employees
whose benefit under the Pension Plan would be affected by IRS compensation and
benefit limits. Mr. Aaron and Ms. Brownfield are the only current officers
eligible for retirement benefits under the SERP.
Under the terms of the Plan, as of the Effective Date, Lamonts will
reject its obligations under the SERP.
(b) SUPPLEMENTAL 401(k) PLAN. The Company established the
Lamonts Supplemental (TRIP) Benefit Plan, effective January 1, 1991, (as amended
to date, the "Supplemental 401(k) Plan") The Supplemental 401(k) Plan is a non-
qualified arrangement for a select group of management or highly compensated
employees which allows deferrals and corresponding company contributions in
excess of the Internal Revenue Service limits imposed on such individuals under
the qualified 401(k) Plan.
As of December 31, 1995, the deferrals made by executives eligible
under the Supplemental 401(k) Plan together with Company contributions and
earnings totaled
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$151,675.48. Mr. Aaron is the only current officer eligible for a benefit under
the Supplemental 401(k) Plan.
Under the terms of the Plan, Lamonts will reject its obligations under
the Supplemental 401(k) Plan.
C. EMPLOYMENT AGREEMENTS.
On October 16, 1994, Alan Schlesinger entered into an employment
agreement with the Company that had a term that ran through November 15, 1998,
at a base salary of $450,000, subject to annual review and upward adjustment at
the discretion of the Board. Pursuant to Mr. Schlesinger's employment agreement,
as amended, Mr. Schlesinger received a signing bonus of $125,000. In addition,
Mr. Schlesinger received $168,000 as compensation for all compensation and
benefits forfeited by Mr. Schlesinger from his previous employer and $47,000 for
moving and related costs.
In connection with the Chapter 11 Case, the Company and Mr.
Schlesinger entered into a new employment agreement approved by the Bankruptcy
Court. Mr. Schlesinger's current employment agreement has a term that runs
through January 5, 1999, at a base salary of $450,000, subject to annual review
and upward adjustment at the discretion of the Board. Pursuant to Mr.
Schlesinger's employment agreement, Mr. Schlesinger will receive a guaranteed
annual bonus in the sum of $100,000 and a one-time reorganization bonus upon the
Effective Date of the Plan of $400,000. In addition, upon the Effective Date of
the Plan, Mr. Schlesinger is entitled under his contract to receive stock
options to purchase 6% of the fully diluted number of shares of Common Stock to
be outstanding immediately following such Effective Date based upon the final
terms of such Plan. See "Executive Compensation -- New Employee Stock Options"
and "Employee Stock Option Plan; Description of New Employee Stock Options."
Mr. Schlesinger's employment agreement provides that, if the Company
terminates Mr. Schlesinger's employment without "cause", Mr. Schlesinger will be
entitled to receive his base salary for a period of up to two years or for the
remainder of the term of his agreement, whichever is shorter, subject to offset
for amounts received by Mr. Schlesinger from any other employer during such
period. Upon a "change in control" of the Company (other than solely as a
result of any exchange of equity for debt securities upon consummation of a plan
of reorganization) after January 5, 1997, the term of Mr. Schlesinger's
employment agreement shall extend to a date which is two years from the date on
which such "change in control" is consummated. Upon a "change in control" of
the Company on or after the effective date of a plan of reorganization, all
options granted to Mr. Schlesinger as described above shall vest and become
immediately exercisable. The Company will assume Mr. Schlesinger's employment
agreement under the Plan.
On December 28, 1994, Loren Rothschild entered into an employment
agreement with the Company that had a term that ran until consummation of a
Restructuring (as defined therein), at a base salary of $240,000. Pursuant to
Mr. Rothschild's employment agreement, Mr. Rothschild received a signing bonus
of $125,000.
In connection with the Chapter 11 Case, the Company and Mr. Rothschild
entered into a new employment agreement which was approved by the Bankruptcy
Court. Mr. Rothschild's current employment agreement has a term that runs
through the 90th day following the Effective Date of the Plan, at a base salary
of $240,000. Pursuant to Mr. Rothschild's employment agreement, upon the
Effective Date of the Plan, Mr. Rothschild will receive $187,000. In addition,
upon the effective date of a Plan, Mr. Rothschild is entitled to receive a
number of stock options equal to 25% of the number of options issued to the
Company's Chief Executive Officer, which options shall be fully vested upon
issuance. Mr. Rothschild's employment agreement provides that
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if the Company terminates Mr. Rothschild's employment without "cause", Mr.
Rothschild shall be entitled to receive his base salary until the first
anniversary of such termination or until the effective date of a plan of
reorganization, whichever is sooner. In addition, if a plan of reorganization
becomes effective prior to the 270th day following such termination, Mr.
Rothschild shall be entitled to receive $350,000 plus the number of stock
options described above. On the Effective Date, Mr. Rothschild's contract will
be assumed by Lamonts, and Lamonts will be deemed to exercise its option to
extend the contract for another year.
In connection with the Recapitalization, Peter Aaron entered into an
employment agreement with the Company which has a term that runs through
November 30, 1997, at a base salary of $185,000, subject to annual increases
based on his accomplishments during the prior year. Pursuant to Mr. Aaron's
employment agreement, Mr. Aaron is entitled to a yearly performance bonus, based
upon the achievement by the Company of goals to be set forth in the management
operating profit plan of the Company for each year, not to exceed $65,000. Mr.
Aaron is guaranteed a minimum yearly performance bonus of $8,160. Mr. Aaron's
employment agreement provides that if the Company terminates his employment
without "cause" or if he terminates employment for "good reason," he will be
entitled to receive, for a period of not less than 12 months or more than two
years, the base salary and guaranteed minimum bonus that he would have received
had such termination not occurred and to continue to participate in all benefit
plans and receive all other benefits to which he was entitled at the time of the
termination. Mr. Aaron may elect to receive the severance payment payable under
the agreement in a single lump sum payment. The Company will assume Mr. Aaron's
contract under the Plan.
In connection with the Recapitalization, Wallace Holznagel entered
into an employment agreement with the Company which had a term through
November 30, 1997, at a base salary of $190,000, plus an annual performance
bonus, not to exceed $80,000. Mr. Holznagel was guaranteed a minimum yearly
performance bonus, based upon the achievement by the Company of goals as set
forth in management operating profit plans, not to exceed $20,000. Effective
May 2, 1995, Mr. Holznagel resigned as Executive Vice President of the Company.
Pursuant to a resignation agreement entered into with Mr. Holznagel, the Company
paid to Mr. Holznagel $105,000, or an amount equal to six months' base salary
and the minimum guaranteed bonus under the employment agreement. In addition,
the Company paid approximately $14,615 for accrued but unused vacation and
continued to provide certain medical benefits through November 1995. In
addition, all Old Employee Stock Options held by Mr. Holznagel were canceled.
In June 1993, Earle Spokane entered into an employment agreement with
the Company, at a base salary of $215,000, plus a yearly performance bonus,
based upon the achievement by the Company of goals as set forth in management
operating profit plans, not to exceed $85,000. Effective February 24, 1995, Mr.
Spokane ceased to be employed by the Company as Executive Vice President and
Chief Administrative Officer. Pursuant to a resignation agreement entered into
with Mr. Spokane with the approval of the Bankruptcy Court, the Company paid Mr.
Spokane $107,000, or an amount equal to six months' base salary plus
approximately $12,400 for accrued but unused vacation. In addition, the Company
continued to provide certain medical benefits through June 30, 1995. In
addition, all stock options held by Mr. Spokane were canceled.
D. INDEMNIFICATION OF OFFICERS AND DIRECTORS OF REORGANIZED DEBTOR.
Under Section 145 of the General Corporation Law of the State of
Delaware, a Delaware corporation has the power, under specified circumstances,
to indemnify its directors, officers, employees, and agents in connection with
actions, suits, or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are
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such directors, officers, employees, or agents, against liabilities and expenses
incurred in any such action, suit or proceeding. The Amended and Restated
Bylaws to be adopted pursuant to the Plan will provide that the Company shall
indemnify its present and future officers and directors to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware. Under the Plan, the Company will reject its indemnification
obligations to former officers and directors, will assume its indemnification
obligations to present officers and directors, and will assume its insurance
policies which provide certain coverage against liability of officers and
directors.
All continuing directors and senior executive officers of the
Reorganized Debtor will enter into indemnification agreements with the Company
pursuant to which the Company will indemnify, to the fullest extent permitted by
applicable law, such officer or director against liabilities and expenses
incurred by such officer or director in any proceeding or action because such
officer or director is or was a director, officer, employee, or agent of the
Company and other certain other circumstances. This indemnification is in
addition to the indemnification provided in the Company's Amended and Restated
Bylaws. In neither case will indemnification be provided if prohibited under
applicable law.
E. EMPLOYEE STOCK OPTION PLAN; DESCRIPTION OF
NEW EMPLOYEE STOCK OPTIONS.
The Plan provides for the adoption of the Lamonts Apparel, Inc. 1996
Stock Option Plan (the "Employee Stock Option Plan"), substantially in the form
set forth in the Plan Documentary Supplement. The Employee Stock Option Plan
provides for the grant of New Employee Stock Options to selected employees and
directors of the Reorganized Debtor. All New Employee Stock Options must be
evidenced by an agreement (an "Option Agreement") setting forth the terms and
conditions applicable thereto. The Employee Stock Option Plan provides for the
issuance of a maximum of 1,375,000 shares of New Common Stock (subject to
certain adjustments as described below).
The Employee Stock Option Plan is designed to comply with the
requirements for "performance-based compensation" under Section 162(m) of the
Internal Revenue Code, as amended, and the conditions for exemption from the
short-swing profit recovery rules under Rule 16b-3 of the 1934 Act. In order to
meet the requirements under Section 162(m) of the Internal Revenue Code, the
Employee Stock Option Plan must be approved by the stockholders of the Company.
THE PLAN AND THE DISCLOSURE STATEMENT WILL BE DEEMED TO BE A
SOLICITATION TO THE HOLDERS OF OLD COMMON STOCK AND TO THE HOLDERS OF NEW COMMON
STOCK AND NEW WARRANTS FOR APPROVAL OF THE EMPLOYEE STOCK OPTION PLAN, AND THE
ENTRY OF THE CONFIRMATION ORDER WILL CONSTITUTE APPROVAL OF THE PLAN, FOR
PURPOSES OF COMPLIANCE WITH RULE 16B-3(a) PROMULGATED UNDER THE 1934 ACT.
Future employee stock plans or grants will be implemented by the New Board if
and as the New Board determines such plans to be appropriate as a means to
provide management with additional incentives.
The summary that follows is subject to the actual terms of the
Employee Stock Option Plan. Capitalized terms not defined below have the
meaning set forth in the Employee Stock Option Plan.
1. PLAN ADMINISTRATION.
The Employee Stock Option Plan will be administered by the New Board
or by a committee of the New Board, the composition of which will at all times
satisfy the provisions of Rule 16b-3 (the "Plan Administrator"). No person is
entitled to receive remuneration for
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administering the Employee Stock Option Plan. The Employee Stock Option Plan
provides that no member of the New Board will be liable for any action or
determination taken or made in good faith with respect to the Employee Stock
Option Plan or any New Employee Stock Option granted thereunder.
Subject to the terms of the Employee Stock Option Plan, the Plan
Administrator has the right to grant New Employee Stock Options to eligible
recipients and to determine the terms and conditions of Option Agreements,
including the vesting schedule and exercise price of such New Employee Stock
Options, and the effect, if any, of a change in control of the Company on such
New Employee Stock Options. Pursuant to this authority, the Plan Administrator
has made certain grants to participants, as more fully described on the chart
below, in each case at an initial exercise price of $1.00 per share, subject to
adjustment in accordance with the antidilution provisions described below. The
following table provides information with respect to certain of these grants.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NAME AND POSITION OPTIONS GRANTED VESTING*
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Alan R. Schlesinger 600,000 Schedule A
- ------------------------------------------------------------------------------
Loren R. Rothschild 150,000 Schedule B
- ------------------------------------------------------------------------------
Peter Aaron 55,000 Schedule A
- ------------------------------------------------------------------------------
Debbie A. Brownfield 45,000 Schedule A
- ------------------------------------------------------------------------------
Ed Bulen 30,000 Schedule A
- ------------------------------------------------------------------------------
Jim Ferree 25,000 Schedule A
- ------------------------------------------------------------------------------
Other Employees** 95,000 To Be Determined
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
* VESTING SCHEDULE A: 50% on the Effective Date; 25% on the first
anniversary of the Effective Date; and 25% on the second anniversary
of the Effective Date.
VESTING SCHEDULE B: 50% on the Effective Date; and 50% on the first
anniversary of the Effective Date.
** To be granted to employees (other than Messrs. Schlesinger and Rothschild)
from time to time, in such amounts, and subject to such terms, as
management shall determine.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Under the terms of the Employee Stock Option Plan, the Reorganized
Debtor will have available, in addition to the New Employee Stock Options, an
additional 375,000 shares (subject to adjustment to prevent dilution upon
certain events, excluding any exercise of New Class A Warrants, New Class B
Warrants, or New Employee Stock Options) of new Common Stock for possible grants
of additional stock options from time to time after the Effective Date if, and
to the extent, the disinterested Plan Administrator may determine that such
additional grants would be in the best interest of the Reorganized Debtor.
2. SHARES SUBJECT TO THE EMPLOYEE STOCK OPTION PLAN.
The shares reserved for issuance under the Employee Stock Option Plan
may be authorized but unissued shares of New Common Stock or shares which have
or may be reacquired by the Company in the open market, in private transactions
or otherwise. The
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Employee Stock Option Plan provides that, in the event of changes in the New
Common Stock by reason of a merger, reorganization, recapitalization, common
stock dividend, stock split, or similar change, the Plan Administrator will make
appropriate adjustments in the aggregate number of shares available for issuance
under the Employee Stock Option Plan, the purchase price to be paid, and the
number of shares issuable upon the exercise thereafter of any New Employee Stock
Option previously granted. The New Employee Stock Options, initially
exercisable for 1,000,000 shares of New Common Stock, will also be adjusted to
prevent dilution upon exercise of the New Warrants. The Plan Administrator has
the discretion to make other appropriate adjustments to New Employee Stock
Options to prevent dilution or other devaluations of shares, not inconsistent
with the Plan.
3. EXERCISE OF NEW EMPLOYEE STOCK OPTIONS.
New Employee Stock Options vest and become exercisable over the
exercise period set forth in each participant's Option Agreement. The Plan
Administrator may accelerate the exercisability of any outstanding New Employee
Stock Option at such time and under such circumstances as it deems appropriate.
New Employee Stock Options that are not exercised within ten years from the date
of grant, however, will expire without value. New Employee Stock Options are
exercisable during the optionee's lifetime only by the optionee. The Option
Agreements contain provisions regarding the exercise of New Employee Stock
Options following termination of employment with or service to the Company,
including terminations due to the death, disability or retirement of an
optionee, or upon a change in control of the Company.
Upon the exercise of any New Employee Stock Option, the purchase price
may be fully paid in cash, by delivery of New Common Stock previously owned by
the optionee equal in value to the exercise price, by means of a loan from the
Company, or by having shares of New Common Stock with a fair market value (on
the date of exercise) equal to the exercise price withheld by the Company or
sold by a broker-dealer under qualifying circumstances (or in any combination of
the foregoing).
4. PAYMENT OF TAXES.
The Company is authorized to withhold from any New Employee Stock
Option granted under the Plan, any payment relating to such New Employee Stock
Option (including from a distribution of New Common Stock), amounts of
withholding and other taxes due in connection with the New Employee Stock
Option, and to take such other action as the Plan Administrator may deem
advisable to enable the Company and optionees to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to the New
Employee Stock Option. This authority includes the right to withhold or receive
New Common Stock or other property and to make cash payments in respect thereof
in satisfaction of an optionee's tax obligations.
5. CERTAIN TAX EFFECTS OF NEW EMPLOYEE STOCK OPTIONS.
The New Employee Stock Options which have been granted to participants
are non-qualified stock options ("NSOs"). A participant will generally not be
taxed upon the grant of an NSO. Rather, at the time of exercise of such NSO,
the participant will recognize ordinary income for federal income tax purposes
in an amount equal to the excess of the fair market value of the shares
purchased over the New Employee Stock Option price. The Company will generally
be entitled to a tax deduction at such time and in the same amount that the
participant recognizes ordinary income.
90
<PAGE>
If shares acquired upon exercise of an NSO are later sold or
exchanged, then the difference between the sales price and the fair market value
of such New Common Stock on the date that ordinary income was recognized with
respect thereto will generally be taxable as long-term or short-term capital
gain or loss (if the New Common Stock is a capital asset of the participant)
depending upon whether the New Common Stock has been held for more than one year
after such date.
According to a published ruling of the Internal Revenue Service, a
participant who pays the New Employee Stock Option price upon exercise of an
NSO, in whole or in part, by delivering shares of New Common Stock already owned
by him will recognize no gain or loss for federal income tax purposes on the
shares surrendered, but otherwise will be taxed according to the rules described
above. With respect to shares acquired upon exercise which are equal in number
to the shares surrendered, the basis of such shares will be equal to the basis
of the shares surrendered, and the holding period of the shares acquired will
include the holding period of the shares surrendered. The basis of additional
shares received upon exercise will be equal to the fair market value of such
shares on the date which governs the determination of the participant's ordinary
income, and the holding period for such additional shares will commence on such
date.
XIX.
CERTAIN TRANSACTIONS
In connection with the Recapitalization, certain of the Company's
post-Recapitalization stockholders, representing an aggregate of approximately
8,717,000 shares or 98% of the Old Common Stock outstanding immediately
following the Recapitalization (currently 48.7%), entered into that certain
Voting Agreement dated as of October 30, 1992 (the "Voting Agreement"). The
Voting Agreement provides, among other things, that (i) Apollo Retail Partners,
L.P. may designate six persons to the Board of Directors, and (ii) a majority of
certain former holders of the Old 13-1/2% Notes, which notes were exchanged for
Old Common Stock pursuant to the Recapitalization, may designate two persons to
the Board of Directors. The Voting Agreement was to terminate upon the earlier
of (i) October 30, 2002, or (ii) the date upon which at least 25% of the then
outstanding shares of Old Common Stock are publicly held pursuant to one or more
underwritten registered offerings of primary shares. Since the filing of the
Petition, none of the parties to the Voting Agreement has exercised its rights
thereunder. Lamonts' obligations under the Voting Agreement will be rejected as
of the Effective Date under the Plan.
In connection with the Recapitalization, the parties to the
Recapitalization Agreement (and/or their permitted assignees) entered into an
equity registration rights agreement and a debt registration rights agreement.
Under certain circumstances, the holders of at least 10% of the aggregate
principal amount of the then outstanding Securities (as defined therein) covered
by such agreements could exercise up to two demand registrations with respect to
such Securities. The Company was required to pay all expenses (other than
underwriting discounts and commissions) in connection with all such
registrations. The agreements also provided for certain piggyback registration
rights. The Old Common Stock held by ARP and Morgens is covered by the equity
registration rights agreement pursuant to its terms. The agreements will be
rejected as of the Effective Date under the Plan.
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 Old Common Stock
91
<PAGE>
outstanding immediately following the Recapitalization in exchange for
approximately $12.5 million in principal amount of Old 13-1/2% 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
Foothill Facility in January 1994.
Pursuant to the Recapitalization, Executive Life Insurance Company of
New York ("ELICNY") received 898,406 shares of the Old Common Stock and $7.8
million ($6.4 million after adjustment for the Infusion) in principal amount of
the Old 10-1/4% Notes. During the 1994 and 1993 fiscal years, the Company paid
ELICNY $0.8 million and $0.4 million of cash interest on the Old 10-1/4% Notes,
respectively. In addition, at October 29, 1994, the Company had accrued $0.4
million of interest on the Old 10-1/4% Notes, which was subsequently issued to
ELICNY in additional securities of the Company as interest paid in kind. As a
result of the filing of the Petition, the Company has paid ELICNY no cash
interest on the Old 10-1/4% Notes since the Petition Date.
In connection with the Infusion, certain funds and accounts managed by
Fidelity Management and Research Company or Fidelity Management Trust Company
(the "Fidelity Funds"), the holders of those Old 10-1/4% Notes which are not
owned by ELICNY, became the holders of more than 5% of the Company's Old Common
Stock. Accordingly, the Company has reflected the entire amount of the Old 10-
1/4% Notes as related party debt for all periods presented. During the 1994
fiscal year, the Company paid the Fidelity Funds $6.9 million of cash interest
on the Old 10-1/4% Notes. In addition, at October 29, 1994, the Company had
accrued $3.6 million of interest on the Old 10-1/4% Notes, which was
subsequently issued to the Fidelity Funds in additional securities of the
Company as interest paid in kind. As a result of the filing of the Petition,
the Company has paid no interest to the Fidelity Funds on the Old 10-1/4% Notes
since the Petition Date.
On October 16, 1994, Alan R. Schlesinger, currently a Director and the
Chairman of the Board, President, and Chief Executive Officer of the Company,
entered into an employment agreement with the Company. In connection with the
Chapter 11 Case, Mr. Schlesinger entered into a new employment agreement with
the Company, which new employment agreement was approved by the Bankruptcy Court
on April 13, 1995. See "Management -- Employment Agreements" for a description
of the employment agreements between Mr. Schlesinger and the Company.
On December 28, 1994, Loren R. Rothschild, currently a Director and
the Vice Chairman of the Board of the Company, entered into an employment
agreement with the Company. In connection with the Chapter 11 Case, Mr.
Rothschild entered into a new employment agreement with the Company, which new
employment agreement was approved by the Bankruptcy Court on April 13, 1995.
See "Management -- Employment Agreements" for a description of the employment
agreements between Mr. Rothschild and the Company.
On February 28, 1995, Earle J. Spokane, a former executive vice
president of the Company, entered into a resignation agreement with the Company.
See "Management -- Employment Agreements" for a description of the resignation
agreement and payments made by the Company pursuant thereto.
Effective March 14, 1995, the Company employed Carolyn Morris as its
Senior Vice President and General Merchandise Manager. Ms. Morris was
compensated at a salary rate of $200,000 per year, with a guaranteed annual
bonus of $35,000. See "Management -- Executive Compensation." Ms. Morris
resigned from the Company effective June 11, 1996,
92
<PAGE>
and such resignation is not subject to any resignation or other agreement
between Ms. Morris and the Company.
On May 2, 1995, Wallace D. Holznagel, a former executive vice
president of the Company, entered into a resignation agreement with the Company.
See "Management -- Employment Agreements" for a description of the resignation
agreement and payments made by the Company pursuant thereto. Mr. Holznagel has
filed two claims in the Chapter 11 Case, one based upon contributions to the
Company's non-qualified TRIP plan in the amount of $40,053.26, and one based
upon contributions to the Company's non-qualified supplemental employee
retirement plan in the amount of $2,078.04.
On October 30, 1992, the Company entered into a written consulting
agreement (the "Thompson Agreement") with The Thompson Company ("Thompson"), one
of the principals of which is a former shareholder of the Company. Pursuant to
the Thompson Agreement, Thompson, through its President, John R. Sloan (who is
also a former Director of the Company), or other executive, provided certain
management, training, consulting, and advisory services to the Company, for
which Thompson was entitled to receive in excess of $60,000 per year. The
Thompson Agreement was rejected by order of the Court on March 10, 1995.
The Company believes that, to the extent applicable, all of the
transactions described above were, and intends that all transactions with
affiliated parties will continue to be, on terms no less favorable to the
Company than those available from unaffiliated parties offering comparable goods
and services.
On October 30, 1992, Leonard M. Snyder ("Snyder"), the former Chairman
and Chief Executive Officer of the Company, entered into an employment agreement
(the "Snyder Employment Agreement") with the Company for a term ending (subject
to specified termination rights) not earlier than November 30, 1997. On
November 14, 1994, the Company entered into a Resignation Agreement with Snyder
(the "Snyder Resignation Agreement"), pursuant to which Snyder agreed to resign
from the Company effective January 31, 1995 (the "Snyder Termination Date").
Pursuant to the Snyder Resignation Agreement, Snyder was to perform certain
duties for the Company until the Snyder Termination Date and was to receive
certain cash payments and other remuneration and benefits including, but not
limited to, (a) continuation of his Base Salary specified in the Snyder
Employment Agreement until January 31, 1995, (b) a performance bonus of $50,000
to be paid not later than December 31, 1994 (which amount was paid to Mr.
Snyder), (c) a lump sum payment of $600,000 to be paid on January 31, 1995,
(d) accrued vacation in the amount of $20,000 to be paid on January 31, 1995,
and (e) continuation, for the eighteen month period following the Snyder
Termination Date, of all other benefits (excluding vacation and severance)
ordinarily provided to Company executives. The Snyder Resignation Agreement was
rejected by order of the Court on January 27, 1995, and Snyder filed a proof of
claim (the "Snyder Claim") in the Chapter 11 Case. The total amount of the
Snyder Claim is $974,416.61, all but $2,000 of which is a nonpriority unsecured
claim. The Unsecured Creditors' Committee is reviewing this claim and will file
and prosecute any appropriate objections thereto.
On October 30, 1992, Frank E. Kulp III ("Kulp"), the former President
and Chief Operating Officer of the Company, entered into an employment agreement
(the "Kulp Employment Agreement") with the Company for a term ending (subject to
specified termination rights) not earlier than November 30, 1997. On
November 14, 1994, the Company entered into a Resignation Agreement with Kulp
(the "Kulp Resignation Agreement"), pursuant to which Kulp agreed to resign from
the Company effective January 31, 1995 (the "Kulp Termination
93
<PAGE>
Date"). Pursuant to the Kulp Resignation Agreement, Kulp was to perform certain
duties for the Company until November 30, 1994, and was to receive certain cash
payments and other remuneration and benefits including, but not limited to,
(a) continuation of his Base Salary specified in the Kulp Employment Agreement
until January 31, 1995, (b) a performance bonus of $20,000 to be paid not later
than December 31, 1994 (which amount was paid to Mr. Kulp), (c) a lump sum
payment of $324,583 to be paid on January 31, 1995, (d) accrued vacation in the
amount of $21,153 to be paid on January 31, 1995, and (e) continuation, for the
twelve month period following the Kulp Termination Date, of all other benefits
(excluding vacation and severance) ordinarily provided to Company executives.
The Kulp Resignation Agreement was rejected by order of the Court on January 27,
1995, and Kulp filed a proof of claim (the "Kulp Claim") in the Chapter 11 Case.
The total amount of the Kulp Claim is $555,696.00, all but $2,000 of which is a
nonpriority unsecured claim. The Unsecured Creditors' Committee is reviewing
this claim and will file and prosecute any appropriate objections thereto.
XX.
FEES AND EXPENSES
The expenses of seeking acceptances of the Plan and of other aspects
of Plan proceedings will be borne by the Debtor. The solicitation is being made
principally by mail; however, additional solicitation may be made by telecopier,
telephone, or in person by officers and regular employees of the Debtor, who
will not receive additional compensation for those services. Arrangements may
also be made with brokerage houses and other custodians, nominees, and
fiduciaries to forward this Disclosure Statement, Ballots, and other pertinent
materials to the beneficial holders of Old Common Stock, Old 10-1/4% Notes, and
Old 13-1/2% Notes. The Debtor will reimburse such forwarding agents for
reasonable out-of-pocket expenses incurred by them, but no compensation will be
paid for their services.
In addition to the foregoing, the estate is obligated to pay fees and
reimburse expenses for the various professionals employed in connection with the
Chapter 11 Case to the extent such fees and expenses are allowed by the
Bankruptcy Court. See "The Plan of Reorganization - Unclassified Claims -
Administrative Expenses." The Debtor is also obligated to reimburse FNBB for
its costs, fees, and expenses as provided in the FNBB facility.
XXI.
SUMMARY OF ADDITIONAL SOURCES OF INFORMATION
Additional sources of information regarding the Debtor and documents
relating to the Plan are available to holders of Claims and Equity Interests.
The following is a summary of certain documents and the places they can be
reviewed or obtained:
1. The Debtor is subject to the informational requirements of the
1934 Act and in accordance therewith has filed reports, proxy statements, and
other information with the SEC which can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C., and at the Commission's regional offices at 26 Federal Plaza,
New York, New York; 219 S. Dearborn St., Chicago, Illinois; and 5757 Wilshire
Blvd., Los Angeles, California. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Certain of such material may be
accessible via on-line computer.
94
<PAGE>
2. Orders of the Bankruptcy Court and related papers pertaining to
transactions outside of the Debtor's ordinary course of business may be
inspected at the office of the Clerk of the Bankruptcy Court, Park Place
Building, 1200 Sixth Avenue, Seattle, Washington. Copies of such papers may be
ordered from Nightrider, Attention: Steve Porter, 1401 Third Avenue, Suite 200,
Seattle, Washington 98101, telephone number (205) 233-9066.
3. The Debtor's Schedules of Assets and Liabilities, Statement of
Affairs, List of Equity Security Holders, and Schedules of Executory Contracts
and Unexpired Leases may be inspected at the office of the Clerk of the
Bankruptcy Court, Park Place Building, 1200 Sixth Avenue, Seattle, Washington.
Copies of such papers may be ordered from Nightrider, Attention: Steve Porter,
1401 Third Avenue, Suite 200, Seattle, Washington 98101, telephone number (205)
233-9066.
4. Periodic post-Petition financial reports as filed with the United
States Trustee may be inspected at the office of the United States Trustee, Park
Place Building, 1200 Sixth Avenue, Seattle, Washington.
95
<PAGE>
XXII.
RECOMMENDATION AND CONCLUSION
The Debtor believes that confirmation and implementation of the Plan
are preferable to any of the feasible alternatives because the Plan will provide
substantially greater recoveries for holders of Claims and Equity Interests.
Accordingly, the Debtor urges holders of impaired Claims and Equity Interests to
vote to accept the Plan by so indicating on their Ballots and returning them as
specified in the Order and Notice.
DATED: October 23, 1996 LAMONTS APPAREL, INC.,
a Delaware corporation
By /s/ Loren R. Rothschild
----------------------------------
LOREN R. ROTHSCHILD,
Vice-Chairman of the Board of
Directors
SUBMITTED BY:
/s/ Jeffrey Davidson
- ---------------------------------
JEFFREY H. DAVIDSON and
MICHAEL H. GOLDSTEIN, Members of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
Special Reorganization Counsel
for Debtor and Debtor in Possession
- -and-
/s/ Richard J. Hyatt
- ----------------------------------
RICHARD J. HYATT (WSBA No. 14048)
RYAN SWANSON & CLEVELAND
1201 Third Avenue, Suite 3400
Seattle, WA 98101
(206) 464-4224
Counsel for Debtor and
Debtor in Possession
96
<PAGE>
ANNEX A
PLAN OF REORGANIZATION
A copy of the "Debtor's Plan of Reorganization under Chapter 11 of the
Bankruptcy Code" will be attached as Annex A to the Disclosure Statement when it
is circulated to creditors, equity holders and other parties in interest.
ANNEX A
<PAGE>
ANNEX B
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Audited Consolidated Financial Statements as of and for the Year ended February 3, 1996 B-1
Management's Discussion and Analysis B-22
Form 10-Q for the Period ended May 4, 1996
- Unaudited Financial Statements B-29
- Management's Discussion and Analysis B-37
Form 10-Q for the Period ended August 3, 1996
- Unaudited Financial Statements B-41
- Management's Discussion and Analysis B-50
Unaudited Financial Statements as of and for the month ended August 31, 1996 B-54
</TABLE>
ANNEX B
<PAGE>
(This page intentionally left blank)
<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. (Debtor-in-Possession) as of February 3, 1996, January 28, 1995 and October
29, 1994 and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for the 53 weeks ended February 3,
1996, Quarter ended January 28, 1995 and the 52 weeks ended October 29, 1994,
and October 30, 1993. 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. (Debtor-in-Possession) as of February 3, 1996, January 28, 1995
and October 29, 1994 and the results of its operations and its cash flows for
the 53 weeks ended February 3, 1996, Quarter ended January 28, 1995 and the 52
weeks ended October 29, 1994 and October 30, 1993, 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. Further, as
more fully described in Note 1, claims substantially in excess of amounts
reflected as liabilities in the consolidated financial statements have been
asserted against the Company as a result of the reorganization proceedings. The
validity of these claims, as well as the amount and manner of payment of all
valid claims, will ultimately be determined by the Bankruptcy Court. 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 consolidated financial statements. Further, the confirmation
of a Plan or Reorganization could materially change the amounts currently
recorded in the consolidated financial statements. 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. Management's plans in regard to these matters are also discussed in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
COOPERS & LYBRAND L.L.P.
Seattle, Washington
April 16, 1996
B-1
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28, OCTOBER 29,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current Assets:
Cash $1,581 $7,972 $2,694
Receivables, net 2,458 3,050 1,994
Inventories 30,401 28,399 61,713
Prepaid expenses and other 2,076 5,517 5,924
Restricted cash 1,058 532
Total current assets 37,574 45,470 72,325
------------ ------------ ------------
Property and equipment 42,083 51,924 54,661
Leasehold interests 4,570 5,058 5,241
Excess of cost over net assets acquired 13,278 13,639 13,730
Deferred financing costs 2,713 3,436 3,617
Restricted cash 1,278 256 1,884
Other assets 865 486 1,131
------------ ------------ ------------
Total assets $102,361 $120,269 $152,589
------------ ------------ ------------
------------ ------------ ------------
Liabilities not subject to settlement under
reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility $ 20,334 $ $
Borrowings under working capital facility 15,838 24,593
Accounts payable 8,417 1,754 16,151
Accrued payroll and related costs 2,396 2,913 4,979
Accrued taxes 821 455 1,699
Accrued interest 207 336 1,249
Accrued store closure costs 3,254 2,951 3,557
Other accrued expenses 4,393 5,198 8,047
Current maturities of long term debt 796
Current maturities of obligations under capital leases 1,316
------------ ------------ ------------
Total current liabilities 39,822 29,445 62,387
Long term debt - related party 66,026
Obligations under capital leases 14,616
Other 250 2,000
------------ ------------ ------------
Total liabilities not subject to settlement under
reorganization proceedings 40,072 29,445 145,029
------------ ------------ ------------
Liabilities subject to settlement under
reorganization proceedings:
Related party 68,414 68,414
Other 36,431 39,919
------------ ------------ ------------
104,845 108,333
Commitments and contingencies
Stockholders' Equity (Deficit):
Common stock, $.01 par value; 40,000,000 shares
authorized; 17,899,549, 17,887,775 and 17,875,230
shares issued and outstanding, respectively 179 179 179
Additional paid-in-capital 62,921 62,843 62,777
Minimum pension liability adjustment (250)
Accumulated deficit (105,406) (80,531) (55,396)
------------ ------------ ------------
Total stockholders' equity (deficit) (42,556) (17,509) 7,560
------------ ------------ ------------
Total liabilities and stockholders'
equity (deficit) $102,361 $120,269 $152,589
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-2
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
53 WEEKS QUARTER 52 WEEKS ENDED
ENDED ENDED --------------------------
FEBRUARY 3, JANUARY 28, OCTOBER 29, OCTOBER 30,
1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $199,548 $71,014 $237,922 $251,015
Cost of merchandise sold 131,677 60,587 163,697 157,098
----------- ----------- ----------- -----------
Gross profit 67,871 10,427 74,225 93,917
Operating and administrative expenses 71,372 22,400 88,520 84,176
Depreciation and amortization 9,232 2,666 11,441 11,164
Store closure costs 7,200
----------- ----------- ----------- -----------
Operating costs 80,604 25,066 107,161 95,340
----------- ----------- ----------- -----------
Loss from operations before other income
(expense), reorganization expenses and
income tax benefit (12,733) (14,639) (32,936) (1,423)
Other income (expense):
Interest expense:
Cash (contractual interest of $13.8
million and $3.6 million during 1995
and the January Quarter, respectively) (5,098) (1,356) (8,130) (12,477)
Non-cash (1,670) (3,490)
Other income (expense) 196 29 (369) 29
----------- ----------- ----------- -----------
Loss from operations before
reorganization expenses and
income tax benefit (17,635) (17,636) (44,925) (13,871)
Reorganization expenses 7,240 7,499
----------- ----------- ----------- -----------
Loss before income tax benefit (24,875) (25,135) (44,925) (13,871)
Income tax benefit (400) (3,000)
----------- ----------- ----------- -----------
Net loss ($24,875) ($25,135) ($44,525) ($10,871)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per common share ($1.39) ($1.41) ($3.05) ($1.22)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-3
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Minimum
Additional pension
Preferred Common paid-in liability Accumulated
stock stock capital adjustment deficit
----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1992 $0 $89 $46,684 $0 $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 89 46,990 (10,871)
Net loss for the 52 weeks
ended October 29, 1994 (44,525)
Issuance of Series A Preferred
stock pursuant to the Infusion,
net of issuance cost 45 12,990
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 179 62,777 (55,396)
Net loss for the quarter
ended January 28, 1995 (25,135)
Compensation expense related
to stock option plan 66
----------- ---------- ------------ ------------ ------------
Balance, January 28, 1995 179 62,843 (80,531)
Net loss for the 53 weeks
ended February 3, 1996 (24,875)
Compensation expense related
to stock option plan 78
Minimum pension liability adjustment (250)
----------- ---------- ------------ ------------ ------------
Balance, February 3, 1996 $0 $179 $62,921 ($250) ($105,406)
----------- ---------- ------------ ------------ ------------
----------- ---------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-4
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
53 WEEKS QUARTER 52 WEEKS ENDED
ENDED ENDED ----------------------------
FEBRUARY 3, JANUARY 28, OCTOBER 29, OCTOBER 30,
1996 1995 1994 1993
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ($24,875) ($25,135) ($44,525) ($10,871)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities before reorganization items:
Depreciation and amortization 9,232 2,666 11,441 11,164
Store closure costs charged to operations 6,129
Non-cash interest, including interest paid-in-kind and
amortization of debt discount 1,670 3,490
Income taxes (400) (3,000)
Stock option expense 78 66 636 306
Net realizable value adjustment to inventory 500 10,000
Increase in long term restricted cash (1,022)
Other (1,425) (950) 473 (388)
Net change in current assets and liabilities 4,895 31,186 7,342 3,706
Reorganization expenses 7,240 7,499
-------------- ------------- ------------- -------------
Net cash provided (used) by operating activities before
reorganization expenses (5,377) 17,002 (5,414) 917
Operating cash flows used by reorganization items:
Payment for professional fees or other expenses
related to the Chapter 11 proceedings (2,475) (1,872)
-------------- ------------- ------------- -------------
Net cash provided (used) by operating activities (7,852) 15,130 (5,414) 917
-------------- ------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures (1,343) (694) (3,889) (6,522)
Proceeds from escrow 500
Other (448) (3) 228 8
-------------- ------------- ------------- -------------
Net cash used by investing activities (1,791) (697) (3,661) (6,014)
-------------- ------------- ------------- -------------
Cash flows from financing activities:
Pre-petition borrowings under working capital facility 26,667 194,768 72,850
Pre-petition payments under working capital facility (35,422) (183,875) (64,950)
Post-petition borrowings under working capital facility 244,178
Post-petition payments under working capital facility (239,682)
Principal payments on obligations under capital leases (1,183) (373) (1,484) (1,331)
Payments of financing costs (805) (1,495)
Proceeds from sale of preferred stock 13,399
Payment of long term debt (13,000)
Other (61) (27) (159) (140)
-------------- ------------- ------------- -------------
Net cash provided (used) by financing activities 3,252 (9,155) 8,844 4,934
-------------- ------------- ------------- -------------
Net increase (decrease) in cash (6,391) 5,278 (231) (163)
Cash, beginning of period 7,972 2,694 2,925 3,088
-------------- ------------- ------------- -------------
Cash, end of period $1,581 $7,972 $2,694 $2,925
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-5
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS ENDED
ENDED QUARTER ENDED --------------------------
FEBRUARY 3, JANUARY 28, OCTOBER 29, OCTOBER 30,
1996 1995 1994 1993
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Reconciliation of net change in
current assets and liabilities
(Increase) decrease in accounts receivable $692 ($1,056) $1,144 ($423)
(Increase) decrease in inventory (excluding adjustment for
net realizable value) (2,692) 32,400 9,895 2,912
(Increase) decrease in prepaid expenses 2,018 992 (907) 2,318
Increase (decrease) in accounts payable 6,663 (3,245) (1,012) (4,718)
Increase (decrease) in accrued interest (103) (666) (3,982) 4,349
Increase (decrease) in other accrued expenses (1,683) 2,761 2,149 (466)
(Increase) decrease in other working capital 55 (266)
---------- ------------ --------- ----------
$4,895 $31,186 $7,342 $3,706
---------- ------------ --------- ----------
---------- ------------ --------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest payments made $5,201 $1,401 $12,178 $8,129
Non-cash transactions:
Issuance of debt in payment of interest 4,026
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.
B-6
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 3, 1996
NOTE 1 - CHAPTER 11 PROCEEDINGS AND BASIS OF PRESENTATION
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the "Company"
or "Lamonts") filed a voluntary petition for relief under Chapter 11 ("Chapter
11") of title 11 of the United States Code (the "Bankruptcy Code") in the United
States Bankruptcy Court (the "Court") for the Western District of Washington at
Seattle. In Chapter 11, the Company has continued to manage its affairs and
operate its business as a debtor-in-possession. The Company and representatives
of the committees that represent Lamonts' unsecured trade creditors, bondholders
and equityholders ("the Committees") have reached a confidential agreement in
principle regarding the economic terms of a consensual Plan of Reorganization
designed to enable the Company to emerge from Chapter 11 (the "Plan"). The
Company and the Committees are discussing the timing for the filing with the
Court of the Plan and the Disclosure Statement related thereto. In addition,
the Company has received certain non-binding proposals regarding potential new
equity and/or debt investments in the Company, which proposals are subject to
customary conditions, including, in certain cases, consummation of a plan of
reorganization. The Company and the representatives of the Committees are
evaluating such proposals. After a consensual plan of reorganization is
completed, it will be sent, with a Disclosure Statement approved by the 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 a plan of reorganization by creditors and equity security holders,
the Court, at a noticed hearing, will consider whether to confirm a plan of
reorganization. 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 Court.
The accompanying consolidated financial statements of the Company have been
prepared on a going concern basis of accounting, and, for the periods subsequent
to the bankruptcy filing, in accordance with the American Institute of Certified
Public Accountants Statement of Position 90-7, FINANCIAL REPORTING BY ENTITIES
IN REORGANIZATION UNDER THE BANKRUPTCY CODE. Recurring losses from operations
and the matters discussed herein related to the bankruptcy filing raise
substantial doubt about the Company's ability to continue on a going concern.
The ability of the Company to continue as a going concern is dependent upon,
among other things, (i) the ability to comply with its debtor-in-possession
financing agreement, (ii) confirmation of a Plan 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 of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. In a Chapter 11 reorganization
plan, the rights of the creditors may be significantly altered. Creditors may
receive substantially less than the full face amount of claims. Certain
creditors have filed claims with the Court substantially in excess of amounts
reflected in the Company's financial statements. The Company continues to
analyze and reconcile the claims filed by creditors with the Company's financial
records, but believes it has made appropriate provision for all claims filed.
However, no estimate of the amount of adjustments, if any, from recorded
amounts, to amounts to be realized by creditors, is available at this time.
These liabilities are included in the balance sheet as "liabilities subject to
settlement under reorganization proceedings."
As a result of the Company's Chapter 11 filing, the Company is currently in
default under the indentures governing the Company's 10-1/4% Subordinated Notes
due November 1999 (the "10-1/4% Notes") and the 13-1/2% Senior Subordinated
Notes which were due February 1995 (the "13-1/2% Notes"). As a result, all
unpaid principal of, and accrued pre-petition interest on, such debt became
immediately due and payable. The payment of such debt and accrued but unpaid
interest thereon is prohibited during the pendency of the Company's Chapter 11
case, and these liabilities have been included in the balance sheet as
"liabilities subject to settlement under reorganization proceedings." (Also see
Note 3)
B-7
<PAGE>
Pre-petition liabilities subject to settlement under reorganization proceedings
include the following (dollars in thousands):
FEBRUARY 3, JANUARY 28,
1996 1995
----------- ----------
Accounts payable and accrued liabilities $23,511 $23,714
Capital lease obligations 12,321 15,560
10-1/4% Notes (including pre-petition accrued interest) 67,576 67,576
13-1/2% Notes (including pre-petition accrued interest) 838 838
Notes payable 599 645
---------- ----------
$104,845 $108,333
---------- ----------
---------- ----------
In accordance with the Bankruptcy Code, the Company can seek Court approval for
the rejection of pre-petition executory contracts, including real property
leases. Any such rejection may give rise to a pre-petition claim for breach of
contract. In connection with the Company's Chapter 11 proceedings, a review is
being undertaken of all of the Company's obligations under its executory
contracts. As of March 31, 1996, the Company has rejected nine real property
leases and certain executory contracts and assumed six leases (with certain
conditions and limitations).
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
accompanying financial statements do not include any adjustments that might
result from the outcome of these matters or adjustments that might result should
the Company be unable to continue as a going concern. Generally if a debtor-
in-possession is unable to emerge from Chapter 11, such debtor-in-possession
could be required to liquidate its assets.
Costs associated with the reorganization of the Company are charged to expense
as incurred. Under the requirements of the Chapter 11 filing, the Company is
required to pay certain expenses of the unsecured trade creditors, bondholders,
and equityholders committees. The amounts charged to reorganization expense by
the Company are as follows (dollars in thousands):
Fiscal January
1995 Quarter
---------- ----------
Write-off of property & equipment,
net of obligations under capital leases $2,362 $1,330
Professional Fees 2,479 699
Lease Related Costs 925 3,400
Payroll Related Costs 411 728
Other 1,063 1,342
---------- ----------
$7,240 $7,499
---------- ----------
---------- ----------
NOTE 2 - CONSOLIDATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries. All
subsidiaries of the Company are inactive. All significant intercompany
transactions and account balances have been eliminated in consolidation.
The Company is a Northwest based regional retailer of moderately priced casual
apparel. The Company has positioned itself as a focused specialty retailer with
emphasis on casual wear and high quality branded products, including denim.
NOTE 3 - BACKGROUND
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.
B-8
<PAGE>
Pursuant to the Recapitalization, 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, par value $.01 per share (the "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 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. After the Recapitalization,
approximately $796,000 in principal amount of the Company's 13-1/2% Notes also
remained outstanding. As a result of the Recapitalization, the holders of
Common Stock prior to the Recapitalization held 2.09% of the Common Stock
outstanding immediately following the Recapitalization. The Recapitalization
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 Common Stock on March 14, 1994,
concurrent with the effective date of an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 15 million to 40 million shares. In connection with this
transaction, 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% (the original rate at issuance) to 10-1/4%.
On June 10, 1994, the Company further amended the terms of the 10-1/4% Notes to
(i) modify the minimum net worth covenant to exclude store closure costs and
(ii) provide 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"). In accordance with the amendment, the Company elected to issue
additional 10-1/4% Notes at the PIK Interest rate of 13% for the November 1,
1994 interest payment. Interest continued to accrue on the 10-1/4% Notes until
the date of filing of the Company's Chapter 11 case.
On October 18, 1994, the holders of all outstanding 10-1/4% Notes (i) granted
the Company the option to exchange the 10-1/4% Notes for shares of Common Stock
representing approximately 70% of the Common Stock 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 could have
exercised its option to exchange the 10-1/4% Notes on or prior to March 31 1995.
However, on March 27, 1995, the Company received an extension from the holders
of the 10-1/4% Notes to extend indefinitely, the time in which the Company may
exercise its option to require the holders to exchange their 10-1/4% Notes;
provided, however, that a majority of the holders of the 10-1/4% Notes may
terminate such extension upon 60 days notice to the Company.
The $75.0 million principal amount of 10-1/4% Notes 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. Subject to
certain exceptions, no principal payments would 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.
As a result of the Company's Chapter 11 filing, the Company is currently in
default on all its funded debt, except for the borrowings under the working
capital facility with Foothill, in effect prior to the Petition Date. The
Company has not accrued interest on this indebtedness since the date of filing.
The 13-1/2% Notes were due February 15, 1995.
B-9
<PAGE>
NOTE 4 - SUMMARY OF ACCOUNTING POLICIES
CHANGE IN YEAR END
On March 9, 1995, the Company elected to change its fiscal year end from the
Saturday closest to October 31 to the Saturday closest to January 31 in order to
enhance comparability of the Company's results of operations with other apparel
retailers. Accordingly, the accompanying financial statements include the
results of operations of the Company for the 53 week period ended February 3,
1996 ("Fiscal 1995"), and the quarter ended January 28, 1995, the "January
Quarter"). The preceding fiscal years are comprised of the 52 weeks ended
October 29, 1994 ("Fiscal 1994") and October 30, 1993 ("Fiscal 1993").
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 February 3, 1996, January 28, 1995 and October 29,
1994 exceeded the weighted average cost of inventories by $2.1 million (net of a
reserve of $0.5 million), $2.6 million and $5.5 million (net of a reserve of
$10.0 million), respectively. The reserves were provided to reduce the Step-up
to net realizable value.
During Fiscal 1995 and the January Quarter, reductions in inventory quantities
resulted in the elimination of LIFO inventory layers which were carried at
higher costs (including the step-up) as compared with the cost of merchandise
purchased in Fiscal 1995 and the January Quarter. The effect of these
reductions increased cost of merchandise sold by $0.04 million and $3.2 million
($0.18 per share) in Fiscal 1995 and the January Quarter, respectively.
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
Current restricted cash includes amounts deposited in restricted operating
accounts for the purpose of ensuring payment of employee payroll, utilities, and
certain taxes, including retail sales tax. The Company chose this option while
operating as a debtor-in-possession and will close the accounts at the time of
emergence from Chapter 11. Noncurrent restricted cash represents amounts held
as a deposit by the Company's buying service for the annual usage of
international letters of credit, as well as deposits for workers' compensation.
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.
B-10
<PAGE>
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 $1.4 million, $1.3 million, and $1.1 million, at
February 3, 1996, January 28, 1995, and October 29, 1994, 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 of the Company's Chapter 11 case, 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 Company's Chapter 11
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 $1.2 million, $0.8 million and $0.7
million at February 3, 1996, January 28, 1995 and October 29, 1994,
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 an amendment to the 10-1/4% Notes in June 1994,
the Company issued Warrants (the "1994 Warrants") initially to purchase up to an
aggregate of approximately 2.0 million shares of Common Stock 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 $2.1 million, $1.4 million
and $1.2 million at February 3, 1996, January 28, 1995 and October 29, 1994,
respectively.
ADVERTISING COSTS
The Company expenses the production costs of advertising as incurred.
Advertising expense was $12.6 million, $3.8 million, $15.0 million and $13.9
million during Fiscal 1995, the January Quarter, Fiscal 1994 and Fiscal 1993,
respectively.
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 DIP
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.
OTHER
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("Statement No. 121"). Statement No. 121 requires that long-lived assets and
certain intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If impairment has occurred, an impairment loss must be recognized.
Implementation of Statement No. 121 is required in the Company's Fiscal Year
ending February 1, 1997. Based on estimates by management as of February 3,
1996, subject to the outcome of issues discussed in Note 1, the impact of the
adoption of this standard is not expected to be material to the financial
position, results of operations, or liquidity of the Company.
B-11
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior period amounts in the financial statements have been reclassified
to conform with the current year presentation.
NOTE 5 - NET LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss by the weighted
average number of common shares outstanding. The common stock equivalents,
represented by stock options, warrants and Series A Preferred Stock (outstanding
from December 1, 1993 to March 13, 1994) were not considered in the calculation
as they either have an exercise price greater than the applicable market price,
or the effect of assuming their exercise or conversion would be anti-dilutive.
The weighted average number of shares outstanding was 17,893,675, 17,883,135,
14,583,038 and 8,917,624 for 1995, the January Quarter, 1994, and 1993,
respectively.
Fully diluted earnings per share are not presented as the effect of assuming
common stock equivalents exercise or conversion would be anti-dilutive.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment comprise the following (dollars in thousands):
FEBRUARY 3, JANUARY 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------
Land $1,412 $1,412 $1,412
Buildings under capital leases 15,073 18,018 18,033
Buildings and improvements 7,594 7,594 7,594
Leasehold improvements 17,953 19,498 20,789
Furniture, fixtures, and equipment 16,608 17,781 17,701
Deferred software costs 6,484 5,897 5,706
---------- ---------- ----------
65,124 70,200 71,235
Less accumulated depreciation and
amortization (23,041) (18,276) (16,574)
---------- ---------- ----------
$42,083 $51,924 $54,661
---------- ---------- ----------
---------- ---------- ----------
Accumulated amortization for buildings under capital leases was $4.6 million,
$4.1 million and $3.6 million at February 3, 1996, January 28, 1995, and October
29, 1994, respectively.
In March 1996 the Company closed a store in Eugene, Oregon. The Company owns
the building subject to a ground lease and is currently attempting to market the
building for sale. The net book value of the building and improvements totaled
$2.2 million at February 3, 1996. (See Note 9.)
The Company entered into a sale-leaseback transaction involving the sale of land
and building in February 1996 (see Note 16, Subsequent Events).
NOTE 7 - LEASES
The Company leases all of its stores (except one which is subject to a ground
lease), 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.
B-12
<PAGE>
Operating lease rental expense is summarized as follows (dollars in thousands):
FISCAL JANUARY FISCAL FISCAL
1995 QUARTER 1994 1993
--------- --------- -------- --------
Minimum rentals $7,300 $2,265 $9,258 $9,313
Contingent rentals 496 217 670 567
Sublease rentals (803) (214) (710) (684)
--------- --------- -------- --------
$6,993 $2,268 $9,218 $9,196
--------- --------- -------- --------
--------- --------- -------- --------
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 Fiscal 1995, Fiscal 1994, and Fiscal 1993. During the January Quarter, the
Company had contingent capital lease rental expense of $0.1 million and received
$0.2 million in sublease rentals. Capital lease interest expense was $2.0
million, $0.6 million, $2.7 million and $2.9 million during Fiscal 1995, the
January Quarter, Fiscal 1994 and Fiscal 1993, respectively.
In September 1995, in connection with the Company's Chapter 11 case, the Company
negotiated a rental concession with one of its landlords in the Alaska market.
The lease agreement was amended to reduce monthly payments from September 1995
through August 2001. The concession has been reflected in the tables below.
Future minimum rental payments as of February 3, 1996 under capital and
operating leases, excluding amounts related to contracts which have been
rejected by the Company in connection with the Company's Chapter 11 filing, are
summarized as follows (dollars in thousands):
CAPITAL OPERATING
LEASES LEASES
---------------- ----------------
For the fiscal years ending:
1996 $2,612 $7,271
1997 2,612 6,830
1998 2,612 6,767
1999 2,613 6,538
2000 2,481 5,759
Thereafter 11,448 34,880
---------------- ----------------
Total minimum rental payments 24,378 $68,045
----------------
----------------
Less estimated executory costs
(primarily taxes and insurance) (115)
Less amounts representing interest (11,942)
----------------
Present value of obligations $12,321
----------------
----------------
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 February 3, 1996,
annual future minimum rentals of the operating lease relating to the
distribution center are approximately $0.3 million per year.
In May 1996, the Company will be relocating its corporate office to Kirkland,
WA. The new operating lease, which expires in May 2006, requires annual
payments of approximately $0.4 million.
NOTE 8 - DEBT
WORKING CAPITAL FACILITY
In January 1994, the Company replaced its existing working capital facility with
a new loan and security agreement with an asset-based lender, Foothill Capital
Group ("Foothill"). The new facility 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. An
B-13
<PAGE>
additional amendment, which was effective October 18, 1994, increased the
borrowing capacity to $31 million from October 1994 to December 1994. 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. An additional amendment, which was
effective October 18, 1994, increased the borrowing capacity to $31 million from
October 1994 to December 1994. At October 29, 1994, the Company had $24.6
million of borrowings and $2.4 million of letters of credit outstanding under
the facility, with additional borrowing capacity of $4.0 million.
On February 17, 1995, the Company received approval from the Court for a loan
and security agreement (the "DIP Facility") with Foothill. The DIP Facility
provides for a borrowing capacity of up to $32.0 million in revolving loans,
including up to $15 million of letters of credit, subject to borrowing base
limitations based upon, among other things, the value of inventory. Effective
October 17, 1995, the DIP Facility was amended to increase the percentage of
inventory value allowed in the borrowing capacity from 60% to 70%. This
increase in borrowing base was in effect for the period October 17, 1995 through
December 2, 1995. Effective November 28, 1995, Foothill increased the Company's
borrowing capacity from $32 million to $34 million to accommodate seasonal
requirements. The additional $2 million in borrowing capacity expired December
15, 1995. At February 3, 1996, the Company had $20.3 million of borrowings and
$0.1 million letters of credit outstanding under the DIP Facility, with
additional borrowing capacity of $1.8 million.
The DIP Facility provides that interest will accrue at the rate of 3% per annum
in excess of the reference rate, 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. At February 3, 1996, the
reference rate was 8.25%.
The Company paid Foothill $80,000 upon the closing of the DIP Facility in
February 1995 and the additional closing fees totaling $240,000, all of which
has been paid as of March 31, 1996. Fees payable under the DIP Facility consist
primarily of monthly payments equal to 1/2% of the average unused borrowing
capacity and quarterly payments equal to 1/4% of the borrowing capacity for each
quarterly renewal period.
The obligations of the Company under the DIP Facility are collateralized by,
among other things, inventory and certain real property. The DIP Facility
imposes limitations on the Company with respect to, among other things, (i) the
creation of incurrence of liens, (ii) consolidations, mergers and sales of
assets, (iii) the incurrence of guarantees or other contingent obligations, (iv)
capital expenditures in excess of specified levels, (v) the creation or
incurrence of any indebtedness for borrowed money or the payment of principal of
or interest on any prepetition indebtedness, (vi) the prepayment of certain
indebtedness and (vii) transactions with affiliates. Additionally, the Company
must maintain a minimum net worth of $10.0 million (as defined in the DIP
Facility to exclude, among other items, reorganization expenses, certain
liabilities incurred prior to the Company's filing, reductions in goodwill,
charges for store closure and non-cash interest).
The DIP Facility has been extended from its initial maturity date of May 17,
1996 and will now expire on the earlier of August 17, 1996, with provisions for
two additional quarterly renewals, or the effective date of the Company's plan
of reorganization.
The Company believes it may be in violation of certain covenants on or after May
3, 1996. Consequently, if the Company does not enter into the New DIP Facility
on or prior to such date, it will be in default under the DIP Facility.
Although, the Company believes that it would be able to obtain a waiver of any
such default, there can be no assurances that the Company could obtain such
waiver.
The Company is currently negotiating with the First National Bank of Boston
("FNBB") with respect to (i) a debtor-in-possession credit facility (the "New
DIP Facility"), which would replace the DIP Facility and (ii) an exit facility
(the "Exit Facility" and, together with the New DIP Facility, the "New
Facilities"), which would replace the New DIP Facility upon the Company's
emergence from Chapter 11. On April 5, 1996, the Court approved the payment by
the Company of $50,000 to FNBB as a deposit in connection with the New
Facilities pursuant to a Term Sheet dated April 3, 1996 (the "FNBB Term Sheet")
provided to the Company by FNBB. The consummation of each of the New Facilities
is subject to final documentation satisfactory to FNBB, approval of the Court
and other customary conditions, including, in the case of the Exit Facility,
effectiveness of a plan of reorganization. There can be no assurances that any
of such conditions will be satisfied.
Under the currently proposed terms of the New Facilities, fees payable under the
New Facilities consist primarily of monthly payments equal to 1/2% of the
average unused borrowing capacity under the New Facilities; provided, that with
respect to the Exit Facility, after January 31, 1997, such rates will be subject
to prospective adjustments based upon achievement of certain financial tests.
In addition, the Company shall pay a New Dip Facility Fee each month
B-14
<PAGE>
equal to 1/8 of 1.0% of the total New DIP Facility and an Exit Facility Fee
equal to 1.75% of the total Exit Facility payable in two installments. Fees
payable with respect to letters of credit shall be 1.75% per annum of the
maximum amount available to be drawn thereunder.
NOTE 9 - STORE CLOSURE COSTS
In July 1994, the Company determined that three of its Portland, Oregon stores
and five Lamonts For Kids children's stores should be closed because of poor
performance. These stores represented approximately 8.1% of the Company's 1994
revenues. All store closures occurred by January 31, 1995, and a $7.2 million
charge against operations for these costs was recorded at October 29, 1994. In
connection with its operational restructuring, the Company received permission
from the Court to close six additional under performing stores in early 1995. A
charge to reorganization expense of $2.2 million was recorded in the January
Quarter. In January 1996, the Company received permission from the Court to
close an under performing store located in Eugene, Oregon, and the Company
conducted going out of business sales at this store through March 1996. The
Company owns the building in Eugene subject to a ground lease and is currently
attempting to market the building. If a purchaser is not located, ownership of
the building will revert to the owner of the underlying land. The write off of
the net book value of the building and leasehold improvements is included in the
$3.0 million charge to reorganization expense recorded in Fiscal 1995 in
connection with the closure of the Eugene store. Store closure costs for Fiscal
1995, the January Quarter and Fiscal 1994 are as follows (dollars in thousands):
STORE CLOSURE COSTS
FISCAL JANUARY FISCAL
1995 QUARTER 1994
--------- -------- ---------
Write-off of property and equipment, net of
obligations under capital leases $2,362 $1,330 $2,972
Adjustments to inventory carrying values 450 400 1,748
Estimated operating losses through the dates
of closure 1,357
Employee severance 75 190 288
Other 163 280 835
--------- -------- ---------
$3,050 $2,200 $7,200
--------- -------- ---------
--------- -------- ---------
Amounts charged to reserve $3,247 $2,806 $3,843
--------- -------- ---------
--------- -------- ---------
Revenues associated with the closed stores totaled $3.9 million, $8.8 million
and $34.8 million in Fiscal 1995, the January Quarter and Fiscal 1994,
respectively. Operating losses, excluding the allocation of corporate expenses,
interest and reorganization expenses, incurred from these stores were $0.8
million, $2.1 million and $5.4 million in Fiscal 1995, the January Quarter and
Fiscal 1994, respectively.
NOTE 10 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under
FAS 109, 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.
The income tax benefit from operations is comprised of the following (dollars in
thousands):
FISCAL 1994 FISCAL 1993
--------------- ---------------
Current ($400)
Deferred ($3,000)
--------------- ---------------
($400) ($3,000)
--------------- ---------------
The Company has recorded a valuation allowance against net deferred tax assets
as the Company could not conclude that it was more likely than not that the tax
benefits from temporary differences and net operating loss carryforwards would
be realized.
B-15
<PAGE>
The differences between the Company's effective income tax rate and the Federal
statutory rate for 1994 and 1993 are summarized as follows:
FISCAL 1994 FISCAL 1993
------------------ ------------------
Expected benefit (34.0%) (34.0%)
Effect of current year
net operating loss 34.0% 13.1%
Adjustment to tax
provision (0.9%)
Other (0.7%)
------------------ ------------------
(0.9%) (21.6%)
------------------ ------------------
------------------ ------------------
Significant components of the Company's deferred income tax assets and
liabilities are as follows (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28, OCTOBER 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Deferred income tax assets:
Net operating loss carryovers $30,835 $24,192 $17,650
Accrued payroll and related costs 948 1,074 1,094
Leasehold interests 2,652 2,630 2,620
Store closure expenses 3,821 2,856 2,363
Other 1,883 1,623 549
Valuation allowance (38,707) (30,395) (22,198)
----------- ----------- -----------
Total deferred income tax assets 1,432 1,980 2,078
----------- ----------- -----------
Deferred income tax liabilities:
Inventory (454) (644) (1,282)
Property and equipment (978) (1,336) (796)
----------- ----------- -----------
Total deferred income tax liabilities (1,432) (1,980) (2,078)
----------- ----------- -----------
Net deferred income taxes $0 $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
benefit for Fiscal 1994. The temporary differences for Fiscal 1993 resulted in
a tax benefit as follows (dollars in thousands):
FISCAL 1993
---------------
Difference due to inventory methods ($347)
Proceeds from escrow (170)
Capital leases (225)
Vacation accrual (35)
Difference due to depreciation methods (148)
Net operating loss (2,115)
Other 40
---------------
($3,000)
---------------
---------------
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
B-16
<PAGE>
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.
As of February 3, 1996, the Company had $90.7 million and $78.9 million of
regular tax and alternative minimum tax net operating losses, respectively,
which are available to offset future income, expiring in years beginning in
2005. Possible restructuring of the Company 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
were examined by the IRS. An agreement, which was reviewed and accepted by the
Joint Committee of Taxation was reached with the IRS, whereby the Company was
given notice to pay the IRS approximately $504,000 for additional taxes and
interest. This amount is included in the balance sheet as liabilities subject
to settlement under reorganization proceedings. 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 11 - 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:
CASH
The carrying amount for cash approximates fair value because of the short
maturity of amounts therein.
WORKING CAPITAL FACILITY
The carrying value of borrowings under the DIP Facility approximates market
value as the interest rate is variable.
LETTERS OF CREDIT
At February 3, 1996, the Company had $0.1 million outstanding under trade and
stand-by letters of credit as discussed in Note 8. 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 INCLUDED IN LIABILITIES SUBJECT TO COMPROMISE
Management believes the carrying amount the Company's 10-1/4% Notes and the
13-1/2% Notes is in excess of fair value based on the Company's Chapter 11
filing. Until a plan of reorganization is approved by the Court, a fair value
can not be readily determined.
B-17
<PAGE>
NOTE 12 - COMMITMENTS, CONTINGENCIES AND OTHER
The Company was a defendant in a lawsuit originally brought as a class action in
state court in Anchorage, Alaska on September 18, 1992. Plaintiffs alleged that
certain employees in the State of Alaska were not exempt from overtime pay
requirements under the Alaska Wage and Hour Act and thus have worked hours for
which they had not been compensated. The complaint sought back wages,
liquidated damages, attorneys fees and costs. Subsequent to the Petition Date,
the plaintiffs filed a proof of claim in the Court asserting the same claims.
On October 27, 1995, following a hearing before the Court, an order was entered
granting the Company's objection to and precluding the Class Action claim. The
balance of the claim by two individuals has been settled in an amount not
material to the Company.
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 upon the Company's anticipated plan of
reorganization and operating results during the period in which the litigation
is 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 February 3, 1996, January 28,
1995 and October 29, 1994 the Company had $0.3 million, $0.3 million and $0.2
million reserved for bad debts arising from this program. Bad debt expense for
Fiscal 1995, the January Quarter, Fiscal 1994 and Fiscal 1993 was approximately
$0.9 million, $0.2 million, $0.8 million and $0.8 million, respectively.
NOTE 13 - 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, if any, the holders of shares
of Common Stock are entitled to dividends when, and if declared by the Board of
Directors from funds legally available and, upon liquidation, to a pro rata
share in any distribution to stockholders.
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 million to 40 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 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.
B-18
<PAGE>
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 1,017,478 shares of Common Stock. The exercise price of the 1992
Warrants is $5.01 per share which shall increase on each September 28 by an
amount equal to 10% of the exercise price immediately prior to such increase.
At February 3, 1996 none of the 1992 Warrants have been exercised.
On June 10, 1994, the Company issued 1994 Warrants to purchase up to an
aggregate of approximately 2.0 million shares of Common Stock (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 February 3, 1996, none of the 1994 Warrants
have been exercised.
The exercise price per share of Common Stock subject to the 1992 and 1994
Warrants would be decreased upon the occurrence of certain events, including
future distributions or issuances by the Company of: (i) Common Stock, (ii)
rights, options or warrants to purchase Common Stock or (iii) 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. 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:
NUMBER OF
OPTIONS
---------------
Balance, October 30, 1993 420,650
Granted 200,000
Exercised (11,334)
Canceled (16,644)
---------------
Balance, October 29, 1994 592,672
Granted 0
Exercised (12,545)
Canceled (205,387)
---------------
Balance, January 28, 1995 374,740
Granted 0
Exercised (11,774)
Canceled (43,902)
---------------
Balance, February 3, 1996 319,064
---------------
---------------
At February 3, 1996 options to purchase 319,064 shares at an exercise price of
$.01 per share were issued and outstanding of which, 296,685 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, $0.1 million, $0.1 million, $0.6 million and $0.3
million was charged to compensation expense during Fiscal 1995, the January
Quarter, Fiscal 1994 and Fiscal 1993, respectively.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". This statement encourages, but does not require, a fair value
based
B-19
<PAGE>
method of accounting for stock compensation plans. Companies may elect to
continue to apply current accounting requirements for employee stock
compensation awards. All companies are required to comply with the disclosure
requirements of the statement, and the Company will adopt the policy beginning
in the fiscal year ending February 1, 1997. The Company expects to continue
accounting for employee stock compensation awards using current accounting
requirements.
NOTE 14 - 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 Common
Stock outstanding immediately following the Recapitalization (currently 48.7%),
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, (ii) management may designate two persons to the Board of Directors,
and (iii) a majority of certain former holders of the 13-1/2% Notes, which notes
were exchanged for Common Stock pursuant to the Recapitalization, may designate
two persons to the Board of Directors. 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. Since the Company's
Chapter 11 filing, none of the parties to the Voting Agreement has exercised its
right thereunder.
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 Common Stock outstanding immediately following the
Recapitalization in exchange for approximately $12.5 million in principal amount
of 13-1/2% 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).
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 Fiscal 1994 and Fiscal 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.
In connection with the Infusion, certain funds and accounts 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.
During Fiscal 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.
NOTE 15 - BENEFIT PLANS
PENSION PLAN
On January 1, 1986, the Company established the Lamonts Apparel, Inc. Employees
Retirement Trust and the Lamonts Apparel, Inc. Supplemental Executive Retirement
Plan (collectively the "Retirement Plan"). The Retirement 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 Retirement Plan in amounts which comply with
the minimum regulatory funding requirements.
B-20
<PAGE>
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>
FEBRUARY 3, JANUARY 28, OCTOBER 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Actuarial present value of accumulated benefit obligations,
including vested benefits of $5,462, $4,286 and $4,176 in
Fiscal 1995, the January Quarter and Fiscal 1994, respectively $5,651 $4,583 $4,465
----------- ----------- -----------
----------- ----------- -----------
Projected benefit obligation $6,639 $5,499 $5,384
Retirement Plan assets at value, primarily money market
funds and guaranteed investment contracts 5,143 4,652 4,685
----------- ----------- -----------
Projected benefit obligation in excess of Retirement Plan assets 1,496 847 699
Unrecognized net loss from past experience different
from that assumed (1,238) (1,162) (1,083)
----------- ----------- -----------
Accrued (prepaid) pension cost 258 (315) (384)
Additional liability charge to equity to recognize minimum liability 250
----------- ----------- -----------
Total accrued (prepaid) pension cost $508 ($315) ($384)
----------- ----------- -----------
----------- ----------- -----------
Discount rate 7.25% 8.5% 8.5%
Rate of increase in future compensation levels 3.5% 4.5% 4.5%
</TABLE>
Amounts charged to expense under the Retirement Plan were as follows (dollars
in thousands):
<TABLE>
<CAPTION>
FISCAL JANUARY FISCAL FISCAL
1995 QUARTER 1994 1993
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Service cost, benefits earned during the period $414 $108 $536 $365
Interest cost on projected benefit obligation 483 113 407 340
Actual return on assets (883) 39 11 (565)
Other, including deferred recognition of asset gain/(loss) 559 (129) (444) 151
-------- ---------- -------- --------
Net pension cost $573 $131 $510 $291
-------- ---------- -------- --------
-------- ---------- -------- --------
</TABLE>
During Fiscal 1995, a claim was filed against the Company by the Pension Benefit
Guaranty Corporation ("PBGC") in the amount of $2.8 million based upon PBGC's
assumption that one of the Company's qualified employee retirement plans would
be terminated. The Company believes that even if the plan was terminated,
unfunded plan benefit liabilities would not be material. The Company disputed
the claim. PBGC has withdrawn its claim without prejudice to its right to
refile at a future date if the PBGC determines it is appropriate to do so.
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 $0.15 million, $0.04 million, $0.2
million and $0.2 million during Fiscal 1995, the January Quarter, Fiscal 1994
and Fiscal 1993, respectively.
NOTE 16 - SUBSEQUENT EVENT
On February 8, 1996, the Company entered into a sale-leaseback transaction for
the land and building at the Company's Alderwood store in Washington. The
proceeds of $5 million were applied against the Company's DIP Facility
borrowings. The Company concurrently entered into a 20 year lease agreement
with the purchaser.
B-21
<PAGE>
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. On
March 9, 1995, the Company elected to change its fiscal year end from the
Saturday closest to October 31 to the Saturday closest to January 31 in order to
enhance comparability of the Company's results of operations with other apparel
retailers. Accordingly, for purposes of comparing the results of operations of
the Company for Fiscal 1995, the Company believes it is meaningful to use the
comparable prior year period as the basis for comparison.
FINANCIAL CONDITION
BACKGROUND
On October 30, 1992, the Company completed the Recapitalization pursuant to
which 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 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. After the transaction,
approximately $796,000 in principal amount of the Company's 13-1/2% Senior
Subordinated Notes due February 15, 1995 (the "13-1/2 Notes") remained
outstanding. As a result of the Recapitalization, (i) the holders of Common
Stock outstanding prior to the Recapitalization held 2.09% of the Common Stock
outstanding immediately following the Recapitalization and (ii) the Company's
funded debt was reduced by $63.6 million.
In December 1993, the Company completed 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 Common
Stock on March 14, 1994. In connection with this transaction, 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 further 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. In accordance with the amendment, the Company elected to issue
additional 10-1/4% Notes at the PIK Interest rate of 13% for the November 1,
1994 interest payment. Interest continued to accrue on the 10-1/4% Notes until
the date of filing of the Company's Chapter 11 case. In addition, on June 10,
1994, the Company issued the 1994 Warrants initially to purchase up to an
aggregate of approximately 2 million shares of Common Stock, (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 February 3, 1996, none of the 1994 Warrants
have been exercised.
On October 18, 1994, the holders of all outstanding 10-1/4% Notes (i) granted
the Company the option to exchange the 10-1/4% Notes for shares of Common Stock
representing approximately 70% of the Common Stock 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 could exercise
its option to exchange the 10-1/4% Notes on or prior to March 31, 1995. However,
on March 27, 1995, the Company received an extension from the holders of the
10-1/4% Notes to extend indefinitely, the time in which the Company may exercise
its option to require the holders to exchange their 10-1/4% Notes; provided,
however, that a majority of the holders of the 10-1/4% Notes may terminate such
extension upon 60 days notice to the Company.
Notwithstanding the foregoing, the Company's financial position continued to
deteriorate through Fiscal 1994. 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 more significant financial and
operational restructuring was necessary.
B-22
<PAGE>
FILING
On January 6, 1995, the Company filed for protection pursuant to Chapter 11. In
Chapter 11, the Company has continued to manage its affairs and operate its
business as a debtor-in-possession The Company and representatives of the
Committees have reached a confidential agreement in principle regarding the
economic terms of a Plan designed to enable the Company to emerge from Chapter
11. The Company and the Committees are discussing the timing for the filing
with the Court of the Plan and the Disclosure Statement related thereto. In
addition, the Company has received certain non-binding proposals regarding
potential new equity and/or debt investments in the Company, which proposals are
subject to customary conditions, including, in certain cases, consummation of a
plan of reorganization. The Company and the representatives of the Committees
are evaluating such proposals. For additional information related to the
Company's Chapter 11 case, see "Item 3 - Legal Proceedings."
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. In a Chapter 11 reorganization
plan, the rights of the creditors may be significantly altered. Creditors may
receive substantially less than the full face amount of claims. No estimate of
the amount of adjustments, if any, from recorded amounts, to amounts to be
realized by creditors, is available at this time.
As a result of the Company's Chapter 11 case, the Company is currently in
default under the indentures governing the 10-1/4% Notes and the 13-1/2% Notes.
As a result, all unpaid principal of, and accrued prepetition interest on, such
debt became immediately due and payable. The payment of such debt and accrued
but unpaid interest thereon is prohibited during the pendency of the Company's
Chapter 11 case.
STORE LOCATIONS
Since October 29, 1994, the Company has closed 15 stores, six of which, with the
approval of the Court, were closed in January 1995. The last store was closed
in March 1996. Of the 15 stores closed, all were closed due to poor
performance. Management is continually evaluating store locations and
operations to determine whether to close, downsize or relocate stores that do
not meet performance objectives.
In March 1995, the Company opened a new store in Issaquah, Washington.
Management is also evaluating possibilities of opening new stores in desirable
geographic locations to facilitate revenue growth.
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO THE 12 MONTHS ENDED JANUARY 28, 1995
REVENUES. Revenues of $199 million for Fiscal 1995 decreased 13.7% on a total
store basis from $231 million for the comparable prior year period, primarily
because the comparable prior year period results include revenues from six
stores that were closed in January 1995. In addition, the majority of the
revenue decrease in Fiscal 1995 occurred during the first three months after the
Company's Chapter 11 filing. Comparable store revenues decreased 4.5% in Fiscal
1995 (after deducting the 53rd week of sales in Fiscal 1995). Comparable store
revenues are defined as revenues generated at stores opened for at least twelve
months in each of the periods.
GROSS PROFIT. Gross profit, as a percentage of revenues, increased 3.2% for
Fiscal 1995, to 34.5% from 31.3% of revenues in the comparable prior year period
(excluding the effect of non-cash charges of $16.5 million in the comparable
prior year period and $0.9 million in Fiscal 1995). The non-cash charges
consist primarily of "LIFO" inventory valuation and net realizable value
adjustments. The improvement in gross profit margins can be attributed to the
Company's implementation of new merchandising strategies designed to improve the
quality of merchandise offered while maintaining price points geared to the
Company's customer base, reduced inventory levels and increased inventory turns.
Merchandise turnover increased from 2.3 times in the comparable prior year
period to 2.8 times in Fiscal 1995, a 22% improvement. The Company has also
initiated policies to mark-down and clear out any unsold merchandise within its
respective season.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses of
$71.3 million, or 35.8% of revenues for Fiscal 1995, decreased compared to $87.8
million, or 38.0% of revenues for the comparable prior year period. On a
comparable store basis, operating and administrative expenses have decreased
$5.5 million or 7.3%. Reduction in payroll, corporate administration and
professional expenses are primarily attributable to this improvement.
B-23
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $9.2
million for Fiscal 1995 decreased from $11.4 million in the comparable prior
year period. The decrease is primarily attributable to the six stores closed
during January 1995. The increase in depreciation and amortization associated
with newly acquired assets was offset by reductions due to assets becoming fully
depreciated or amortized.
REORGANIZATION EXPENSES. Reorganization expenses relate to costs associated
with the Company's Chapter 11 filing and the general restructuring of the
Company's business operations. Since the Chapter 11 filing, the Company has
recognized $14.7 million in reorganization expense (approximately $9.0 million
of non-cash charges), of which $7.2 million was incurred during Fiscal 1995 and
$7.5 million during the comparable prior year period. These expenses relate
primarily to legal costs associated with the Company's Chapter 11 case, the
accrued or estimated costs associated with the rejection of real property
leases, and costs related to closing under performing and nonprofitable stores
subsequent to the Company's Chapter 11 case. The charges for store closures are
primarily non-cash write-offs of abandoned assets but also include inventory
losses realized in the inventory liquidation process.
INTEREST EXPENSE. Interest expense of $5.1 million for Fiscal 1995 decreased
from $11.8 million ($6.7 million cash and $5.1 million non-cash) in the
comparable prior year period. The decrease in interest expense is primarily a
result of the Company's Chapter 11 case. See "Item 3, Legal Proceedings". As
of February 3, 1996, the DIP Facility accrued interest at an annual rate of
11.25% as compared to 12% on borrowings on the Company's working capital
facility in the comparable prior year period.
NET LOSS. The Fiscal 1995 net loss of $24.8 million decreased $44.6 million
compared to the net loss of $69.4 million for the comparable prior year period.
The reduction in operating losses is primarily a result of (i) a $12 million
improvement in gross margin which includes non-cash charges in the comparable
prior year period as discussed above, (ii) a $6.4 million decrease in costs
related to the closing of stores in Fiscal 1995 compared to the comparable prior
year period, (iii) lower operating and administrative expenses of $16.4 million
in Fiscal 1995 as discussed above, (iv) a $6.8 million reduction in interest
expense in Fiscal 1995 due to the Company's Chapter 11 filing and (v) a $2.1
million decline in depreciation and amortization expense during Fiscal 1995.
Although the Company has realized a significant reduction in operating and other
expenses due to downsizing, these savings have been partially offset by a
decline in sales also attributable to a reduced number of operating stores.
QUARTER ENDED JANUARY 28, 1995 COMPARED TO QUARTER ENDED JANUARY 29, 1994
REVENUES Revenues of $71.0 million for the January Quarter include the Christmas
holiday season and are not indicative of an annualized trend. Revenues
decreased 8.6% on a total store basis from $77.7 million for the quarter ended
January 29, 1994. Store closures contributed $2.4 million to the total revenue
decline. Comparable store revenues decreased 6.4% for the January Quarter as
compared to the same period in the prior year. Management believes that
revenues have been adversely affected, in part, by (i) a weak retail environment
for apparel, (ii) the adverse publicity associated with the Company's Chapter 11
filing and (iii) the interruption in the receipt of merchandise due to a
reduction in available credit immediately following the filing.
GROSS PROFIT. Gross profit, as a percentage of revenues, decreased
approximately 17.3% for the January Quarter, to 20.2% as compared to 37.5% for
the comparable prior year period (excluding the effects of non-cash charges of
$3.9 million during the January Quarter and $0.3 million during the comparable
prior year period). The decrease in gross profit, excluding non-cash items, is
primarily attributable to the significant markdowns taken during the January
Quarter in order to sell aged and slow-moving merchandise from the Company's
inventory. Non-cash charges, primarily resulting from the Company's use of the
LIFO method for valuing inventories, increased during the January Quarter due to
the $2.9 million liquidation of a step-up layer included in inventory.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses of
$22.4 million for the January Quarter were $0.7 million lower than the $23.1
million incurred for the comparable prior year period. The closure of nine
stores subsequent to January 29, 1994 resulted in a decrease of $1.8 million in
operating and administrative expenses offset, in part, by a slight increase in
comparable store operating and administrative expenses. As a percentage of
revenues, operating and administrative expenses increased to 31.5% for the
January Quarter compared to the 29.7% for the same period of the prior year due
to lower revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $2.7
million for the January Quarter remained relatively unchanged from $2.8 million
recorded for comparable prior year period. Increased depreciation and
amortization associated with newly acquired assets offset reductions associated
with assets retired as a result of store closures and assets becoming fully
depreciated or amortized.
B-24
<PAGE>
INTEREST EXPENSE. Interest expense of $3.0 million ($1.3 million cash and $1.7
million non-cash) for the January Quarter increased $0.2 million from $2.8
million (all cash) in the comparable prior year period primarily due to (i) the
accrual of payment-in-kind interest on the 10-1/4% Notes at the rate of 13%
through the date of the filing as compared to a cash interest rate of 10-1/4% in
effect for the majority of the prior year period and (ii) higher borrowing
levels and higher interest rates under the Company's working capital facilities,
offset by (i) the termination of interest accruals on the 10-1/4% Notes and on
the 13-1/2% Notes as of the date of the Company's Chapter 11 filing, and (ii)
the December 1993 repurchase of $13.0 million aggregate principal amount of the
10-1/4% Notes.
OTHER. Other expense of $0.4 million for the January Quarter reflects the
write-off of certain deferred financing costs attributable to $13.0 million
aggregate principal amount of 10-1/4% Notes repurchased by the Company in
December 1993.
REORGANIZATION EXPENSES. Reorganization expenses represent costs directly
related to the Company's Chapter 11 filing, and include (i) estimated costs
associated with the rejection of real property leases, (ii) estimated cost of
closing under performing stores and (iii) professional fees and other
expenditures.
NET LOSS. The Company reported a net loss of $25.1 million for the January
Quarter as compared to a net loss of $0.2 million for the comparable prior year
period. The decrease in net earnings of $24.9 million is primarily attributable
to decreased gross profit dollars and the recognition of reorganization expenses
attributable to the Company's Chapter 11 proceedings offset, in part, by lower
operating and administrative expenses.
FISCAL 1994 COMPARED TO 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 sluggish economy in the Seattle/Tacoma market and (iv) the general
lower demand for apparel experienced by the Company and many other apparel
retailers.
GROSS PROFIT. Gross profit, as a percentage of revenues decreased 1.4% in
Fiscal 1994, to 36.5% from 37.9% of revenues in Fiscal 1993 (excluding the
effect of non-cash charges of $12.6 million in Fiscal 1994 and $1.2 million in
Fiscal 1993). The non-cash charges increased $11.4 million in Fiscal 1994
primarily due to a $10.0 million reduction in the step-up in inventory to net
realizable value. The step-up was 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. 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.
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 in November 1994.
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. As the store closure costs consist
primarily of non-cash write-offs, the Company anticipates a net cash outlay of
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 10 of the Notes to the
Consolidated Financial Statements contained elsewhere in
B-25
<PAGE>
this document), partially offset by (i) 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
certain 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 10 of the Notes to the
Consolidated Financial Statements contained elsewhere in this document) and (ii)
lower interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $5.4 million of cash for operating activities for Fiscal 1995.
The Company's primary cash requirement is the procurement of inventory which is
currently funded through borrowings under the DIP Facility and trade credit.
Like other apparel retailers, the Company is dependent upon its ability to
obtain trade credit. If the Company is able to continue to obtain the trade
credit terms it is currently receiving, and enters into the New Facility on
substantially the terms set forth in the FNBB Term Sheet, the Company believes
that its available sources of cash will provide the cash necessary to fund the
Company's cash requirements.
The Company utilized $1.8 million of cash for investing activities in Fiscal
1995. The $1.8 million relates primarily to capital expenditures.
DIP FINANCING
On February 17, 1995, the Company received approval from the Court for the DIP
Facility with Foothill. The DIP Facility provides for a borrowing capacity of
up to $32.0 million in revolving loans, including up to $15 million of letters
of credit, subject to borrowing base limitations based upon, among other things,
the value of inventory. Effective October 17, 1995, the DIP Facility was
amended to increase the percentage of inventory value allowed in determining the
borrowing capacity. This increase in borrowing capacity was in effect for the
period October 17, 1995 through December 2, 1995. Effective November 28, 1995,
Foothill increased the Company's borrowing capacity from $32 million to $34
million to accommodate seasonal requirements. The additional $2 million in
borrowing capacity expired December 15, 1995. As of April 10, 1996, the Company
had $17.6 million of borrowings and $0.1 million letters of credit outstanding
under the DIP Facility, with additional borrowing capacity of $2.5 million.
The DIP Facility provides that interest will accrue at the rate of 3% per annum
in excess of the reference rate, 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. At April 10, 1996, the
reference rate was 8.25%.
Additionally, the Company must maintain a minimum net worth of $10.0 million (as
defined in the DIP Facility to exclude, among other items, reorganization
expenses, certain liabilities incurred prior to the filing, reductions in
goodwill, charges for store closure and non-cash interest). The DIP Facility
has been extended from its initial maturity date of May 17, 1996 and will now
expire on the earlier of August 17, 1996, with provisions for two additional
quarterly renewals, or the effective date of the Company's plan of
reorganization.
The Company believes it may be in violation of certain covenants on or after May
3, 1996. Consequently, if the Company does not enter into the New DIP Facility
on or prior to such date, it will be in default under the DIP Facility.
Although, the Company believes that it would be able to obtain a waiver of any
such default, there can be no assurances that the Company could obtain such
waiver.
The Company and representatives of the Committees have reached a confidential
agreement in principle regarding the economic terms of a Plan designed to enable
the Company to emerge from Chapter 11. The Company and the Committees are
discussing the timing for the filing with the Court of the Plan and the
Disclosure Statement related thereto. In addition, the Company has received
certain non-binding proposals regarding potential new equity and/or debt
investments in the Company, which proposals are subject to customary conditions,
including, in certain cases,
B-26
<PAGE>
consummation of a plan of reorganization. The Company and the representatives
of the Committees are evaluating such proposals.
The Company is currently negotiating with FNBB with respect to (i) the New DIP
Facility, which would replace the DIP Facility and (ii) the Exit Facility, which
would replace the New DIP Facility upon the Company's emergence from Chapter 11.
On April 5, 1996, the Court approved the payment by the Company of $50,000 to
FNBB as a deposit in connection with the New Facilities pursuant to the FNBB
Term Sheet. The consummation of each of the New Facilities is subject to final
documentation satisfactory to FNBB, approval of the Court and other customary
conditions, including, in the case of the Exit Facility, effectiveness of a plan
of reorganization. There can be no assurances that any of such conditions will
be satisfied. In addition, the following description of the New Facilities is
based on currently proposed terms and there can be no assurances that such terms
will not be changed in a manner adverse to the Company.
Under the currently proposed terms of the New Facilities, the Company will be
able to borrow up to $32 million in revolving loans, including up to $3 million
of documentary and standby letters of credit. Borrowings under the New
Facilities will be subject to borrowing base limitations based upon, among other
things, the value of eligible inventory.
The New Facilities will provide that interest will accrue at the rate of 1.5%
per annum in excess of FNBB's alternate base rate, payable monthly in arrears,
or 2.75% per annum in excess of the fully reserve adjusted eurodollar rate for
interest periods of one, two and three months, payable at the end of the
applicable interest period; provided, that with respect to the Exit Facility,
after January 31, 1997, such rates will be subject to prospective adjustment
based upon achievement of certain financial tests. The New Facilities also
provide that in the event of a default in the payment of any amount due
thereunder, the interest rate on such defaulted amount shall be 3% per annum in
excess of FNBB's alternate base rate.
The New DIP Facility will be secured by all real and personal property of the
Company and will be an allowed administrative expense claim with priority over
certain other administrative expenses in the Company's Chapter 11 case. The
Exit Facility will be secured by all existing and after acquired assets,
properties and rights of the Company (including, without limitation, inventory,
accounts receivables, general intangibles, equipment, real property and
intellectual property). The New Facilities will impose limitations on the
Company with respect to, among other things, (i) consolidations, mergers and
sales of assets, (ii) the incurrence of liens and encumbrances, (iii)the
incurrence of debt or guaranties, (iv) capital expenditures in excess of
specified levels, (v) investments and dividends and (vi) the prepayment of
certain indebtedness. Additionally, under the New Facilities, the Company will
be required to satisfy certain financial tests. The New DIP Facility will
expire on the earlier of June 30, 1997, or the effective date of a plan of
reorganization and the Exit Facility will expire two years from the closing of
such facility.
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 and the financial condition of the Company. The ability of the
Company to pay dividends is restricted under the terms of the DIP Facility. In
addition, the Bankruptcy Code prohibits the Company's payment of cash dividends
during the pendency of the Company's Chapter 11 case and, based on the terms set
forth in the FNBB Term Sheet, will be restricted under the New Facilities.
B-27
<PAGE>
SEASONALITY
The Company's sales are seasonal, with the Christmas Season being its strongest
quarter. The table below sets forth the effect of seasonality on the Company's
business for Fiscal 1995 and the comparable prior year period. Revenues by
quarter in the comparable prior year period have been restated to conform with
the current year presentation, after the Company's change in fiscal year to the
Saturday closest to January 31.
1ST QTR 2ND QTR 3RD QTR 4TH QTR TOTAL
------- ------- ------- ------- --------
(dollars in thousands)
FISCAL 1995
Revenues $36,682 $47,711 $49,802 $65,353 $199,548
% Contribution 18.4% 23.9% 24.9% 32.8%
TWELVE MONTHS ENDED
JANUARY 28, 1995
Revenues $48,503 $54,994 $56,688 $71,014 $231,199
% Contribution 21.0% 23.8% 24.5% 30.7%
INFLATION
The primary items affected 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.
B-28
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
FORM 10-Q
MAY 4, 1996
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information Page
-----
Item 1 Consolidated Financial Statements
- Consolidated Balance Sheets - May 4, 1996 and February 3, 1996 3
- Consolidated Statements of Operations and Accumulated Deficit for the three months
ended May 4, 1996 and April 29, 1995 4
- Consolidated Statements of Cash Flows for the three months ended May 4, 1996
and April 29, 1995 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
</TABLE>
B-29
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
May 4, February 3,
1996 1996
---------- -----------
<S> <C> <C>
Current Assets:
Cash $2,083 1,581
Receivables - net 2,256 2,458
Inventories 34,973 30,401
Prepaid expenses and other 1,751 2,076
Restricted cash 902 1,058
---------- -----------
Total current assets 41,965 37,574
Property and equipment - net of accumulated depreciation and amortization
$23,661 and $23,041, respectively 36,951 42,083
Leasehold interests 4,452 4,570
Excess of cost over net assets acquired - net 13,188 13,278
Deferred financing costs - net 2,532 2,713
Restricted cash 1,278 1,278
Other assets 892 865
---------- -----------
Total assets $101,258 $102,361
---------- -----------
---------- -----------
Liabilities not subject to settlement under reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility $19,984 $20,334
Accounts payable 12,637 8,417
Accrued payroll and related costs 1,841 2,396
Accrued taxes 1,067 821
Accrued interest 221 207
Accrued store closure costs -- 3,254
Other accrued expenses 6,326 4,393
---------- -----------
Total current liabilities 42,076 39,822
Obligations under capital leases 2,808 --
Other 472 250
---------- -----------
Total liabilities not subject to settlement under reorganization proceedings 45,356 40,072
---------- -----------
Liabilities subject to settlement under reorganization proceedings 104,547 104,845
---------- -----------
Stockholders' Equity (Deficit):
Common stock, $0.01 par value, 40,000,000 shares authorized, 17,899,549
shares issued and outstanding 179 179
Additional paid-in capital 62,935 62,921
Minimum pension liability adjustment (250) (250)
Accumulated deficit (111,509) (105,406)
---------- -----------
Total stockholders' equity (deficit) (48,645) (42,556)
---------- -----------
Total liabilities and stockholders' equity (deficit) $101,258 $102,361
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
R-30
<PAGE>
<TABLE>
<CAPTION>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
----------------------------
MAY 4, APRIL 29,
1996 1995
----------- -----------
<S> <C> <C>
Revenues $37,922 $36,682
Cost of merchandise sold 24,348 24,717
----------- -----------
Gross profit 13,574 11,965
----------- -----------
Operating and administrative expenses 15,775 16,369
Depreciation and amortization 2,037 2,494
----------- -----------
Operating costs 17,812 18,863
----------- -----------
Loss from operations before other income (expense) and
reorganization expenses (4,238) (6,898)
Other income (expense):
Interest expense (contractual interest of $3.4 million and $3.3
million in 1996 and 1995, respectively) (1,198) (1,099)
Other 3 26
----------- -----------
Loss from operations before reorganization expenses (5,433) (7,971)
Reorganization expenses 670 600
----------- -----------
Net loss (6,103) (8,571)
Accumulated deficit, beginning of period (105,406) (80,531)
----------- -----------
Accumulated deficit, end of period ($111,509) ($89,102)
----------- -----------
----------- -----------
Net loss per common share ($0.34) ($0.48)
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
B-31
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------
MAY 4, APRIL 29,
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net less ($6,103) ($8,571)
Adjustments to reconcile net loss to net cash used in operating
activities before reorganization items:
Depreciation and amortization 2,037 2,494
Reorganization expenses 670 600
Increase in inventories (5,414) (5,483)
Decrease in prepaid expenses and other 95 1,385
Increase in accounts payable 4,220 8,458
Increase in accrued interest 14 10
Increase in accrued expenses 1,806 1,603
Other 48 (1,262)
----------- ----------
Net cash used in operating activities before reorganization items (2,627) (766)
Operating cash flows used by reorganization items:
Payments for professional fees and other expenses related to the
Chapter 11 proceedings (596) (476)
----------- ----------
Net cash used in operating activities (3,223) (1,242)
----------- ----------
Cash flows from investing activities:
Capital expenditures (170) (385)
Proceeds from sale of land and building 4,459 --
Other 24 23
----------- ----------
Net cash provided by (used in) investing activities 4,313 (362)
----------- ----------
Cash flows from financing activities:
Post-petition borrowings under working capital facility 45,637 48,444
Post-petition payments under working capital facility (45,987) (52,217)
Principal payments on obligations under capital leases (221) (392)
Other (17) (15)
----------- ----------
Net cash used in financing activities (588) (4,180)
----------- ----------
Net increase (decrease) in cash 502 (5,784)
Cash, beginning of period 1,581 7,972
----------- ----------
Cash, end of period $2,083 $2,188
----------- ----------
----------- ----------
Supplemental disclosures of cash flow information:
Cash paid for interest $1,184 $1,089
----------- ----------
----------- ----------
Supplemental disclosure of noncash investing and financing activities:
Capital lease relating to sale-leaseback of Alderwood store $2,835 --
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
B-32
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 4, 1996
NOTE 1 - PETITION FOR RELIEF UNDER CHAPTER 11
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the "Company")
filed a voluntary petition for relief (the "Filing") under Chapter 11 ("Chapter
11") of title 11 of the United States Code (the "Bankruptcy Code") in the United
States Bankruptcy Court (the "Court") for the Western District of Washington at
Seattle. In Chapter 11, the Company has continued to manage its affairs and
operate its business as a debtor-in-possession. The Company and representatives
of the committees that represent Lamonts' unsecured trade creditors, bondholders
and equityholders (the "Committees") have reached an understanding regarding the
material economic terms of a consensual Plan of Reorganization designed to
enable the Company to emerge from Chapter 11 (the "Plan"). The Company and the
Committees are discussing the timing for the filing with the Court of the Plan
and the Disclosure Statement related thereto. In addition, the Company has
received certain non-binding proposals regarding potential new equity and/or
debt investments in the Company, which proposals are subject to customary
conditions, including, in certain cases, consummation of a plan of
reorganization. The Company and the representatives of the Committees are
engaged in negotiations regarding such proposals. After a consensual plan of
reorganization is completed, it will be sent, with a Disclosure Statement
approved by the 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 a plan of reorganization by creditors and
equity security holders, the Court, at a noticed hearing, will consider whether
to confirm a plan of reorganization.
Although the Company is authorized to operate its business as a
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 Court approval.
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. In a Chapter 11 reorganization
plan, the rights of the creditors may be significantly altered. Creditors may
receive substantially less than the full face amount of claims. Certain
creditors have filed claims with the Court substantially in excess of amounts
reflected in the Company's financial statements. The Company continues to
analyze and reconcile the claims filed by creditors with the Company's financial
records, but believes it has made appropriate provision for all claims filed.
However, no estimate of the amount of adjustments, if any, from recorded
amounts, to amounts to be realized by creditors, is available at this time.
These liabilities are included in the balance sheet as "liabilities subject to
settlement under reorganization proceedings."
As a result of the Filing, the Company is currently in default under the
indentures governing the Company's 10-1/4% Subordinated Notes due November 1999
(the "10-1/4% Notes") and 13-1/2% Senior Subordinated Notes which were due
February 1995 (the "13-1/2% Notes"). As a result, all unpaid principal of, and
accrued pre-petition interest on, such debt became immediately due and payable.
The payment of such debt and accrued but unpaid interest thereon is prohibited
during the pendency of the Company's Chapter 11 case, and these liabilities have
been included in the balance sheet as "liabilities subject to settlement under
reorganization proceedings."
Pre-petition liabilities subject to settlement under reorganization proceedings
include the following (dollars in thousands):
MAY 4, FEBRUARY 3,
1996 1996
-------- --------
Accounts payable and accrued liabilities $23,424 $23,511
Capital lease obligations 12,126 12,321
10-1/4% Notes (including pre-petition accrued interest)
related party 67,576 67,576
13-1/2% Notes (including pre-petition accrued interest)
related party 838 838
Notes payable 583 59
-------- --------
$104,547 $104,845
-------- --------
-------- --------
6
B-33
<PAGE>
The reductions in capital lease obligations consist of payments to landlords for
store locations in the ongoing business operations of the Company.
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 case, a review is being undertaken
of all the Company's obligations under its executory contracts. As of May 4,
1996, the Company has rejected ten real property leases and certain executory
contracts and assumed five leases (with certain conditions and limitations).
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
accompanying financial statements do not include any adjustments that might
result from the outcome of these matters or adjustments that might result should
the Company be unable to continue as a going concern. Generally if a
debtor-in-possession is unable to emerge from Chapter 11, such
debtor-in-possession could be required to liquidate its assets.
Costs associated with the reorganization of the Company are charged to expense
as incurred. Under the requirements of the Chapter 11 filing, the Company is
required to pay certain expenses of the Committees. The amounts charged to
reorganization expense by the Company have consisted and will continue to
consist primarily of write-off of property and equipment, professional fees,
lease related costs and severance costs.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries, of which
all are inactive. All significant intercompany transactions and account
balances have been eliminated in consolidation. The financial statements
included herein should be read in conjunction with the audited, annual financial
statements for the fiscal year ended February 3, 1996, included in the Company's
Annual Report on Form 10-K. The year-end condensed balance sheet was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles.
The accompanying consolidated financial statements of the Company have been
prepared on a going concern basis of accounting, and, for the periods subsequent
to the Filing, in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE. Recurring losses from operations and
the matters discussed herein related to the Filing raise substantial doubt about
the Company's ability to continue on a going concern. The ability of the
Company to continue as a going concern is dependent upon, among other things,
(i) the ability to comply with its debtor-in-possession financing agreement,
(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.
The financial statements presented herein reflect all adjustments that are, in
the opinion of management, necessary to present fairly the operating results for
the periods reported. Except as discussed in Note 1, all such adjustments are
normal and recurring in nature. The results of operations for the quarterly
periods are not necessarily indicative of results for the entire year.
OTHER
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("Statement No. 121"). Statement No. 121 requires that long-lived assets and
certain intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If impairment has occurred, an impairment loss must be recognized.
Implementation of Statement No. 121 is required in the Company's Fiscal Year
ending February 1, 1997. Based on estimates by management as of May 4, 1996,
subject to the outcome of issues discussed in Note 1, the impact of the adoption
of this standard has not had a material impact on the financial position,
results of operations, or liquidity of the Company.
7
B-34
<PAGE>
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements for the
quarter ended April 29, 1995 in order to conform with the financial statements
for the quarter ended May 4, 1996.
NOTE 3 - LOAN AND SECURITY AGREEMENT
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement (the "DIP Facility") with Foothill Capital Corporation
("Foothill"). The DIP Facility provided for a borrowing capacity of up to $32.0
million in revolving loans, including up to $15.0 million of letters of credit,
subject to borrowing base limitations based upon, among other things, the value
of inventory and certain real property. The DIP Facility provided that interest
will accrue at the rate of 3% per annum in excess of the Reference Rate (as
defined therein), payable monthly in arrears. The DIP Facility also provided
that in the event of a default in the payment of any amount due thereunder, the
interest rate on such defaulted amount would be 4.5% per annum in excess of the
Reference Rate, payable on demand. At May 4, 1996, the reference rate was
8.25%.
The Company paid Foothill $80,000 upon the closing of the DIP Facility in
February 1995 and the additional closing fees totaling $240,000, all of which
had been paid as of March 31, 1996. Fees payable under the DIP Facility
consisted primarily of monthly payments equal to 1/2% of the average unused
borrowing capacity and quarterly payments equal to 1/4% of the borrowing
capacity for each quarterly renewal period.
The obligations of the Company under the DIP Facility were collateralized by,
among other things, inventory and certain real property. The DIP Facility
imposed limitations on the Company with respect to, among other things, (i) the
creation or incurrence of liens, (ii) consolidations, mergers and sales of
assets, (iii) the incurrence of guarantees or other contingent obligations, (iv)
capital expenditures in excess of specified levels, (v) the creation or
incurrence of any indebtedness for borrowed money or the payment of principal of
or interest on any prepetition indebtedness, (vi) the prepayment of certain
indebtedness and (vii) transactions with affiliates. Additionally, the Company
was required to maintain a minimum net worth of $10.0 million (as defined in the
DIP Facility to exclude, among other items, reorganization expenses, certain
liabilities incurred prior to the Company's filing, reduction in goodwill,
charges for store closure and non-cash interest).
The DIP Facility had been extended from its initial maturity date of May 17,
1996 to the earlier of August 17, 1996 (with provisions for two additional
quarterly renewals) or the effective date of the Company's plan of
reorganization. However, on June 4, 1996, the Company entered into a loan and
security agreement with the First National Bank of Boston ("FNBB") replacing the
Company's debtor-in-possession financing agreement with Foothill, after a
hearing by the Court and the entering of an order approving such financing.
Although Foothill had taken no action to declare the Company in default as of
the date on which the Foothill financing was terminated, the Company was in
violation of the net worth covenant in the Foothill financing agreement.
Pursuant to the new loan and security agreement (the "FNBB Facility") with
FNBB, the Company is able to borrow up to $32 million in revolving loans
(including $3 million of letters of credit), subject to borrowing base
limitations based upon, among other things, the value of inventory and certain
real property, during the pendency of the Company's Chapter 11 proceeding until
June 30, 1997 and, subject to FNBB's approval of a plan of reorganization and
other specified conditions, for a two year period following the effective date
of a plan of reorganization.
The FNBB Facility provides that interest will accrue at the rate of 1.5% per
annum in excess of the Base Rate (as defined therein), payable monthly in
arrears for base rate loans. For Eurodollar loans, the interest rate will be
the Eurodollar Rate (as defined therein) plus 2.75% (adjusted as provided
therein). The FNBB Facility also provides that in the event of a default in the
payment of any amount due thereunder, the interest rate on such default shall be
the greater of (i) 3.0% per annum in excess of the Base Rate and (ii) the
applicable rate on the loan, payable on demand. The Company paid FNBB $97,500
upon the closing of the Facility on June 4, 1996. Fees payable under the FNBB
Facility consist primarily of monthly payments equal to 0.5% (adjusted as
provided therein) of the average unused borrowing capacity and monthly payments
equal to 0.125% of the borrowing capacity. There will be an additional fee
after the effective date of a plan of reorganization and the satisfaction of
certain conditions described in the FNBB Facility in the amount of $560,000
which shall be payable as follows: (a) if the conditions are satisfied prior to
December 31, 1996, $336,000 shall be payable on the date the conditions are
satisfied and $224,000 shall be payable on December 31, 1996 (or, if earlier,
the time of termination of the commitments), or (b) if the conditions are
satisfied on or after December, 1996, $336,000 shall be payable on the date the
conditions are satisfied and $224,000 shall be payable on December 31, 1997 (or,
if earlier, the time of termination of the commitments).
8
B-35
<PAGE>
Borrowings under the FNBB Facility, together with cash flow from operations, may
be used by the Company to finance general working capital requirements,
including purchases of inventory and other expenditures permitted under the FNBB
Facility. The FNBB Facility is secured by inventory and substantially all other
assets and is an allowed administrative expense claim with super priority over
other administrative expenses in the Chapter 11 case. The FNBB Facility imposes
limitations on the Company with respect to, among other things, (i)
consolidations, mergers, and sales of assets, (ii) capital expenditures in
excess of specified levels and (iii) the prepayment of certain indebtedness.
Additionally, the Company must comply with certain operating and financial
covenants (as described therein).
NOTE 4 - LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss by the weighted
average number of common shares outstanding during the period. The common stock
equivalents, represented by stock options and warrants were not considered in
the calculation as they either have an exercise price greater than the
applicable market price, or the effect of assuming their exercise or conversion
would be anti-dilutive. The weighted average number of shares outstanding for
the quarters ended May 4, 1996 and April 29, 1995 were 17,899,549 and
17,887,775, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various 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 upon the Company's anticipated plan of reorganization and operating
results during the period in which the litigation is resolved. (See also Part
II, Item 1.)
9
B-36
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND
Lamonts Apparel, Inc. (the "Company") retails brand-name apparel and accessories
for the entire family through its 42 full-line apparel stores. Lamonts
currently operates in malls and regional shopping centers located in the states
of Alaska, Idaho, Montana, Oregon, Utah and Washington.
On January 6, 1995 (the "Petition Date"), 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 (the "Court") for the Western District of Washington at
Seattle. In Chapter 11, the Company has continued to manage its affairs and
operate its business as a debtor-in-possession. The Company and representatives
of the committees that represent Lamonts' unsecured trade creditors, bondholders
and equityholders (the "Committees") have reached an understanding regarding the
material economic terms of a consensual Plan of Reorganization designed to
enable the Company to emerge from Chapter 11 (the "Plan"). The Company and the
Committees are discussing the timing for the filing with the Court of the Plan
and the Disclosure Statement related thereto. In addition, the Company has
received certain non-binding proposals regarding potential new equity and/or
debt investments in the Company, which proposals are subject to customary
conditions, including, in certain cases, consummation of a plan of
reorganization. The Company and the representatives of the Committees are
engaged in negotiations regarding such proposals. After a consensual plan of
reorganization is completed, it will be sent, with a Disclosure Statement
approved by the 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 a plan of reorganization by creditors and
equity security holders, the Court, at a noticed hearing, will consider whether
to confirm a plan of reorganization.
Although the Company is authorized to operate its business as a
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 Court approval.
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. In a Chapter 11 reorganization
plan, the rights of the creditors may be significantly altered. Creditors may
receive substantially less than the full face amount of claims. Certain
creditors have filed claims with the Court substantially in excess of amounts
reflected in the Company's financial statements. The Company continues to
analyze and reconcile the claims filed by creditors with the Company's financial
records, but believes it has made appropriate provision for all claims filed.
However, no estimate of the amount of adjustments, if any, from recorded
amounts, to amounts to be realized by creditors, is available at this time.
As a result of the Filing, the Company is currently in default under the
indentures governing the Company's 10-1/4% Subordinated Notes due November 1999
(the "10-1/4% Notes") and 13-1/2% Senior Subordinated Notes which were due
February 1995 (the "13-1/2% Notes"). As a result, all unpaid principal of, and
accrued pre-petition interest on, such debt became immediately due and payable.
The payment of such debt and accrued but unpaid interest thereon is prohibited
during the pendency of the Company's Chapter 11 case.
Since February 3, 1996, the Company has closed one store, with the approval of
the Court. The store was closed due to poor performance. Management is
continually evaluating store locations and operations to determine whether to
close, downsize or relocate stores that do not meet performance objectives.
Management believes that Lamonts has made substantial progress in the period
since the Filing. The Company has closed unprofitable stores, eliminated
unprofitable merchandise lines, added a home decor line, replaced its shoe
licensee and reduced operating expenses. In addition, management implemented
new merchandising strategies designed to: (i) improve the quality of merchandise
offered while maintaining price points geared to the Company's customer base,
(ii) reduce cash operating expenses, and (iii) reduce inventory levels and
increase inventory turns to improve the Company's performance. The Company also
has initiated a policy to mark-down and clear out any unsold merchandise within
its respective season. As a result, the age and quality of inventory has been
improved significantly.
On June 4, 1996, the Company entered into the FNBB Facility with FNBB replacing
the Company's debtor-in-possession financing agreement with Foothill, after a
hearing by the Court and the entering of an order approving such financing.
10
B-37
<PAGE>
Although Foothill had taken no action to declare the Company in default as of
the date on which the Foothill financing was terminated, the Company was in
violation of the net worth covenant in the Foothill financing agreement.
Pursuant to the FNBB Facility, the Company is able to borrow up to $32 million
in revolving loans (including $3 million of letters of credit), subject to
borrowing base limitations based upon, among other things, the value of
inventory and certain real property, during the pendency of the Company's
Chapter 11 proceeding until June 30, 1997 and, subject to FNBB's approval of a
plan of reorganization and other specified conditions, for a two year period
following the effective date of a plan of reorganization.
The FNBB Facility provides that interest will accrue at the rate of 1.5% per
annum in excess of the Base Rate (as defined therein), payable monthly in
arrears for base rate loans. For Eurodollar loans, the interest rate will be
the Eurodollar Rate (as defined therein) plus 2.75% (adjusted as provided
therein). The FNBB Facility also provides that in the event of a default in the
payment of any amount due thereunder, the interest rate on such default shall be
the greater of (i) 3.0% per annum in excess of the Base Rate and (ii) the
applicable rate on the loan, payable on demand. The Company paid FNBB $97,500
upon the closing of the Facility on June 4, 1996. Fees payable under the FNBB
Facility consist primarily of monthly payments equal to 0.5% (adjusted as
provided therein) of the average unused borrowing capacity and monthly payments
equal to 0.125% of the borrowing capacity. There will be an additional fee
after the effective date of a plan of reorganization and the satisfaction of
certain conditions described in the FNBB Facility in the amount of $560,000
which shall be payable as follows: (a) if the conditions are satisfied prior to
December 31, 1996, $336,000 shall be payable on the date the conditions are
satisfied and $224,000 shall be payable on December 31, 1996 (or, if earlier,
the time of termination of the commitments), or (b) if the conditions are
satisfied on or after December, 1996, $336,000 shall be payable on the date the
conditions are satisfied and $224,000 shall be payable on December 31, 1997 (or,
if earlier, the time of termination of the commitments).
Borrowings under the FNBB Facility, together with cash flow from operations, may
be used by the Company to finance general working capital requirements,
including purchases of inventory and other expenditures permitted under the FNBB
Facility. The FNBB Facility is secured by inventory and substantially all other
assets and is an allowed administrative expense claim with super priority over
other administrative expenses in the Chapter 11 case. The FNBB Facility imposes
limitations on the Company with respect to, among other things, (i)
consolidations, mergers, and sales of assets, (ii) capital expenditures in
excess of specified levels and (iii) the prepayment of certain indebtedness.
Additionally, the Company must comply with certain operating and financial
covenants (as described therein).
RESULTS OF OPERATIONS
The following discussion and analysis provides information with respect to the
results of operations for the Quarter ended May 4, 1996 ("1st Quarter 1996")
compared to the Quarter ended April 29, 1995 ("1st Quarter 1995").
REVENUES. Revenues of $37.9 million for the 1st Quarter 1996 increased 3.4% on
a total store basis from $36.7 million for the 1st Quarter 1995. Comparable
store revenues increased 4.8% for the 1st Quarter 1996 as compared to the same
period for the prior year. Management believes that revenues have increased due
to increased levels of inventory and overall improvement in the quality of the
merchandise offered in the stores compared to the 1st Quarter 1995. In
addition, the Company's new merchandising strategy has resulted in quicker
turnover of merchandise, and the strength of the home decor department has
resulted in increased sales.
GROSS PROFIT. Gross profit, as a percentage of revenues increased to 35.8%
during the 1st Quarter 1996 compared to 32.6% during the 1st Quarter 1995. The
increase in gross profit results primarily from (i) policies implemented to
establish more competitive pricing strategies and (ii) management's purchasing
strategies, which have decreased the cost of merchandise sold.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses of
$15.8 million for the 1st Quarter 1996 decreased 4% from $16.4 million for the
1st Quarter 1995. The decrease of $0.6 million primarily relates to (i) a
reduction in operating costs attributable to closed stores operating in the 1st
Quarter 1995, accounting for approximately $0.4 million and (ii) lower payroll
costs of $0.7 million due to a reduction in employees, offset by an increase in
advertising expense of $0.6 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $2.0
million for the 1st Quarter 1996 decreased $0.5 million as compared to $2.5
million for the 1st Quarter 1995. The decrease primarily relates to assets
retired as a result of store closures and assets becoming fully depreciated or
amortized.
11
B-38
<PAGE>
INTEREST EXPENSE. Interest expense of $1.2 million for the 1st Quarter 1996
increased $0.1 million from $1.1 million for the 1st Quarter 1995. The increase
is primarily due to increased borrowing levels under the Company's working
capital facility.
REORGANIZATION EXPENSES. Reorganization expenses of $0.7 million for the 1st
Quarter 1996 and $0.6 million for the 1st Quarter 1995 represent costs directly
related to the Company's Chapter 11 case and consist primarily of professional
fees and severance costs.
NET LOSS. The Company reported a net loss of $6.1 million for the 1st Quarter
1996 as compared to a net loss of $8.6 million for the 1st Quarter 1995. The
loss for the 1st Quarter 1996 decreased $2.5 million from the prior period
primarily due to (i) $1.6 million increase in gross profit, (ii) $0.6 million
decrease in operating and administrative expenses, and (iii) $0.5 million
decrease in depreciation and amortization expense.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company used $2.6 million of cash for operating activities before
reorganization items for the 1st Quarter 1996, an increase of $1.8 million as
compared to $0.8 million used in the 1st Quarter 1995. Increases in funds were
used primarily to pay down trade payables.
The Company received $4.3 million of cash in investing activities for the 1st
Quarter 1996 as compared to using $0.4 million for the 1st Quarter 1995. The
difference of $4.7 million results primarily from net sale proceeds of $4.5
million received in the sale-leaseback of the Company's Alderwood store during
the 1st Quarter 1996.
The $3.6 million decrease in cash used in financing activities is primarily due
to lower net payments under the Company's working capital facilities during the
1st Quarter 1996 as compared to the 1st Quarter 1995.
As of May 4, 1996, the Company had $2.1 million of cash and an additional $0.9
million of current restricted cash, representing the funding of payroll and
taxes in connection with the Filing.
CAPITAL RESOURCES
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement with Foothill. The DIP Facility provided for a borrowing
capacity of up to $32.0 million in revolving loans, including up to $15.0
million of letters of credit ("borrowing capacity"), subject to borrowing base
limitations based upon, among other things, the value of inventory and certain
real property
The DIP Facility had been extended from its initial maturity date of May 17,
1996 to the earlier of August 17, 1996 (with provisions for two additional
quarterly renewals) or the effective date of the Company's plan of
reorganization. However, on June 4, 1996, the Company entered into the FNBB
Facility with FNBB replacing the Company's debtor-in-possession financing
agreement with Foothill, after a hearing by the Court and the entering of an
order approving such financing. Although Foothill had taken no action to
declare the Company in default as of the date on which the Foothill financing
was terminated, the Company was in violation of the net worth covenant in the
Foothill financing agreement.
Pursuant to the FNBB Facility with FNBB, the Company is able to borrow up to $32
million in revolving loans (including $3 million of letters of credit), subject
to borrowing base limitations based upon, among other things, the value of
inventory and certain real property, during the pendency of the Company's
Chapter 11 proceeding until June 30, 1997 and, subject to FNBB's approval of a
plan of reorganization and other specified conditions, for a two year period
following the effective date of a plan of reorganization.
The FNBB Facility provides that interest will accrue at the rate of 1.5% per
annum in excess of the Base Rate (as defined therein), payable monthly in
arrears for base rate loans. For Eurodollar loans, the interest rate will be
the Eurodollar Rate (as defined therein) plus 2.75% (adjusted as provided
therein). The FNBB Facility also provides that in the event of a default in the
payment of any amount due thereunder, the interest rate on such default shall be
the greater of (i) 3.0% per annum in excess of the Base Rate and (ii) the
applicable rate on the loan, payable on demand. The Company paid FNBB $97,500
upon the closing of the Facility on June 4, 1996. Fees payable under the FNBB
Facility consist primarily of monthly payments equal to 0.5% (adjusted as
provided therein) of the average unused borrowing capacity and monthly payments
equal to 0.125% of the borrowing capacity. There will be an additional fee
after the effective date of
12
B-39
<PAGE>
a plan of reorganization and the satisfaction of certain conditions described in
the FNBB Facility in the amount of $560,000 which shall be payable as follows:
(a) if the conditions are satisfied prior to December 31, 1996, $336,000 shall
be payable on the date the conditions are satisfied and $224,000 shall be
payable on December 31, 1996 (or, if earlier, the time of termination of the
commitments), or (b) if the conditions are satisfied on or after December, 1996,
$336,000 shall be payable on the date the conditions are satisfied and $224,000
shall be payable on December 31, 1997 (or, if earlier, the time of termination
of the commitments).
Borrowings under the FNBB Facility, together with cash flow from operations, may
be used by the Company to finance general working capital requirements,
including purchases of inventory and expenditures permitted under the FNBB
Facility. The FNBB Facility is secured by inventory and substantially all other
assets and is an allowed administrative expense claim with super priority over
other administrative expenses in the Chapter 11 case. The FNBB Facility imposes
limitations on the Company with respect to, among other things, (i)
consolidations, mergers, and sales of assets, (ii) capital expenditures in
excess of specified levels and (iii) the prepayment of certain indebtedness.
Additionally, the Company must comply with certain operating and financial
covenants (as described therein).
As of June 11, 1996, the Company had $22.6 million of borrowings outstanding
under the FNBB Facility with additional borrowing capacity thereunder of $6.6
million.
The Company's primary cash requirement is the procurement of inventory which is
currently funded through (i) borrowings under the FNBB Facility (ii) trade
credit and (iii) cash generated from operations. Like other apparel retailers,
the Company is dependent upon its ability to obtain trade credit, which is
generally extended by its vendors and a small number of factoring institutions
that continually monitor the Company's credit lines. If the Company is able to
obtain its expected trade credit terms, the Company believes that borrowings
under the FNBB Facility and cash generated from operations will provide the cash
necessary to fund the Company's cash requirements.
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 and the financial condition of the Company. The ability of the
Company to pay dividends is restricted under the terms of the FNBB 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 (during the pendency of the Company's Chapter 11 case).
SEASONALITY
The Company's revenues are seasonal, with the Christmas season (included in the
Quarter ending the Saturday closest to January 31) being its strongest period.
13
B-40
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
FORM 10-Q
AUGUST 3, 1996
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information Page
----
Item 1 Consolidated Financial Statements
- Consolidated Balance Sheets - August 3, 1996 and February 3, 1996 3
- Consolidated Statements of Operations and Accumulated Deficit for the three months
ended August 3, 1996 and July 29, 1995 4
- Consolidated Statements of Operations and Accumulated Deficit for the six months ended August 3, 1996 and
July 29, 1995 5
- Consolidated Statements of Cash Flows for the six months ended August 3, 1996 and July 29, 1995 6
- Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Part II. Other Information
Item 1 - Legal Proceedings 15
Item 3 - Defaults Upon Senior Securities 15
Item 6 - Exhibits and Reports on Form 8-K 15
</TABLE>
B-41
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 3, FEBRUARY 3,
1996 1996
---------- ----------
<S> <C> <C>
Current Assets:
Cash $2,541 $1,581
Receivables - net 3,828 2,458
Inventories 44,372 30,401
Prepaid expenses and other 1,788 2,076
Restricted cash 820 1,058
---------- ----------
Total current assets 53,349 37,574
Property and equipment - net of accumulated depreciation and amortization
$25,138 and $23,041 as of August 3 and February 3, respectively
35,118 42,083
Leasehold interests 4,334 4,570
Excess of cost over net assets acquired - net 13,097 13,278
Deferred financing costs - net 2,351 2,713
Restricted cash 1,311 1,278
Other assets 979 865
---------- ----------
Total assets $110,539 $102,361
---------- ----------
---------- ----------
Liabilities not subject to settlement under reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility $28,130 $20,334
Accounts payable 16,016 8,417
Accrued payroll and related costs 2,471 2,396
Accrued taxes 1,619 821
Accrued interest 332 207
Accrued store closure costs -- 3,254
Other accrued expenses 6,911 4,393
---------- ----------
Total current liabilities 55,479 39,822
Obligations under capital leases 2,808
Other 541 250
---------- ----------
Total liabilities not subject to settlement under
reorganization proceedings 58,828 40,072
---------- ----------
Liabilities subject to settlement under reorganization proceedings 103,733 104,845
---------- ----------
Stockholders' Equity (Deficit):
Common stock, $0.01 par value, 40,000,000 shares authorized,
17,900,053 and 17,899,549 shares issued and outstanding as of August 3
and February 3, respectively 179 179
Additional paid-in capital 62,949 62,921
Minimum pension liability adjustment (250) (250)
Accumulated deficit (114,900) (105,406)
---------- ----------
Total stockholders' equity (deficit) (52,022) (42,556)
---------- ----------
Total liabilities and stockholders' equity (deficit) $110,539 $102,361
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
B-42
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------
AUGUST 3, JULY 29,
1996 1995
---------- ----------
<S> <C> <C>
Revenues $49,657 $47,711
Cost of merchandise sold 31,607 30,779
---------- ----------
Gross profit 18,050 16,932
---------- ----------
Operating and administrative expenses 17,201 16,829
Depreciation and amortization 2,000 2,267
---------- ----------
Operating costs 19,201 19,096
---------- ----------
Loss from operations before other income (expense) and
reorganization expenses (1,151) (2,164)
Other income (expense):
Interest expense (contractual interest of $3.4 million in 1996
and 1995) (1,257) (1,214)
Other 2 124
---------- ----------
Loss from operations before reorganization expenses (2,406) (3,254)
Reorganization expenses 985 640
---------- ----------
Net loss (3,391) (3,894)
Accumulated deficit, beginning of period (111,509) (89,102)
---------- ----------
Accumulated deficit, end of period ($114,900) ($92,996)
---------- ----------
---------- ----------
Net loss per common share ($0.19) ($0.22)
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
B-43
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
AUGUST 3, JULY 29,
1996 1995
--------- --------
<S> <C> <C>
Revenues $87,579 $84,393
Cost of merchandise sold 55,954 55,496
--------- --------
Gross profit 31,625 28,897
--------- --------
Operating and administrative expenses 32,977 33,198
Depreciation and amortization 4,037 4,761
--------- --------
Operating costs 37,014 37,959
--------- --------
Loss from operations before other income (expense) and
reorganization expenses (5,389) (9,062)
Other income (expense):
Interest expense (contractual interest of $6.8 million and $6.7
million in 1996 and 1995, respectively) (2,455) (2,313)
Other 5 150
--------- --------
Loss from operations before reorganization expenses (7,839) (11,225)
Reorganization expenses 1,655 1,240
--------- --------
Net loss (9,494) (12,465)
Accumulated deficit, beginning of period (105,406) (80,531)
--------- --------
Accumulated deficit, end of period ($114,900) ($92,996)
--------- --------
--------- --------
Net loss per common share ($0.53) ($0.70)
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
B-44
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
AUGUST 3, JULY 29,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($9,494) ($12,465)
Adjustments to reconcile net loss to net cash used in operating
activities before reorganization items:
Depreciation and amortization 4,037 4,761
Reorganization expenses 1,655 1,240
Increase in accounts receivable (1,371) (4,398)
Increase in inventories (14,812) (7,557)
Decrease (increase) in prepaid expenses and other (33) 1,019
Increase in accounts payable 7,599 9,087
Increase in accrued interest 124 90
Increase in accrued expenses 3,403 375
Other (275) (68)
---------- ----------
Net cash used in operating activities before reorganization items (9,167) (7,916)
Operating cash flows used by reorganization items:
Payments for professional fees and other expenses related to the
Chapter 11 proceedings (1,360) (1,270)
---------- ----------
Net cash used in operating activities (10,527) (9,186)
---------- ----------
Cash flows from investing activities:
Capital expenditures (335) (656)
Proceeds from sale of land and building 4,459 --
Other 45 (297)
---------- ----------
Net cash provided by (used in) investing activities 4,169 (953)
---------- ----------
Cash flows from financing activities:
Post-petition borrowings under working capital facility 128,372 108,999
Post-petition payments under working capital facility (120,576) (104,266)
Principal payments on obligations under capital leases (445) (670)
Other (33) (30)
---------- ----------
Net cash provided by financing activities 7,318 4,033
---------- ----------
Net increase (decrease) in cash 960 (6,106)
Cash, beginning of period 1,581 7,972
---------- ----------
Cash, end of period $2,541 $1,866
---------- ----------
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid for interest $2,489 $2,223
---------- ----------
---------- ----------
Supplemental disclosure of noncash investing and financing activities:
Capital lease relating to sale-leaseback of Alderwood store $2,835 --
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
B-45
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 3, 1996
NOTE 1 - PETITION FOR RELIEF UNDER CHAPTER 11
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the "Company")
filed a voluntary petition for relief (the "Filing") under Chapter 11 ("Chapter
11") of title 11 of the United States Code (the "Bankruptcy Code") in the United
States Bankruptcy Court (the "Court") for the Western District of Washington at
Seattle. In Chapter 11, the Company has continued to manage its affairs and
operate its business as a debtor-in-possession. The Company and representatives
of the committees that represent Lamonts' unsecured trade creditors, bondholders
and equityholders (the "Committees") have reached an understanding regarding the
material economic terms of a proposed consensual Plan of Reorganization designed
to enable the Company to emerge from Chapter 11 (the "Plan"). On August 23,
1996, the Plan was filed with the Court, along with the proposed disclosure
statement relating to the Plan. The Plan and proposed disclosure statement are
each subject to amendment, which amendments may be material. A hearing to
consider approval of the proposed disclosure statement has been scheduled by the
Court for October 24, 1996. At such time as a disclosure statement has been
approved by the Court, the Plan and such disclosure statement will be
transmitted to all impaired creditors and equity security holders along with
ballots for the purpose of soliciting acceptances of the Plan. Following the
period of solicitation of ballots, a hearing would be held by the Court to
consider confirmation of the Plan. A confirmation hearing has been tentatively
scheduled for January 6, 1997. The Plan provides that the Company's current
equity holders will be substantially diluted. The confirmation and
effectiveness of the Plan, the implementation of the Company's proposed business
plan and the Company's proposed equity distribution are each subject to numerous
uncertainties set forth in detail in the Plan and proposed disclosure statement.
Accordingly, the value of the Company's common stock remains highly speculative.
In a Chapter 11 reorganization plan, the rights of the pre-Filing creditors may
be significantly altered. Pre-Filing creditors may receive substantially less
than the full face amount of claims. Certain pre-Filing creditors have filed
claims with the Court substantially in excess of amounts reflected in the
Company's financial statements. The Company continues to analyze and reconcile
the claims filed by pre-Filing creditors with the Company's financial records,
but believes it has made appropriate provision for all claims filed. However,
no estimate of the amount of adjustments, if any, from recorded amounts, to
amounts to be realized by pre-Filing creditors, is available at this time.
These liabilities are included in the balance sheet as "liabilities subject to
settlement under reorganization proceedings."
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. Although the Company is
authorized to operate its business as a 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
Court approval.
As a result of the Filing, the Company is currently in default under the
indentures governing the Company's 10-1/4% Subordinated Notes due November 1999
(the "10-1/4% Notes") and 13-1/2% Senior Subordinated Notes which were due
February 1995 (the "13-1/2% Notes"). As a result, all unpaid principal of, and
accrued pre-petition interest on, such debt became immediately due and payable.
The payment of such debt and accrued but unpaid interest thereon is prohibited
during the pendency of the Company's Chapter 11 case, and these liabilities have
been included in the balance sheet as "liabilities subject to settlement under
reorganization proceedings."
7
B-46
<PAGE>
Pre-petition liabilities subject to settlement under reorganization proceedings
include the following (dollars in thousands):
<TABLE>
<CAPTION>
AUGUST 3, FEBRUARY 3,
1996 1996
---------- ---------
<S> <C> <C>
Accounts payable and accrued liabilities $23,167 $23,511
Capital lease obligations 11,600 12,321
10-1/4% Notes (including pre-petition accrued interest) related party 67,576 67,576
13-1/2% Notes (including pre-petition accrued interest) 838 838
Notes payable 552 599
---------- ---------
$103,733 $104,845
---------- ---------
---------- ---------
</TABLE>
The reductions in capital lease obligations since February 3, 1996, consist of
payments to landlords for store locations in the ordinary course of business
operations of the Company.
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 case, a review is being undertaken
of all the Company's obligations under its executory contracts. As of August 3,
1996, the Company has rejected 10 real property leases and certain executory
contracts and assumed 5 leases (with certain conditions and limitations). The
Plan provides for the assumption or rejection of other executory contracts and
leases which have not been previously assumed or rejected.
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
accompanying financial statements do not include any adjustments that might
result from the outcome of these matters or adjustments that might result should
the Company be unable to continue as a going concern. Generally if a
debtor-in-possession is unable to emerge from Chapter 11, such
debtor-in-possession could be required to liquidate its assets.
Costs associated with the reorganization of the Company are charged to expense
as incurred. Under the requirements of the Chapter 11 Filing, the Company is
required to pay certain expenses of the Committees. The amounts charged to
reorganization expense by the Company have consisted and will continue to
consist primarily of write-off of property and equipment, professional fees,
lease related costs and severance costs.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries, of which
all are inactive. All significant intercompany transactions and account
balances have been eliminated in consolidation. The financial statements
included herein should be read in conjunction with the audited, annual financial
statements for the fiscal year ended February 3, 1996, included in the Company's
Annual Report on Form 10-K. The year-end condensed balance sheet was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles.
The accompanying consolidated financial statements of the Company have been
prepared on a going concern basis of accounting, and, for the periods subsequent
to the Filing, in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE. Recurring losses from operations and
the matters discussed herein related to the Filing raise substantial doubt about
the Company's ability to continue on a going concern. The ability of the
Company to continue as a going concern is dependent upon, among other things,
(i) the ability to comply with its debtor-in-possession financing agreement,
(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.
The financial statements presented herein reflect all adjustments that are, in
the opinion of management, necessary to present fairly the operating results for
the periods reported. Except as discussed in Note 1, all such adjustments are
8
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<PAGE>
normal and recurring in nature. The results of operations for the quarterly
periods are not necessarily indicative of results for the entire year.
OTHER
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("Statement No. 121"). Statement No. 121 requires that long-lived assets and
certain intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If impairment has occurred, an impairment loss must be recognized.
Implementation of Statement No. 121 is required in the Company's fiscal year
ending February 1, 1997. Based on estimates by management as of August 3, 1996,
the adoption of this standard has not had a material effect on the financial
position, results of operations, or liquidity of the Company. However, if the
Company is not successful in implementing it's plans as discussed in Note 1,
future application of statement 121 could have a material impact on the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements for the
quarter ended July 29, 1995 in order to conform with the financial statements
for the quarter ended August 3, 1996.
NOTE 3 - LOAN AND SECURITY AGREEMENTS
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement (the "Old DIP Facility") with Foothill Capital
Corporation ("Foothill"). The Old DIP Facility provided for a borrowing
capacity of up to $32.0 million in revolving loans, including up to $15.0
million of letters of credit, subject to borrowing base limitations based upon,
among other things, the value of inventory and certain real property. The Old
DIP Facility provided that interest would accrue at the rate of 3% per annum in
excess of the Reference Rate (as defined therein), payable monthly in arrears.
The Old DIP Facility also provided that in the event of a default in the payment
of any amount due thereunder, the interest rate on such defaulted amount would
be 4.5% per annum in excess of the Reference Rate, payable on demand. At June
4, 1996, the date the Company ended its financing agreement with Foothill, the
Reference Rate was 8.25%.
The Company paid Foothill $80,000 upon the closing of the Old DIP Facility in
February 1995 and the additional closing fees totaling $240,000, all of which
had been paid as of March 31, 1996. Fees payable under the Old DIP Facility
consisted primarily of monthly payments equal to 1/2% of the average unused
borrowing capacity and quarterly payments equal to 1/4% of the borrowing
capacity for each quarterly renewal period.
The obligations of the Company under the Old DIP Facility were collateralized
by, among other things, inventory and certain real property. The Old DIP
Facility imposed limitations on the Company with respect to, among other things,
(i) the creation or incurrence of liens, (ii) consolidations, mergers and sales
of assets, (iii) the incurrence of guarantees or other contingent obligations,
(iv) capital expenditures in excess of specified levels, (v) the creation or
incurrence of any indebtedness for borrowed money or the payment of principal of
or interest on any prepetition indebtedness, (vi) the prepayment of certain
indebtedness and (vii) transactions with affiliates. Additionally, the Company
was required to maintain a minimum net worth of $10.0 million (as defined in the
Old DIP Facility to exclude, among other items, reorganization expenses, certain
liabilities incurred prior to the Filing, reduction in goodwill, charges for
store closure and non-cash interest).
The Old DIP Facility had been extended from its initial maturity date of May 17,
1996 to the earlier of August 17, 1996 (with provisions for two additional
quarterly renewals) or the effective date of the Company's plan of
reorganization. However, on June 4, 1996, the Company entered into loan and
security agreements with the First National Bank of Boston ("FNBB") replacing
the Company's debtor-in-possession financing agreement with Foothill, after a
hearing by the Court and the entering of an order approving such financing.
Although Foothill had taken no action to declare the Company in default as of
the date on which the Foothill financing was terminated, the Company was in
violation of the net worth covenant in the Old DIP Facility.
Pursuant to the new loan and security agreement with FNBB (the "FNBB Facility"),
the Company is able to borrow up to $32 million in revolving loans (including $3
million of letters of credit), subject to borrowing base limitations based upon,
among other things, the value of inventory and certain real property, during the
pendency of the Company's Chapter 11
9
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<PAGE>
proceeding or until June 30, 1997. Subject to FNBB's approval of a plan of
reorganization and other specified conditions, the FNBB Facility will continue
for a two year period following the effective date of a plan of reorganization.
The FNBB Facility provides that for Base Rate loans interest will accrue at the
rate of 1.5% per annum in excess of the Base Rate (as defined therein), payable
monthly in arrears. For Eurodollar loans, the interest rate will be the
Eurodollar Rate (as defined therein) plus 2.75% (adjusted as provided therein).
The FNBB Facility also provides that in the event of a default in the payment of
any amount due thereunder, the interest rate on such default shall be the
greater of (i) 3.0% per annum in excess of the Base Rate and (ii) the applicable
rate on the loan, payable on demand. The interest rates for both Base Rate loans
and Eurodollar loans are subject to adjustment after the Plan is approved and
other conditions described in the FNBB Facility have occurred based on financial
ratios of the Company specified in the FNBB Facility. At August 3, 1996, the
Base Rate was 8.25% and the Eurodollar Rates ranged from 5.44% to 5.56%.
The Company has paid FNBB $171,200 in fees for the FNBB Facility as of August 3,
1996. Fees payable under the FNBB Facility consist primarily of monthly
payments equal to 0.5% (adjusted as provided therein) of the average unused
borrowing capacity and monthly payments equal to 0.125% of the borrowing
capacity. There will be an additional fee after the effective date of a plan of
reorganization and the satisfaction of certain conditions described in the FNBB
Facility in the amount of $560,000 which shall be payable as follows: (a) if the
conditions are satisfied prior to December 31, 1996, $336,000 shall be payable
on the date the conditions are satisfied and $224,000 shall be payable on
December 31, 1996 (or, if earlier, the time of termination of the commitments),
or (b) if the conditions are satisfied on or after December, 1996, $336,000
shall be payable on the date the conditions are satisfied and $224,000 shall be
payable on December 31, 1997 (or, if earlier, the time of termination of the
commitments).
Borrowings under the FNBB Facility, together with cash flow from operations, may
be used by the Company to finance general working capital requirements,
including purchases of inventory and other expenditures permitted under the FNBB
Facility. The FNBB Facility is secured by inventory and substantially all other
assets and is an allowed administrative expense claim with super priority over
other administrative expenses in the Chapter 11 case. The FNBB Facility imposes
limitations on the Company with respect to, among other things, (i)
consolidations, mergers, and sales of assets, (ii) capital expenditures in
excess of specified levels and (iii) the prepayment of certain indebtedness.
Additionally, the Company must comply with certain operating and financial
covenants (as described therein). Although the Company failed to comply with
certain covenants related to inventory levels, the Company requested and
received a waiver relating to such breaches for the months ending July 6, 1996
and August 3, 1996.
NOTE 4 - LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss by the weighted
average number of common shares outstanding during the period. The common stock
equivalents, represented by stock options and warrants were not considered in
the calculation as they either have an exercise price greater than the
applicable market price, or the effect of assuming their exercise or conversion
would be anti-dilutive. The weighted average number of shares outstanding for
the quarter and six months ended August 3, 1996 were 17,899,970 and 17,899,759,
respectively.
The weighted average number of shares outstanding for the quarter and six months
ended July 29, 1995 were 17,890,559 and 17,889,167, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various 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 upon the Company's anticipated plan of reorganization and operating
results during the period in which the litigation is resolved. (See also Part
II, Item 1.)
10
B-49
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
Lamonts Apparel, Inc. (the "Company") retails brand-name apparel and accessories
for the entire family through its 42 full-line apparel stores. Lamonts
currently operates in malls and regional shopping centers located in the states
of Alaska, Idaho, Montana, Oregon, Utah and Washington.
On January 6, 1995 (the "Petition Date"), 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 (the "Court") for the Western District of Washington at
Seattle. In Chapter 11, the Company has continued to manage its affairs and
operate its business as a debtor-in-possession. The Company and representatives
of the committees that represent Lamonts' unsecured trade creditors, bondholders
and equityholders (the "Committees") have reached an understanding regarding the
material economic terms of a proposed consensual Plan of Reorganization designed
to enable the Company to emerge from Chapter 11 (the "Plan"). On August 23,
1996, the Plan was filed with the Court, along with the proposed disclosure
statement relating to the Plan. The Plan and proposed disclosure statement are
each subject to amendment, which amendments may be material. A hearing to
consider approval of the proposed disclosure statement has been scheduled by the
Court for October 24, 1996. At such time as a disclosure statement has been
approved by the Court, the Plan and such disclosure statement will be
transmitted to all impaired creditors and equity security holders along with
ballots for the purpose of soliciting acceptances of the Plan. Following the
period of solicitation of ballots, a hearing would be held by the Court to
consider confirmation of the Plan. A confirmation hearing has been tentatively
scheduled for January 6, 1997. The Plan provides that the Company's current
equity holders will be substantially diluted. The confirmation and
effectiveness of the Plan, the implementation of the Company's proposed business
plan and the Company's proposed equity distribution are each subject to numerous
uncertainties set forth in detail in the Plan and proposed disclosure statement.
Accordingly, the value of the Company's common stock remains highly speculative.
In a Chapter 11 reorganization plan, the rights of the pre-Filing creditors may
be significantly altered. Pre-Filing creditors may receive substantially less
than the full face amount of claims. Certain pre-Filing creditors have filed
claims with the Court substantially in excess of amounts reflected in the
Company's financial statements. The Company continues to analyze and reconcile
the claims filed by pre-Filing creditors with the Company's financial records,
but believes it has made appropriate provision for all claims filed. However,
no estimate of the amount of adjustments, if any, from recorded amounts, to
amounts to be realized by pre-Filing creditors, is available at this time.
These liabilities are included in the balance sheet as "liabilities subject to
settlement under reorganization proceedings."
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. Although the Company is
authorized to operate its business as a 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
Court approval.
As a result of the Filing, the Company is currently in default under the
indentures governing the Company's 10-1/4% Subordinated Notes due November 1999
(the "10-1/4% Notes") and 13-1/2% Senior Subordinated Notes which were due
February 1995 (the "13-1/2% Notes"). As a result, all unpaid principal of, and
accrued pre-petition interest on, such debt became immediately due and payable.
The payment of such debt and accrued but unpaid interest thereon is prohibited
during the pendency of the Company's Chapter 11 case.
Since February 3, 1996, the Company has closed one store, with the approval of
the Court. The store was closed due to poor performance. Management is
continually evaluating store locations and operations to determine whether to
close, downsize or relocate stores that do not meet performance objectives.
Management believes that Lamonts has made substantial progress in the period
since the Filing. The Company has closed unprofitable stores, eliminated
unprofitable merchandise lines, added a home decor line, replaced its shoe
licensee and reduced operating expenses. In addition, management implemented
new merchandising strategies designed to: (i) improve the quality of merchandise
offered while maintaining price points geared to the Company's customer base,
(ii) reduce cash operating expenses, and (iii) increase inventory turns to
improve the Company's
11
B-50
<PAGE>
performance. The Company also has initiated a policy to mark-down and clear out
any unsold merchandise within its respective season. As a result, the age and
quality of inventory has been improved significantly.
On June 4, 1996, the Company entered into a new loan and security agreement (the
"FNBB Facility") with the First National Bank of Boston ("FNBB") replacing the
Company's existing loan agreement (the "Old DIP Facility") with Foothill Capital
Corporation ("Foothill"), after a hearing by the Court and the entering of an
order approving such financing. See "Liquidity and Capital Resources" herein.
RESULTS OF OPERATIONS
The following discussion and analysis provides information with respect to the
results of operations for the quarter ("2nd Quarter 1996") and six month period
("YTD 1996") ended August 3, 1996 compared to the quarter ("2nd Quarter 1995")
and six month period ("YTD 1995") ended July 29, 1995.
REVENUES. Revenues of $49.7 million for the 2nd Quarter 1996 increased 4.1% on
a total store basis from $47.7 million for the 2nd Quarter 1995. Comparable
store revenues (i.e., stores open for at least a year) increased 5.7% for the
2nd Quarter 1996 as compared to 2nd Quarter 1995. Revenues of $87.6 million for
YTD 1996 increased 3.8% on a total store basis from $84.4 million for YTD 1995.
Comparable store revenues increased 5.6% for YTD 1996 as compared to YTD 1995.
Management believes that revenues have increased due to increased levels of
inventory and overall improvement in the quality of the merchandise offered in
the stores compared to the prior year periods. In addition, the Company's new
merchandising strategy has resulted in quicker turnover of certain categories of
merchandise, and the strength of the home decor department has resulted in
increased sales.
GROSS PROFIT. Gross profit, as a percentage of revenues, increased to 36.4%
during the 2nd Quarter 1996 compared to 35.5% during the 2nd Quarter 1995.
Gross profit, as a percentage of revenues, increased to 36.1% for YTD 1996
compared to 34.2% for YTD 1995. The increase in gross profit resulted primarily
from (i) policies implemented to establish more competitive pricing strategies
and (ii) management's purchasing strategies, which have decreased the cost of
merchandise sold.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses of
$17.2 million for the 2nd Quarter 1996 increased 2.2% from $16.8 million for the
2nd Quarter 1995. The increase of $0.4 million primarily relates to (i) an
increase in advertising expense of $0.9 million and (ii) an increase in rent of
$0.3 million, offset by a reduction in payroll costs of $0.6 million due to a
reduction in employees and operating costs attributable to closed stores
operating expense in the 2nd Quarter 1995, accounting for approximately $0.3
million.
Operating and administrative expenses of $33.0 million for YTD 1996 decreased
0.7% from $33.2 million for YTD 1995. The decrease of $0.2 million primarily
relates to (i) a reduction in operating costs attributable to closed stores
operating in the YTD 1995, accounting for approximately $0.8 million and (ii)
lower payroll costs of $1.2 million due to a reduction in employees, offset by
an increase in advertising expense of $1.5 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $2.0
million for the 2nd Quarter 1996 decreased $0.3 million as compared to $2.3
million for the 2nd Quarter 1995. Depreciation and amortization expense of $4.0
million for YTD 1996 decreased $0.8 million as compared to $4.8 million for YTD
1995. The decrease primarily relates to assets retired as a result of store
closures and assets becoming fully depreciated or amortized.
INTEREST EXPENSE. Interest expense of $1.3 million for the 2nd Quarter 1996
increased $0.1 million from $1.2 million for the 2nd Quarter 1995. Interest
expense of $2.5 million for YTD 1996 increased $0.2 million from $2.3 million
for YTD 1995. The increase primarily relates to increased borrowing levels
under the Company's working capital facility, offset by lower interest rates.
REORGANIZATION EXPENSES. Reorganization expenses of $1.0 million for the 2nd
Quarter 1996 increased $0.4 million from $0.6 million for the 2nd Quarter 1995.
The YTD 1996 expense of $1.7 million increased $0.5 million from $1.2 million
for the YTD 1995. The reorganization expenses represent costs directly related
to the Company's Chapter 11 case and consist primarily of professional fees and
severance costs. The increase from the prior periods consists of higher
professional fees related to the preparation and filing of the Plan and related
proposed disclosure statement and the FNBB Facility.
12
B-51
<PAGE>
NET LOSS. The Company reported a net loss of $3.4 million for the 2nd Quarter
1996 as compared to a net loss of $3.9 million for the 2nd Quarter 1995. The
loss for the 2nd Quarter 1996 decreased $0.5 million from the prior period
primarily due to (i) $1.1 million increase in gross profit and (ii) $0.3 million
decrease in depreciation and amortization expense, offset by (iii) an increase
of $0.4 million in operating expenses and (iv) an increase of $0.4 million in
reorganization expenses.
The YTD 1996 loss of $9.5 million decreased $3.0 million from the loss of $12.5
million for YTD 1995. The reduction for YTD 1996 resulted from (i) $2.7 million
increase in gross profit, (ii) $0.2 million decrease in operating and
administrative expenses, (iii) $0.8 million decrease in depreciation and
amortization expense, offset by $0.4 million increase in reorganization expenses
and $0.3 million increase in net other income (expense).
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company used $9.2 million of cash for operating activities before
reorganization items for YTD 1996, an increase of $1.2 million as compared to
$7.9 million used for YTD 1995. Increases in funds were used primarily to pay
down trade payables and to increase inventory levels.
The Company received $4.2 million of cash in investing activities for YTD 1996
as compared to using $1.0 million for YTD 1995. The difference of $5.2 million
results primarily from net sale proceeds of $4.5 million received from the
sale-leaseback of the Company's Alderwood store during YTD 1996.
The $3.3 million increase in cash provided by financing activities is primarily
due to increased borrowings under the Company's working capital facilities
during YTD 1996 as compared to YTD 1995, which cash was primarily used to
increase inventory levels.
As of August 3, 1996, the Company had $2.5 million of cash and an additional
$0.8 million of current restricted cash, representing the prefunding of payroll
and taxes in connection with the Filing.
CAPITAL RESOURCES
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement with Foothill. The Old DIP Facility provided for a
borrowing capacity of up to $32.0 million in revolving loans, including up to
$15.0 million of letters of credit ("borrowing capacity"), subject to borrowing
base limitations based upon, among other things, the value of inventory and
certain real property. The Old DIP Facility had been extended from its initial
maturity date of May 17, 1996 to the earlier of August 17, 1996 (with provisions
for two additional quarterly renewals) or the effective date of the Company's
plan of reorganization. However, on June 4, 1996, the Company entered into the
FNBB Facility with FNBB replacing the Old DIP Facility, after a hearing by the
Court and the entering of an order approving such financing. Although Foothill
had taken no action to declare the Company in default as of the date on which
the Foothill financing was terminated, the Company was in violation of the net
worth covenant in Old DIP Facility.
Pursuant to the FNBB Facility, the Company is able to borrow up to $32 million
in revolving loans (including $3 million of letters of credit), subject to
borrowing base limitations based upon, among other things, the value of
inventory and certain real property, during the pendency of the Company's
Chapter 11 proceeding or until June 30, 1997. Subject to FNBB's approval of a
plan of reorganization and other specified conditions, the FNBB Facility will
continue for a two year period following the effective date of a plan of
reorganization.
The FNBB Facility provides that for Base Rate loans interest will accrue at the
rate of 1.5% per annum in excess of the Base Rate (as defined therein), payable
monthly in arrears. For Eurodollar loans, the interest rate will be the
Eurodollar Rate (as defined therein) plus 2.75% (adjusted as provided therein).
The FNBB Facility also provides that in the event of a default in the payment of
any amount due thereunder, the interest rate on such default shall be the
greater of (i) 3.0% per annum in excess of the Base Rate and (ii) the applicable
rate on the loan, payable on demand. The interest rates for both Base Rate loans
and Eurodollar loans are subject to adjustment after the plan of reorganization
is approved and other conditions described in the FNBB Facility have occurred
based on financial ratios of the Company specified in the FNBB Facility. At
August 3, 1996, the Base Rate was 8.25% and the Eurodollar Rates ranged from
5.44% to 5.56%.
The Company has paid FNBB $171,200 in fees for the FNBB Facility as of August 3,
1996. Fees payable under the
13
B-52
<PAGE>
FNBB Facility consist primarily of monthly payments equal to 0.5% (adjusted as
provided therein) of the average unused borrowing capacity and monthly payments
equal to 0.125% of the borrowing capacity. There will be an additional fee
after the effective date of a plan of reorganization and the satisfaction of
certain conditions described in the FNBB Facility in the amount of $560,000
which shall be payable as follows: (a) if the conditions are satisfied prior to
December 31, 1996, $336,000 shall be payable on the date the conditions are
satisfied and $224,000 shall be payable on December 31, 1996 (or, if earlier,
the time of termination of the commitments), or (b) if the conditions are
satisfied on or after December, 1996, $336,000 shall be payable on the date the
conditions are satisfied and $224,000 shall be payable on December 31, 1997 (or,
if earlier, the time of termination of the commitments).
Borrowings under the FNBB Facility, together with cash flow from operations, may
be used by the Company to finance general working capital requirements,
including purchases of inventory and expenditures permitted under the FNBB
Facility. The FNBB Facility is secured by inventory and substantially all other
assets and is an allowed administrative expense claim with super priority over
other administrative expenses in the Chapter 11 case. The FNBB Facility imposes
limitations on the Company with respect to, among other things, (i)
consolidations, mergers, and sales of assets, (ii) capital expenditures in
excess of specified levels and (iii) the prepayment of certain indebtedness.
Additionally, the Company must comply with certain operating and financial
covenants (as described therein). Although the Company failed to comply with
certain covenants related to inventory levels, the Company requested and
received a waiver relating to such breaches for the months ending July 6, 1996
and August 3, 1996.
As of September 11, 1996, the Company had $26.7 million of borrowings
outstanding under the FNBB Facility with additional borrowing capacity
thereunder of $4.2 million.
The Company's primary cash requirement is the procurement of inventory which is
currently funded through (i) borrowings under the FNBB Facility (ii) trade
credit and (iii) cash generated from operations. Like other apparel retailers,
the Company is highly 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. If the
Company is able to obtain its expected trade credit terms, the Company believes
that borrowings under the FNBB Facility and cash generated from operations will
provide the cash necessary to fund the Company's immediate cash requirements.
On August 23, 1996, the Company filed the Plan and related proposed disclosure
statement with the Court. The adequacy of the Company's long-term capital
resources and liquidity will depend on whether and when the Plan is confirmed
and upon the terms thereof, which are subject to material amendment.
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 and the financial condition of the Company. The ability of the
Company to pay dividends is restricted under the terms of the FNBB 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 (during the pendency of the Company's Chapter 11 case).
SEASONALITY
The Company's revenues are seasonal, with the Christmas season (included in the
Quarter ending the Saturday closest to January 31) being its strongest period
14
B-53
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
AUGUST 31, 1996
Current Assets:
Cash $ 3,077
Receivables - net 2,436
Inventories 43,181
Prepaid expenses and other 2,342
Restricted cash 762
-----------
Total current assets 51,798
Property and equipment - net 34,662
Leasehold interests 4,295
Excess of cost over net assets acquired - net 13,067
Deferred financing costs - net 2,290
Restricted cash 1,139
Other assets 975
-----------
Total assets $ 108,226
-----------
-----------
Liabilities not subject to settlement under reorganization
proceedings:
Current Liabilities:
Borrowings under DIP Facility $ 27,385
Accounts payable 13,972
Accrued payroll and related costs 2,482
Other accrued expenses 10,083
-----------
Total current liabilities 53,922
Obligations under capital leases 2,808
Other 543
-----------
Total liabilities not subject to settlement under 3,351
reorganization proceedings -----------
Liabilities subject to settlement under reorganization 103,666
proceedings -----------
Stockholders' Equity (Deficit):
Common stock, $0.01 par value, 40,000,000 shares authorized,
17,900,053 shares issued and outstanding 179
Additional paid-in capital 62,954
Minimum pension liability adjustment (250)
Accumulated deficit (115,596)
-----------
Total stockholders' equity (deficit) (52,713)
-----------
Total liabilities and stockholders' equity (deficit) $ 108,226
-----------
-----------
15
B-54
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MONTH ENDED AUGUST 31, 1996
Revenues $ 17,335
Cost of merchandise sold 11,185
------------
Gross profit 6,150
------------
Operating and administrative expenses 5,356
Depreciation and amortization 667
------------
Operating costs 6,023
------------
Income from operations before other income
(expense) and reorganization expenses 127
Other income (expense):
Interest expense (445)
Other 1
------------
Loss from operations before reorganization expenses (317)
Reorganization expenses 379
------------
Net loss (696)
Accumulated deficit, beginning of period (114,900)
------------
Accumulated deficit, end of period ($ 115,596)
------------
Net loss per common share ($ .04)
------------
16
B-55
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
MONTH ENDED AUGUST 31, 1996
Cash flows from operating activities:
Net loss ($ 696)
Adjustments to reconcile net loss to net cash used in
operating activities before reorganization items:
Depreciation and amortization 667
Reorganization expenses 379
Decrease in inventories 1,191
Decrease in accounts payable (2,043)
Other 2,028
------------
Net cash used in operating activities before 1,526
reorganization items
Operating cash flows used by reorganization items:
Payments for professional fees and other expenses
related to the Chapter 11 proceedings (126)
------------
Net cash used in operating activities 1,400
------------
Cash flows from investing activities:
Capital expenditures (46)
Proceeds from sale of land and building 0
Other 0
------------
Net cash provided by (used in) investing (46)
activities ------------
Cash flows from financing activities:
Post-petition borrowings under working capital facility 19,648
Post-petition payments under working capital facility (20,393)
Principal payments on obligations under capital leases (67)
Other (6)
------------
Net cash provided by (used in) financing (818)
activities ------------
Net increase (decrease) in cash 536
Cash, beginning of period 2,541
------------
Cash, end of period $ 3,077
------------
------------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 248
------------
------------
B-56
<PAGE>
ANNEX C
LIST OF SENIOR CLAIMS
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Claim Filed Claim No.
/Scheduled No. Creditor Name /Scheduled
<S> <C> <C> <C> <C> <C>
1.2 & O CLEANERS Scheduled AMERICAN BUILDING MAINTENANCE CO Claim 576
1928 JEWELRY COMPANY Claim 726 AMERICAN CLEANING Claim 361
4K RADIO Scheduled AMERICAN ELECTRIC INC Claim 232
4K RADIO INC DBA KOZE AM/FM Claim 193 AMERICAN INSTITUTE OF ARCHITECTS Scheduled
A & E PRODUCTS/CARLISLE PLASTICS Claim 188 AMERICAN LINEN (BLACKFOOT) Scheduled
A RIFKIN CO Claim 466 AMERICAN LINEN (EUGENE) Claim 306
A TO Z RENTALS Scheduled AMERICAN LINEN (PORTLAND) Claim 902
A-L WELDING PRODUCTS Scheduled AMERICAN LINEN (SPOKANE) Claim 73
AA LOCK & SAFE Claim 241 AMERICAN NORTHWEST ENTERPRISES Claim 678
AAA PRINTING & GRAPHICS Claim 487 AMERICAN PLUMBING & HEATING CO Scheduled
AAA SEWER SERVICE Claim 744 AMERICAN RED CROSS Scheduled
AANNEX RENTS INC/AA PARTY RENTALS Claim 591 AMERICAN SPECIALTY/PATRIOT FUND Claim 493
ABERDEEN SANITATION Scheduled AMERICAN TIMES DBA ACUET WATCH Claim 173
ACADEMY PRESS INC Claim 517 AMERICAN UNITED INC Claim 19
ACCESSORY STREET Claim 108 AMITY LEATHER PRODUCTS CO Claim 100
ACCOUNTEMPS Claim 565 AMSBURY GLASS Scheduled
ACCOUNTS PAYABLE RECOVERIES Claim 140 ANACOMP INC Claim 514
ACE BOX COMPANY INC Claim 433 ANCHORAGE DAILY NEWS Claim 208
ACE JANITORIAL & SUPPLY Scheduled ANCHORAGE RECYCLING CENTER Scheduled
ACTION COMMUNICATIONS INC Scheduled ANCHORAGE REFUSE INC Scheduled
ACTION LAUNDRY Scheduled ANCHORAGE TELEPHONE UTILITY Scheduled
ACTION SECURITY INC Claim 714 ANCHORAGE WATER & WASTEWATER UTILITY Scheduled
ADHESA PLATE MFG INC Scheduled ANDERSON, MAGGIE Scheduled
ADIA SERVICES INC Claim 484 ANGELIQUE IMPORTS INC Claim 915
ADT SECURITY SYSTEMS INC Scheduled ANN KLEIN II/E. GLUCK CORP Claim 340
ADVANCE FOAM & PLASTICS CO Claim 659 ANN LEWIS JEWELRY Scheduled
ADVANCED INFOMATION SERVICE Scheduled APOLLO DRAIN & ROOTER SERVICE Scheduled
ADVENTURES IN ADVERTISING Scheduled APOLLO HANDBAG CO Claim 138
ADVERTISING AGE Scheduled APPLAUSE Claim 82
AEI MUSIC NETWORK INC Claim 77 APPLE VALLEY BROADCASTING Claim 30
AETNA CASUALTY & SURETY Scheduled ARBITRON COMPANY Scheduled
AGAPE SERVICE Scheduled ARGENTUM PHOTOGRAPHIC SERVICES INC Claim 724
AIR LIQUIDE AMERICA CORP Scheduled ARGUS SYSTEMS INC Claim 841
AIR PLUS MECHANICAL Claim 342 ARIS ISOTONER INC Claim 815
AIRBORNE FRIEGHT CORP Scheduled ARMADILLO SECURITY Claim 491
ALASKA AIRLINES INC Scheduled ARROW REFUSE Scheduled
ALASKA BROADCASTING NETWORK Claim 378 ARROW/BIDERMANN Claim 969
ALASKA CLEANERS Scheduled ART & RAYS LOCK & SAFE Scheduled
ALASKA DISPLAY Scheduled ART MOORE INC Scheduled
ALASKA ELECTRIC LIGHT & POWER CO Claim 251 ARTIC CLEANING SUPPLIES Scheduled
ALASKA FIRE EXTINGUISHER Scheduled ASPLUND SUPPLY INC Scheduled
ALASKA'S BEST WATER PRODUCTS Scheduled ASSOCIATED AIR FREIGHT Scheduled
ALASKA-JUNEAU COMMUNICATION INC Claim 626 ASTORIA BUSINESS EQUIPMENT CO Scheduled
ALBANY DEMOCRAT HERALD Claim 504 ASTORIA HIGH SCHOOL Scheduled
ALBANY RADIO CORP/KHPE Claim 747 AT LAST SPORTSWEAR Claim 904
ALEX (PANLINE USA) Scheduled AT&T Scheduled
ALFIN INC Claim 150 AT&T COMMUNICATIONS Claim 779
ALL PURPOSE DOOR REPAIR INC Claim 806 AT&T TELECONFERENCE Scheduled
ALL STATES TRANSPORATION INC Claim 782 AT&T WIRELESS Scheduled
ALLEN D EVERITT KNITTING CO Claim 452 ATHENA Scheduled
ALLIED BUSINESS CO INC Claim 445 AUTHENTIC FITNESS CORPORATION Claim 632
ALLIED PRINTERS Scheduled AUTOMATIC & MANUAL DOOR Scheduled
ALLIED SECURITY Scheduled AZ TECH ELECTRIC Claim 612
ALLIED SECURITY INTERNATIONAL Claim 41 B & B GLASS CO INC Claim 728
ALPHA MILLS Scheduled BABY TOGS Scheduled
ALPHA OMEGA SIGN CO Claim 267 BACHOFNER ELECTIC INC Claim 665
ALTA COPY & PRINT Scheduled BACKGROUND MUSIC CO Claim 503
AMBASSADOR MEDIA CORP/KKVI-TV Claim 225 BAGOY'S FLORIST INC Claim 249
AMBASSADOR MEDIA CORP/KPVI-TV Claim 233 BALI COMPANY/SARA LEE INTIMATES Claim 768
AMERICAN BLDG MAINTENANCE Scheduled BAMBOO INC Claim 675
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Claim Filed Claim No.
/Scheduled No. Creditor Name /Scheduled
<S> <C> <C> <C> <C> <C>
BANK OF AMERICA Scheduled CASCADE NATURAL GAS CORP Claim 112
BANK OF NEW YORK, THE Scheduled CASSIE COTILLION INC Claim 854
BANKCARD SERVICES/ERNST Scheduled CATALINA Scheduled
BANTAM COLLECTIONS INC Claim 758 CCI MECHANICAL SERVICE Scheduled
BARR AUDIO VISUAL INC Claim 266 CDA GARBAGE SERVICE Claim 218
BASSETT WALKER INC Claim 101 CELLINI INC Claim 128
BATTS INC Claim 261 CELTIC CAPITAL CORPORATION Scheduled
BAUMAN OLYMPIC DBA PENINSULA FUEL Claim 127 CENTRALIZED COPY SERVICES INC Claim 394
BAXTER, CYNTHIA M Scheduled CENTURY BUSINESS CREDIT CORP Claim 97
BCSR INC Scheduled CENTURY PROPERTIES INC Scheduled
BEAUMONT & CO Claim 360 CENTURY RICH Scheduled
BELDOCH INDUSTRIES CORP Claim 88 CESUCCI DESIGNS WEST Scheduled
BELLAIR EXPEDITING NORTHWEST INC Claim 403 CHALK LINE INC Claim 894
BELLEVUE ART & FRAME Scheduled CHAMPION JOGBRA, JBI Claim 338
BELLEVUE ATHLETIC CLUB Scheduled CHANNEL 2 BROADCASTING INC Claim 355
BELLEVUE COMMUNITY COLLEGE Scheduled CHEROKEE WATCHES/SAVANT LTD Scheduled
BELLEVUE HOLIDAY INN Scheduled CHILDREN'S MEDIA NETWORK INC Claim 172
BELLEVUE RADIO INC Claim 685 CHORUS LINE Claim 482
BERKELEY DESIGNS Claim 283 CHRISTIAN DIOR PERFUMES CO Claim 365
BERKLEY SHIRT CO INC Claim 125 CHRONCILE, THE Scheduled
BERNETTE TEXTILE Scheduled CHUGACH ELECTRIC ASSOCIATION INC Claim 376
BEST KNITTING MILLS INC Claim 391 CINTULA ENTERPRISES DBA ABLE LOCK Claim 102
BEST LOCKING SYSTEMS OF PORTLAND Claim 521 CITIZEN WATCH COMPANY OF AMERICA Claim 373
BESTFORM FOUNDATIONS INC Claim 557 CITY OF ABERDEEN-FINANCE DEPT Scheduled
BFI Claim 313 CITY OF BELLEVUE TREASURY Scheduled
BIG BALL SPORTS INC Claim 719 CITY OF BELLEVUE UTILITY BILLING Scheduled
BIG VAC INC Claim 370 CITY OF COEUR D'ALENE Claim 320
BLACKMER CONSTRUCTION INC Claim 660 CITY OF CORVALLIS FINANCE DEPT Claim 547
BLASKO, TRACY H. Scheduled CITY OF EVERETT UTILITY SERVICE Scheduled
BLUE RIBBON LINEN SUPPLY Scheduled CITY OF HILLSBORO UTILITIES COMMISSION Scheduled
BLUE SPRINGS WATER Scheduled CITY OF IDAHO FALLS UTILITY DEPT Scheduled
BOISE CASCADE OFFICE PRODUCTS Claim 11 CITY OF KENNEWICK Claim 447
BOISE CASCADE OFFICE PRODUCTS Claim 12 CITY OF KIRKLAND UTILITIES Scheduled
BOMAC INTERNATIONAL CORP Claim 791 CITY OF LEWISTON Claim 500
BOND, RICKI Scheduled CITY OF LEWISTON Scheduled
BONNY'S BAKERY Claim 406 CITY OF LYNNWOOD-UTILITIES Scheduled
BOWE INDUSTRIES DBA CHANGES Claim 129 CITY OF MARYSVILLE Claim 29
BOXES PLUS Scheduled CITY OF MOSCOW Scheduled
BREM-AIR DISPOSAL INC Scheduled CITY OF MOSES LAKE Scheduled
BRITISH MOTOR COACH INC Scheduled CITY OF OGDEN UTILITIES Claim 442
BROWNING FERRIS INDUSTRIES Scheduled CITY OF OLYMPIA Claim 689
BRYSTIE INC Claim 48 CITY OF POCATELLO UTILITY BILLING Claim 183
BUD BARTON'S GLAS-CO INC Scheduled CITY OF PORT ANGELES Claim 260
BUGLE BOY INDUSTRIES INC Claim 759 CITY OF PUYALLUP Claim 676
BULLET INC Scheduled CITY OF SEATTLE Claim 933
BUREAU OF WATER WORKS Scheduled CITY OF SEATTLE FINANCE DEPT Scheduled
BUSTER BROWN APPAREL INC Claim 622 CITY OF SEATTLE TREASURY Scheduled
BUSTER BROWN APPAREL INC Claim 622 CITY OF SEATTLE TREASURY Scheduled
BUSTER BROWN DBA PETER RABBIT Claim 621 CITY OF SOLDOTNA Scheduled
BUXTON CO Scheduled CITY OF SPOKANE Claim 642
BYER CALIFORNIA Claim 792 CITY OF TACOMA PUBLIC UTILITIES Claim 50
C & C GLASS & MILLWORK Claim 787 CITY OF TIGARD Claim 275
C'MON SPORTSWEAR LTD Claim 962 CITY OF UNION GAP Claim 525
CABLE LANGENBACK ET AL Claim 210 CITY OF VANCOUVER Claim 903
CADEAUX Claim 877 CITY OF WARRENTON Scheduled
CAFE' FONTE Scheduled CITY OF WASILLA-WATER UTILITY Scheduled
CALIFORNIA KRUSH/DIV OF D & M Scheduled CITY PARCEL Scheduled
CAPE CODE CRICKET LANE Claim 650 CLARK PUBLIC UTILITES Claim 70
CAPITAL MERCURY SHIRT CORP Claim 323 CLASSIC ONE EAST Scheduled
CAROL FOR EVA GRAHAM INC Claim 222 CLAUDE Scheduled
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Claim Filed Claim No.
/Scheduled No. Creditor Name /Scheduled
<S> <C> <C> <C> <C> <C>
CLEARR CORP Claim 603 CUSTOM LIGHTING SERVICE Claim 33
CLEARR CORP Scheduled CUSTOM VACUUM Scheduled
CLIPPER EXPRESS COMPANY Claim 653 DAILY ASTORIAN, THE Claim 468
CLOTHES CIRCIUT Scheduled DAILY WORLD, THE Claim 395
CMS CASUALS INC Claim 181 DALOW INDUSTRIES INC Claim 553
CNTY-BENTON PUD Claim 177 DANECRAFT Scheduled
CNTY-CACHE SERVICE AREA Scheduled DANSKIN INC Claim 566
CNTY-DOUGLAS PUD #1 Claim 219 DANZAS CORP Claim 98
CNTY-DOUGLAS SEWER DISTRICT #1 Scheduled DATA BASE INC Claim 135
CNTY-GRAYS HARBOR PUD Claim 510 DATAVISION INC Claim 441
CNTY-KING WATER DISTRICT #49 Claim 237 DAVIDSON & ASSOCIATES INC Scheduled
CNTY-KITSAP PUBLIC WORKS Scheduled DAWES TRANSPORT INC Scheduled
CNTY-KOOTENAI/DEPT OF LEGAL SVCS Claim 405 DCNL INC Scheduled
CNTY-SPOKANE UTILITIES Scheduled DELON ENTERPRISES Scheduled
COCHRAN ELECTRIC CO INC Scheduled DEPARTMENT 56 INC Claim 374
COEUR D'ALENE PRESS Claim 243 DEPOSITORY TRUST COMPANY, THE Scheduled
COLE OF CALIFORNIA Scheduled DERBY DAYS INC Scheduled
COLLECTION XIIX Scheduled DESPERADO FASHIONS INC Claim 911
COLOR SERVICE INC Scheduled DHL CORP Scheduled
COLORBOK PAPER PRODUCTS INC Claim 116 DIMOND HIGH SCHOOL Scheduled
COLUMBIA BASIN HERALD Scheduled DIRECT TO RETAIL Scheduled
COLUMBIA ELECTRIC SUPPLY Scheduled DISPLAY HOUSE Scheduled
COLUMBIA EMPIRE BROADCASTING Scheduled DOAK'S LOCK & KEY Scheduled
COLUMBIA FIRE EQUIP Scheduled DOLLAR STRETCHERS Scheduled
COLUMBIA LOCK & SAFE Claim 271 DONALD KINGSLEY Scheduled
COLUMBIAN Claim 109 DONDEVO NORTHGATE FLORIST Claim 196
COMCO BROADCASTING Claim 264 DONNKENNY APPAREL INC Claim 75
COMCO BROADCASTING Claim 289 DOORS/WINDOWS UNLIMITED INC Scheduled
COMMERICAL FILTER SALES & SERVICE Claim 799 DOWNTOWN CORVALLIS ASSOCIATION Scheduled
COMMUNITY GLASS COMPANY INC Claim 359 E WENATCHEE WATER DISTRICT Scheduled
COMMUNITY PACIFIC BROADCASTING Claim 471 EAGLE COMMUNICATIONS INC Claim 318
COMPUSERVE Scheduled EARTHQUAKE Scheduled
COMPUTER REPAIR INC Scheduled EASTGATE SEWER DISTRICT Scheduled
CONSOLIDATED ELECTRIC-PORTLAND Scheduled EASTSIDE CATHOLIC HIGH SCHOOL Scheduled
CONSOLIDATED ELECTRIC-SALT LAKE Scheduled EASTSIDE DISPOSAL Claim 83
CONSOLIDATED ELECTRIC-SPOKANE Scheduled EASTSIDE PAINT COMPANY Scheduled
CONSOLIDATED FREIGHTWAYS CORP Claim 158 ECSI EXECUTONE Claim 624
CONTAINER HAULING SERVICE-BELLEVUE Claim 86 ED HARDESTY/HARDESTY ENTERPRISES Scheduled
CONTAINER HAULING SERVICE-BELLEVUE Claim 87 EDEN TOYS INC Claim 706
CONTRACT DATA SCAN INC Claim 379 EDGAR BEREBI ASSOCIATES Claim 754
CONTROL SENECA CORPORATION Claim 691 EDWARD LEVENSON INC/EJ ENTERPRISES Claim 358
COON INLET SOCCER Scheduled EHS ELECTRICAL CONTRACTORS Claim 236
COPIER SPECIALIST Scheduled EILEEN SEALS INTERNATIONAL Claim 494
COPIES PLUS Scheduled EILEEN WEST Claim 380
COPY WORKS Scheduled EIR RECYCLE Scheduled
CORVALLIS DISPOSAL CO Scheduled ELECTRIC SMITH INC Scheduled
CORVALLIS RENTAL INC Scheduled ELECTRONIC TRANSACTION CORP Claim 613
COSMOPOLITAN HANDBAG CO INC Claim 583 ELIZABETH ARDEN INC Claim 750
CR GIBSON CO Claim 486 ELLEN DESIGNS INC Scheduled
CRAIG CLOTHING CO Scheduled EMERALD CITY RECYCLE Claim 113
CRANDELL ENTERPRISES INC Scheduled EMERY WORLDWIDE Scheduled
CRAWFORD DOOR SALES/WAYNE-DALTON Scheduled EMPIRE GLASS INC Scheduled
CRAWFORD'S BUSINESS FURNITURE Scheduled ENA COURIERS Claim 186
CROSBY INCORPORATED Scheduled ENSTAR NATURAL GAS COMPANY Claim 156
CROWNTUFT MTG Claim 852 ENTERAINMENT COMMUNICATIONS INC Claim 551
CRYSTAL BRANDS Scheduled ENTERPRISE NEWSPAPERS, THE Claim 411
CRYSTAL KNITTERS Scheduled ENVIROTECT SYSTEMS INC Claim 227
CRYSTAL LINEN Claim 639 ESCANTE INC Claim 455
CUMMINS NORTHWEST INC Scheduled ESCAPADES Scheduled
CURRANTS Scheduled ESPIRT DE CORPS Scheduled
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Claim Filed Claim No.
/Scheduled No. Creditor Name /Scheduled
<S> <C> <C> <C> <C> <C>
ESQUIRE NECKWEAR INC Scheduled FURST GROUP, THE Claim 961
ESSENTIAL SERVICES CORP Claim 869 G&K SERVICES Scheduled
ESTEY CORP, THE Claim 757 G-III LEATHER FASHIONS INC Claim 910
EUGENE WATER & ELECTRIC BOARD Claim 352 GALERIE AU CHOCOLAT Claim 853
EUREKA COMPANY, THE Claim 663 GAMBELLA Scheduled
EURO TEK STORE FIXTURE CORP Claim 396 GANT CORPORATION Claim 339
EUROPECRAFT Claim 963 GARDEN CITY PAINT & GLASS INC Scheduled
EXCEL SERVICES Scheduled GAVORAS SUPER VALU FOODS Claim 861
EXCEPTIONAL FORESTERS INC Scheduled GE INFORMATION SERVICES Scheduled
EXECUTIVE WINDOW CLEANING Scheduled GEM STATE TROPHIES Claim 223
FABRICARE CLEANING CENTER Scheduled GEMMY INDUSTRIES Claim 420
FAIRBANKS DAILY NEWS-MINER Scheduled GENERAL BINDING CORPORATION Scheduled
FAIRBANKS RESOURCE AGENCY Claim 554 GENERAL COMMUNICATIONS INC Claim 709
FAIRCHILD PUBLICATIONS Scheduled GENERAL ELECTRIC CAPITAL CORP Scheduled
FARAH USA INC Claim 279 GENERAL FIRE & SAFETY Scheduled
FARMER BROS CO Scheduled GENERAL TELEPHONE CO Scheduled
FARRINTON SPECIALISTS Claim 407 GENEXUS INTERNATIONAL INC Claim 761
FARRINTON SPECIALISTS Claim 526 GIBBS LOCK & SAFE Scheduled
FASHION MANUFACTURING Scheduled GILES ALASKAN IMAGES PHOTO Claim 562
FASHION NECKWEAR COMPANY INC Claim 692 GIORGIO BEVERLY HILLS INC Claim 778
FEDERAL EXPRESS Claim 49 GIOVANNI JEWELRY COMPANY Claim 561
FEDERAL WAY DISPOSAL Claim 542 GJB ENTERPRISES Scheduled
FIDELITY & DEPOSIT CO/NANTUCKET Claim 968 GLAMOUR RINGS Claim 213
FIDELITY COLLECTION SERIVCE Claim 645 GLASCO GLASS COMPANY Scheduled
FIELDS ROOF SERVICE INC Claim 185 GLASS, SASH & DOOR SUPPLY INC Claim 921
FIFTH AVENUE SHOE REPAIR Scheduled GLAZER'S CAMERA SUPPLY Claim 273
FINLAY FINE JEWELRY CORPORATION Claim 721 GLEEM CHEMICAL Scheduled
FINOVA CAPITAL CORP Claim 282 GLICKSON,SAUL Claim 288
FIRE CHIEF EQUIPMENT INC Claim 176 GMA RESEARCH CORPORATION Claim 716
FIRST ASIAN TRADING CO Scheduled GOLD INC Claim 44
FIRST BANK Claim 879 GOOD LAD CO LTD Scheduled
FIRST BANK-NE Scheduled GOPHER SPORT Claim 356
FIRST FACTOR/ALYSSA CARR Claim 6 GRAHAM OFFICE SUPPLY INC Scheduled
FIRST FACTOR/TUMBLE TOGS Claim 7 GRANT CNTY JOURNAL Scheduled
FIRST NATIONAL BANK OF ANCHORAGE Claim 907 GRAPHICS NINE INC Claim 572
FIRST OPTION SPORTSWEAR LTD Claim 777 GRASS ROOTS Scheduled
FIRST SECURITY-ID Scheduled GREAT AMERICAN KNITTING/BIDERMANN Claim 4
FIRST SECURITY-ID Scheduled GREAT ORIGINALS Claim 599
FIRST SECURITY-UTAH Scheduled GREEN EAGLE INC Claim 367
FISHER BROADCASTING INC Claim 673 GRIMMER TRANSFER & STORAGE Scheduled
FISHMAN & TOBIN Scheduled GRINNELL FIRE PROTECTION Scheduled
FLOOR FACTORS Scheduled GRUEN MARKETING CORP Claim 780
FOR PETES SAKE Scheduled GTE NORTHWEST Scheduled
FORCE 4 Claim 546 GTE NORTHWEST/ANDERSON FINANCIAL Claim 959
FOREST PARK CLEANERS Scheduled GUERLAIN INC Claim 136
FORMS MANAGEMENT INC Scheduled H&H CLEANING Scheduled
FOSSIL Scheduled HADDAD APPAREL GROUP/BUGLE BOY Claim 611
FOUR SEASONS INC Scheduled HADDAD APPAREL GROUP/MIGHTY MAC Claim 618
FOX CLEANERS Claim 575 HAGGAR CLOTHING COMPANY Claim 643
FOX COMMUNICATIONS CORPORATION Scheduled HALMODE APPAREL INC Claim 37
FRAGRANCES GROUP LTD, THE Scheduled HALSTON BORGHESE INC Claim 818
FRANKLIN CONTAINER SERVICES INC Claim 449 HARMON GLASS Scheduled
FRED HAYMAN BEVERLY HILLS Scheduled HAROT Scheduled
FREDS DRY CLEANING PICKUP SERVICE Claim 385 HARRIS, MYRTLE Scheduled
FRESH START Scheduled HAULAWAY STORAGE CONTAINERS Scheduled
FRIDEN NEOPOST Scheduled HAZEN HIGH SCHOOL Scheduled
FRITZI CALIFORNIA Claim 532 HEALTHTEX INC Claim 536
FRONTIER CLEANING SERVICE Claim 292 HEARTLAND APPAREL CORP Claim 40
FRONTIERSMAN/VALLEY SUN Scheduled HEATH NORTHWEST INC Claim 171
FRUITLAND MUTUAL WATER COMPANY Scheduled HELGET GAS PRODUCTS INC Scheduled
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Claim Filed Claim No.
/Scheduled No. Creditor Name /Scheduled
<S> <C> <C> <C> <C> <C>
HERALD JOURNAL Scheduled JOE BOXER GIRLFRIEND Claim 20
HERALD NEWSPAPER, THE Claim 348 JOEL FERRIS HIGH Scheduled
HERITAGE WATER CO OF UTAH Scheduled JOHN CASABLANCAS MODEL Claim 284
HERSHEY'S CHOCOLATE WORLD Claim 118 JOHN ROBERT POWERS Claim 66
HI GIRLS INC Claim 111 JOHN ROBERT POWERS SCHOOL Claim 417
HIGHSMITH BROADCASTING Claim 886 JOHN'S PLUMBING & PUMPS INC Claim 240
HILLSBORO ARGUS Scheduled JOHNNY'S FLOWERS Scheduled
HILLSBORO GARBAGE DISPOSAL Claim 882 JOURNAL AMERICAN NEWSPAPER Claim 950
HILSON JANITORIAL Scheduled JUDIE INGRAM COMPANY Claim 590
HIN BASE LIMITED Scheduled JUMBO COFFEE SERVICE Claim 890
HOGLAND TRANSFER Claim 581 JUST ASK INC DBA GLASS DOCTOR Claim 238
HOLY FAMILY CATHEDRAL Scheduled K APPLIANCE SALES & SERVICE Claim 204
HOMER ELECTRIC ASSOCIATION INC Scheduled KAPY Scheduled
HORIZON ELECTRIC INC Scheduled KART-KZRT-KMVX Scheduled
HOST APPAREL INC Claim 21 KAST AM & FM Claim 702
HOST FOR HER INC Claim 23 KATHY ANNE INC Scheduled
HOST/NIGHTWEAR BY VAN HEUSEN Claim 24 KATW Scheduled
HOSTAPPAREL/PAJAMA CRAFT Claim 22 KAYO/K099 Scheduled
HUGHES ELECTRICAL CONTRACTORS Scheduled KAYSER-ROTH CORPORATION Claim 932
HUGHES NETWORK SYSTEMS INC Scheduled KAYU - TV Claim 927
HUMANIX CORP Claim 250 KBBO/KRSE RADIO Claim 469
HUMPHREYS INC Claim 813 KBOY Scheduled
HYDRAULICS UNLIMITED Claim 770 KBSG AM/FM & KNDD FM Claim 889
I C ISAACS & COMPANY Scheduled KBSN/KDRM RADIO Claim 713
I C MANUFACTURING Scheduled KBZN Scheduled
IDA VENDING COMPANY Claim 382 KCIS- AM/KCMS-FM Claim 601
IDAHO POWER COMPANY Claim 46 KCJT-TV CH 17 Claim 700
IDAHO POWER COMPANY Claim 399 KCLX/KZZL Scheduled
IDAHO STATE JOURNAL Claim 117 KCMX Scheduled
IDAHO WIRELESS CORP Claim 656 KCNA-FM Scheduled
IFG Scheduled KCPQ-TV Scheduled
IMAGETECH Scheduled KCY/KBW-TV(4049) Claim 187
IMAGE WORKS INC Claim 272 KDRK-FM Scheduled
IN 2 SPORT Scheduled KDUK-AM & KLCX-FM/DEBT ACQUISITION Scheduled
INDUSTRIAL INDEMNITY Claim 168 KEENEY'S OFFICE PRODUCTS INC Claim 170
INFINITY SYSTEMS/KKRT-KSSY Claim 414 KEGX Claim 936
INFINITY SYSTEMS/KKRV Claim 415 KELLEY BUSINESS MACHINES Scheduled
INFOTECH COMPUTER SYSTEMS Claim 377 KELLWOOD CO/INTIMATE CONCEPTS Claim 851
INTAPP GROUP, THE Scheduled KELLY SERVICES INC Claim 124
INTER STORE TRANSFER Scheduled KELSUN DISTRIBUTORS Claim 199
INTERCOASTAL DATA CORPORATION Scheduled KENSINGTON SQUARE Scheduled
INTERMOUNTAIN GAS COMPANY Claim 145 KEX/KKRZ Claim 844
INTERNATIONAL INTIMATES INC Claim 310 KEY ITEM SALES Scheduled
INTERNATIONAL NEWS Scheduled KEYF-FM Scheduled
INTERNATIONAL PAPERFLOW Claim 400 KEYG-WHEELER BROADCASTING INC Claim 498
INTIMO Scheduled KEYW RADIO Claim 752
IRENE CLOUGH Scheduled KEZI INC Claim 579
ISACO INTERNATIONAL CORPORATION Claim 704 KEZJ RADIO Claim 586
IVEY SERIGHT INTERNATIONAL INC Claim 680 KEZX AM & FM Claim 286
J & H SEWING & VACUUM Scheduled KFAR/KWLF Scheduled
JANSPORT INC Claim 68 KFFM/KMWX Scheduled
JANTZEN INC Claim 947 KFIY Claim 440
JEANETTE'S FLORAL DESIGNS Scheduled KFQD/KWHL/KMXS-PIONEER BROADCASTING Claim 257
JEMCO INC Claim 769 KFTZ- FM Claim 529
JEWELRY HOLDING CO INC Claim 316 KGA -AM Scheduled
JEWELRY WAREHOUSE INC, THE Claim 563 KGY INC Claim 507
JEZLAINE LTD Scheduled KHQ INC Claim 253
JOCKEY INTERNATIONAL INC Claim 62 KHTR-FM RADIO/PULLMAN, WA Scheduled
JODY COYOTE Scheduled KIDK TV Claim 462
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Claim Filed Claim No.
/Scheduled No. Creditor Name /Scheduled
<S> <C> <C> <C> <C> <C>
KING BROADCASTING CO Claim 298 KYSN COUNTRY Scheduled
KINKO'S Scheduled KZTA Scheduled
KIRBY SALES & SERVICE Claim 401 L & J ACCESSORIES Claim 644
KIRO INC Claim 509 L & M COURIER INC Scheduled
KISN AM/FM Scheduled L A INTIMATES/DIV OF KELLWOOD Claim 848
KIT/KATS/KXXS Scheduled L H MORRIS ELECTRIC INC Claim 918
KITS CAMERAS Claim 248 L V MYLES INC/HAPPY PEOPLE Claim 80
KKRO ARRWO/KEAG-FM KOOL Scheduled LA GEAR Scheduled
KLCE Scheduled LAKEHAVEN UTILITY DISTRICT Claim 105
KLGN/KBLQ RADIO Scheduled LAKESIDE DISPOSAL & RECYCLING Scheduled
KLIX AM/FM Claim 585 LAKEWOOD REFUSE SERVICE INC Scheduled
KLO Scheduled LAKEWOOD WATER DISTRICT Scheduled
KLSR FOX TV-25 Scheduled LANCASTER GROUP USA Claim 763
KMPS RADIO/KZOK RADIO Claim 195 LANDSCAPE MANAGEMENT INC Scheduled
KMTR-TV Scheduled LARRY'S QUALITY HEATING & PLUMBING Claim 765
KMVT Scheduled LAUREL BURCH INC Scheduled
KNLT Claim 937 LAURES INC Scheduled
KNOBEL'S ELECTRIC INC Scheduled LAWSON PRODUCTIONS INC Claim 268
KOALA CORPORATION Claim 543 LEADING FLORAL CO Claim 505
KOLTOV INC Claim 214 LEE APPAREL COMPANY INC Claim 881
KOMO RADIO Claim 884 LEE ENTERPRISES/CORVALLIS GAZETTE Claim 508
KOMO TV Claim 814 LEES MANUFACTURING VP Claim 330
KONA Scheduled LEGACY USA CO Scheduled
KORE SOURCING INC Scheduled LEISURE LIFE INDUSTRIES INC Claim 265
KOSZ FM Claim 473 LEMON GRASS Scheduled
KPAX COMMUNICATIONS INC Claim 263 LEO SHAPIRO & ASSOCIATES INC Scheduled
KPNW/KODZ Scheduled LETTERS UNLIMITED Claim 247
KQQQ-AM RADIO/PULLMAN, WA Scheduled LETWIN GARMENT FACTORY LTD Scheduled
KREM-TV Claim 920 LEVLE MODES INC Claim 107
KRISTESSE INC Claim 217 LEWIS CLARK RECYCLERS INC Scheduled
KRKT Scheduled LH MORRIS ELECTRONIC INC Scheduled
KRPL INC DBA KRPL/KZFN RADIO Claim 351 LILY OF FRANCE Claim 556
KRPM-K106 Scheduled LILYETTE/DIV OF NCC INDUSTRIES INC Claim 730
KRUSI, PETE/KRUSHER RECYCLING SERVICE Scheduled LITEMOR DISTRIBUTORS INC Claim 476
KRWM-FM/PUGET SOUND BROADCASTING Claim 839 LITTLE DIPPER SPORTS INC Scheduled
KRWQ/KMED Claim 408 LIZ CLAIBORNE INC Claim 729
KSEI/KMGI RADIO Claim 463 LIZ CLAIBORNE INC Claim 732
KSHO RADIO Claim 203 LIZ SOTO Scheduled
KSOS Scheduled LOCK DOCTOR, THE Scheduled
KSTW-TV Claim 246 LOCK RANGERS SAFES & SECURITY INC Claim 300
KTCR Claim 935 LOGAN CITY MUNICIPAL CORPORATION Claim 636
KTMT/KMFR Scheduled LOGO 7 INC/UNIVERSAL INDUSTRIES INC Claim 312
KTRW/KZZU Scheduled LONDON FOG INDUSTRIES/PACIFIC TRAIL Claim 797
KUGN Scheduled LONDON STAR LIMITED Claim 512
KUIK Scheduled LONGSTREET Claim 605
KULF-AM & FM Claim 878 LORENZO DE MEDICI INC Claim 302
KUPI RADIO Claim 457 LYNDEN TRANSPORT Claim 81
KUPL Scheduled LYNN WOODWARD ELECTRIC Scheduled
KVNU Scheduled LYNNWOOD HIGH SCHOOL Scheduled
KWWW-FM/KWWX-AM Scheduled M&L INTERNATIONAL INC Claim 331
KXA 99 RADIO Scheduled MACDONALDS MILLER ALASKA INC Claim 443
KXL RADIO Claim 197 MACDONALDS MILLER SERVICE Scheduled
KXLR-FM Scheduled MACRO COM CORP Claim 496
KXRO/KDUX Claim 474 MADE IN THE SHADE Scheduled
KXXO Scheduled MADGE'S MENDING Claim 830
KYCW ALLIANCE BROADCASTING Claim 524 MAGIC VALLEY LOCK & KEY Scheduled
KYES-TV Claim 900 MAGIC VALLEY REFRIGERATION Scheduled
KYLT/KZOQ RADIO Claim 309 MAIDENFORM INC Claim 845
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Claim Filed Claim No.
/Scheduled No. Creditor Name /Scheduled
<S> <C> <C> <C> <C> <C>
MAIL BOXES ETC USA #826 Scheduled MOTOR VEHICLES DIVISION-SALEM, OR Scheduled
MAIL TRIBUNE Scheduled MOUNTAIN AIRGAS Claim 891
MAILBOXES PLUS Scheduled MOUNTAIN FUEL SUPPLY COMPANY Claim 465
MAINSTREAM SWIMSUITS INC Claim 610 MOUNTAIN WATER COMPANY Claim 333
MALIBU BEACH CLUB/B J DESIGNS Claim 560 MOUNTAIN WATER COMPANY Claim 332
MALLORY & CHURCH CORP Scheduled MOVIE STAR INC Claim 39
MAMAHON'S EMERGENCY LOCKSMITH Scheduled MR VACUUM Scheduled
MANTEY PLUMBING INC Scheduled MSC Scheduled
MARQUEE SCREEN & DESIGN INC Claim 880 MUNICIPAL LIGHT & POWER Scheduled
MARTIN STATIONERS INC Scheduled MUNICIPAL UTILITIES SYSTEM Scheduled
MARTINI CLEANERS Claim 784 MUZAK Scheduled
MARVIN LABA & ASSOCIATES Claim 329 MUZAK LP Claim 810
MATANUSKA ELECTRIC ASSN INC Claim 375 MUZAK-PORTLAND Scheduled
MATANUSKA TELEPHONE ASSOC INC Scheduled MW SAMARA INC Claim 916
MAXINE OF HOLLYWOOD INC Claim 307 MY-COMM INC Scheduled
MB'S Scheduled MYSTIC APPAREL INC Claim 215
MCALERNEY, TIM Scheduled NATIONAL BUSINESS SYSTEMS INC Claim 951
MCC Scheduled NATIONAL COURIER SYSTEMS Scheduled
MCCALLUM ENVELOPE & PRINTING CO Claim 801 NATIONAL INFOMATION DATA CENTER Scheduled
MCCAW COMMUNICATIONS Scheduled NATIONAL SANITARY SUPPLY CO Scheduled
MCCRORY CORP Scheduled NATIONAL STORE FIXTURES & DISPLAY Claim 528
MCCUBBIN HOSIERY INC Claim 366 NATIONAL SYSTEMS INC Scheduled
MCKENZIE RIVER BROADCASTING CO INC Claim 184 NAUTICA WATCHES Scheduled
MECA Claim 513 NEAL'S SHOE REPAIR Scheduled
MEDFORD WATER COMMISSION Scheduled NEEDLE NOOK Scheduled
MEDIA PLUS+ INC Claim 191 NEIFFER, STEPHEN Scheduled
MELE MANUFACTURING Scheduled NEIGHBORHOOD PROMOTIONS Scheduled
MELKONIAN, CHARLEY/COUNTRY CLEANERS Scheduled NEUTROGENA CORP Claim 803
MENDES, ALBERTO A Claim 269 NEW CENTURY MEDIA Claim 364
MERIT MECHANICAL, INC Scheduled NEW REVIEW PUBLISHING/MOSCOW Claim 207
MESPO UMBRELLAS LTD Claim 703 NEW YORK TIMES SALES INC, THE Scheduled
METRO SERVICE COMPANY Claim 413 NEWPRO DESIGNS INC Scheduled
METZLER, STEVEN Scheduled NEWS TRIBUNE, THE Claim 430
MICHAEL FRIEDMAN CORP Claim 453 NICK RAFFO GARBAGE CO Claim 541
MICHAEL G Scheduled NIKE INC Claim 305
MICHELE FASHIONS/ISAAC HAZAN & CO Claim 69 NOEL GOVE CO Scheduled
MICHELLE TEECE Scheduled NOEL JOANNA INC Scheduled
MICKEY & CO/DONNKENNY APPAREL INC Claim 74 NORCO Scheduled
MICROGRAPHICS SYSTEMS INC Scheduled NORDSTROM Claim 428
MIDWEST LOCK & SAFE INC Scheduled NORTH AMERICAN GRAPHICS Scheduled
MIKASA Claim 299 NORTH COAST INDUSTRIES Claim 555
MIKE BACHMAN PLUMBING Claim 495 NORTH IDAHO BROADCASTING CO Claim 372
MILACA MILLS INC Claim 230 NORTHERN BUSINESS MACHINES INC Claim 368
MILES FINANCIAL SERVICES INC (AGFA) Scheduled NORTHERN TELEVISION Claim 548
MINUTEMAN PRESS Scheduled NORTHGATE COBBLERS Scheduled
MIRIAM HASKELL JEWELS Scheduled NORTHGATE PHARMACY Scheduled
MISS ELAINE INC Claim 577 NORTHSHORE UTILITIY DISTRICT Scheduled
MISSOULIAN Claim 481 NORTHWEST CABLE ADVERTISING Claim 52
MMG CORP Claim 531 NORTHWEST GLASS INC Scheduled
MNS DBA MASTERMARK Claim 179 NORTHWEST HANDLING SYSTEMS INC Scheduled
MODERN ELECTRIC WATER COMPANY Claim 475 NORTHWEST NATURAL GAS Scheduled
MOMENTUM/A PRIMESOURE COMPANY Claim 568 NORTHWEST PROMOTIONAL PRODUCTS Claim 444
MONARCH MARKING Claim 966 NORTHWEST TV/KVAL-TV Claim 182
MONET GROUP INC, THE Claim 733 NORTHWEST WHOLESALE FLORIST INC Claim 79
MONET GROUP/MONET JEWELERS Claim 735 NOTATIONS Claim 539
MONET GROUP/TRIFARI Claim 734 NSMLC - TELEPHONE PIONEERS Scheduled
MONTANA POWER Scheduled NUTMEG MILLS Scheduled
MORNING SUN INC Claim 346 NW TRANSPORT SERVICE INC Claim 931
MORSLEY INC Claim 324 O'BRYAN BROTHERS INC Claim 134
MOTOR CARGO Scheduled O'LEARY MATHIS SWEEPING SERVICE Claim 274
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Claim Filed Claim No.
/Scheduled No. Creditor Name /Scheduled
<S> <C> <C> <C> <C> <C>
OAK HARBOR FRIEGHT LINES INC Claim 588 PLATT ELECTRIC SUPPLY Claim 418
OAK HILL SPORTSWEAR CORP Claim 93 PLAYTEX APPAREL INC Claim 901
OAKES, TIMOTHY J Scheduled PLAZA CLEANERS Scheduled
OFF SPRING Scheduled PLEASANCE, MARTHA Scheduled
OFFICETEAM Claim 564 POLAR GRAPHICS Claim 451
OFFICIAL DISTRIBUTING COMPANY Claim 167 PORTLAND GENERAL ELECTRIC Claim 697
OFFSHOOTS Scheduled PORTLAND RADIO/KINK-FM Claim 354
OLYMPIAN Scheduled POST OFFICE & MORE Scheduled
OLYMPIC DISPOSAL Scheduled POST REGISTER, THE Claim 96
OLYMPIC PAPER COMPANY Scheduled POT O GOLD Scheduled
OOOPS A DAISY Claim 767 POULSBO GLASS & UPHOLSTERY Claim 567
OR-BUILDING CODES DIVISION Claim 655 POWER BUSINESS CENTER Scheduled
OREGONIAN PUBLISHING CO., THE Claim 3 POWER CITY ELECTRIC Scheduled
ORION FASHIONS INC Claim 104 PRATT, REGINA Scheduled
OSHKOSH B'GOSH INC Claim 334 PRECISION CARPET CLEANING Scheduled
OUTLAW JEANS Scheduled PREFERRED HOMES Claim 558
OUTRAGEOUS INC Scheduled PRESERVATIVE PAINT Scheduled
OVERNIGHT TRANSPORTATION Claim 647 PRESTIGE LEATHER CREATIONS Claim 917
PACIFIC ALASKA FORWARDERS INC Scheduled PRICE WATERHOUSE LLP Claim 727
PACIFIC BROADCASTING CO Scheduled PRO SERVICE ELECTRIC Scheduled
PACIFIC CLEANERS Scheduled PSI WASTE SYSTEMS INC Scheduled
PACIFIC FLOWER MARKET Scheduled PUD OF SNOHMISH Claim 148
PACIFIC POWER Claim 589 PUGET SOUND BUS JOURNAL Scheduled
PACIFIC PUBLISHING CO Claim 398 PUGET SOUND POWER & LIGHT Claim 392
PAK BUSINESS BUREAU INC Claim 161 PUNCH INC Claim 180
PALOUSE EMPIRE INC Claim 520 PUYALLUP SOUTH HILL SELF STORAGE Scheduled
PAPERPLAINS Scheduled PYRAMID HANDBAGS INC Claim 328
PARAMOUNT PEST CONTROL INC Scheduled QFC - FACTORIA Claim 344
PARFUMS PARQUET Scheduled QUAIL CREST FOODS INC Claim 278
PARIS ACCESSORIES Scheduled QUALITY LINEN & TOWEL SUPPLY Claim 234
PARK CITY TRUCK LINES INC Claim 637 QUESTAR RADIO COMMUNICATIONS Claim 446
PARLUX FRAGRANCES INC Claim 587 QUESTAR RADIO COMMUNICATIONS Claim 683
PASSWORD ANSWER SERVICE Scheduled QUICK MAIL UNLIMITED Scheduled
PAUL SEBASTIAN INC Scheduled QUICK RESPONSE SERVICES INC Claim 516
PAYLESS DRUG Scheduled R & H ENTERPRISES Scheduled
PAYLESS DRUG Scheduled RAIN ROOF ROOFING CO Scheduled
PCA APPAREL INC Claim 335 RAINBOW NEON SIGN CO Scheduled
PECK'S SHOE CLINIC Scheduled RAINBOW PHOTO CO Scheduled
PENINSULA CLARION Claim 711 RAINBOW SWEEPERS Scheduled
PENINSULA DAILY NEWS Scheduled RAINER CHAPTER APA Scheduled
PENINSULA GATEWAY INC, THE Claim 303 RAISIN CO, THE Scheduled
PENINSULA SANITATION CO INC Scheduled RALPH LAUREN FRAGRANCES/COSMAIR Claim 846
PEPSI COLA BOTTLING CO Scheduled RAMA Scheduled
PERI PETITES Claim 781 RAMPAGE Scheduled
PERKINS COIE Claim 499 RANDA CORP Claim 67
PERRIER INC/BASIC ELEMENTS Claim 216 RCM CORP Scheduled
PERUGINA BRANDS OF AMERICA Claim 327 READMORE COMMUNICATIONS Scheduled
PHILLIPS/VAN HEUSEN Claim 773 RED DOOR, THE Scheduled
PHILLIPS/VAN HEUSEN - DESIGNER GRP Claim 938 REEBOK INTERNATIONAL LTD Claim 594
PHILLIPS/VAN HEUSEN - SOMERSET Claim 939 REGIS GARD LTD - KOREA BRANCH Scheduled
PINNACLE PRODUCTIONS INTERNATIONAL Claim 760 REGISTER GUARDIAN Scheduled
PIONEER PRINTING Scheduled RESCOM ELECTRIC INC Claim 295
PIP PRINTING Claim 559 RESCUE ROOTER Claim 231
PITTSBURGH PLASTICS MFG INC Scheduled RETLAW BROADCASTING CO/KIMA-TV Claim 540
PLANT WORLD Scheduled REVLON INC Claim 649
PLANTSALOT Scheduled RG BARRY CORPORATION Claim 671
PLATINUM HOSIERY Scheduled RHO COMPANY Claim 674
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Claim Filed Claim No.
/Scheduled No. Creditor Name /Scheduled
<S> <C> <C> <C> <C> <C>
RHODA LEE INC Claim 301 SERVICE MASTER OF SEATTLE Claim 912
RIBBONS INC/RIBBONS ACCESSORIES Claim 315 SERVICE MASTER PBM OF ANCHORAGE Claim 427
RICS TRANSFER CO INC Claim 808 SHADOWLINE INC Claim 137
RISBERG'S TRUCK LINES Claim 190 SHAGELA CONSTRUCTION/BOWER, DICK Claim 602
RISK IT GEAR INC Claim 35 SHAH SAFARI INC Claim 16
RITTENHOUSE Claim 914 SHAMROCK CONSTRUCTION Claim 593
RIVIERA CONCEPTS OF AMERICA INC Claim 470 SHANNON ACCESORIES Scheduled
ROADWAY EXPRESS INC Claim 836 SHASHO/JONES DIRECT INC Claim 672
ROADWAY PACKAGE SYSTEMS INC Claim 166 SHC INC Scheduled
ROBB'S REPAIR Scheduled SHEDRAIN CORP Scheduled
ROBLN LYN CREATIONS INC Claim 582 SHOE STOP Scheduled
ROFFE ACCESSORIES Scheduled SHUBES MANUFACTURING Scheduled
ROMAN CO Claim 597 SIGN SYSTEMS NORTHWEST Scheduled
ROSE, ROBERT Claim 363 SILVER SCREEN T'S Claim 337
ROSENTHAL & ROSETHAL INC Claim 28 SILVERADO BROADCASTING Claim 38
ROSETTI HANDBAGS & ACCESSORIES INC Claim 479 SILVERDALE WATER DISTRICT #16 Scheduled
ROSS DISPLAY FIXTURE CO INC Claim 584 SILVESTRI CORP Claim 91
ROSS SPORTSWEAR INC Claim 805 SIMON'S Scheduled
ROTO ROOTER Scheduled SKYVIEW HIGH SCHOOL Scheduled
ROTO ROOTER SEWER SERVICE Claim 154 SL PETITES Claim 326
ROWAN PACIFIC RIM DECORATORS INC Claim 489 SLOAN, RON Scheduled
ROYAL TOUCH INC Scheduled SMART SET GLOVES LTD Scheduled
ROYTEX INC Claim 72 SMITHY ACCESSORIES Claim 61
RUBATION REFUSE REMOVAL INC Claim 423 SNACKS GOURMENT Scheduled
RUBY CORP Scheduled SNAKE RIVER GLASS INC Claim 506
RUSSELL-NEWMAN INC Claim 948 SNOW WHITE CLEANERS Scheduled
RYAN LIGHTING GROUP INC Scheduled SOCK & ROLL/PLANT THE EARTH Claim 244
RYDER TRUCK RENTAL INC Scheduled SOLID WASTE Scheduled
S SCHWAB & CO INC Claim 32 SONICAIR Claim 646
S&K MAINTENANCE Claim 319 SOOK'S TAILOR SHOP Scheduled
SAB-TEC STATIONERS Scheduled SOS ALARM Claim 684
SAFECO INSURANCE CO OF AMERICA Claim 885 SOS DATA SERVICE Scheduled
SAFEWAY #1203 Scheduled SOUND BROADCASTING INC/KMAS Claim 826
SAFEWAY #420 Scheduled SOUND PRODUCTS INC Claim 347
SAFEWAY (ANCHORAGE) Scheduled SOUND PUBLISHING Claim 667
SAFEWAY INC (BELLEVUE) Claim 666 SOUND PUBLISHING Claim 668
SALEM SPORTSWEAR Claim 60 SOUNDCOM INC Scheduled
SALLY LOU FASHIONS Claim 192 SOUSLEY SOUND & COMMUNICATIONS Scheduled
SANI PAC Claim 461 SOUTH HILL OFFICE SUPPLY INC Scheduled
SANOFI BEAUTE INC Claim 456 SOUTHEASTERN NEWSPAPERS CORP Claim 825
SANRIO INC Claim 304 SOUTHGATE LTD Scheduled
SANTAS CLEANERS Claim 397 SOUTHWEST SUBURAN SEWER Scheduled
SANTINAS HOUSE OF FLOWERS Scheduled SPACE NEEDLE CORPORATION Scheduled
SARA LEE KNIT PRODUCTS Claim 386 SPAID, K. DBA VILLAGE CLEANERS Claim 384
SASHA HANDBAGS INC Claim 569 SPECIALITY LIGHTING Claim 518
SATELLITE BUSINESS SERVICES INC Claim 511 SPENARD BUILDERS SUPPLY INC Scheduled
SCARVES BY VERA/SALANT CORP Claim 76 SPOKANE PLUMBING & HEATING INC Scheduled
SEASONS INC Claim 658 SPOKANE VALLEY NEWS Claim 293
SEATTLE DISPOSAL Claim 114 SPOKEMAN REVIEW, THE Claim 956
SEATTLE FARWEST SERVICE CORP Claim 175 SQUARE ONE PRINTING Scheduled
SEATTLE LIMOUSINE Scheduled STAFFING RESOURCES INC Claim 390
SEATTLE MODELS GUILD Scheduled STANDARD EXAMINER NEWSPAPER Claim 228
SEATTLE TIMES, THE Claim 952 STANLEY CREATIONS INC Claim 388
SECURITY ALARM Scheduled STAR OF INDIA FASHIONS INC Claim 600
SECURITY LOCK & KEY Claim 472 STAR SANITATION SERVICES INC Scheduled
SEINO AMERICA INC Scheduled STARTER CORP Claim 15
SERVICE MASTER Scheduled STATUS DESIGN GROUP/SWAN INTERN'L Claim 745
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Claim Filed Claim No.
/Scheduled No. Creditor Name /Scheduled
<S> <C> <C> <C> <C> <C>
STERN FRAGRANCES Claim 682 TOWN ASSOCIATES INC Claim 804
STERN, MIKE Scheduled TP FREIGHT Scheduled
STITCHIN' TIME Scheduled TRANE OREGON SERVICE CO Claim 119
STONE GEAR KIDS Scheduled TRANSAMERICA OCCIDENTAL LIFE Scheduled
STONE'S LOCK & KEY Scheduled TRANSPORT INTERNATIONAL POOL INC Claim 55
STROUSE ADLER CO Claim 478 TREASURE CHEST ADVERTISING CO INC Claim 103
STUART ALAN LTD Scheduled TRENDS CLOTHING Scheduled
SUBURBAN WEST MAINTENANCE INC Claim 252 TRI CITY HERALD Claim 130
SUN NEWSPAPER, THE Claim 677 TRI-COASTAL ACCESSORIES INC Claim 550
SUN RIVER ELECTIC SERVICE INC Scheduled TRI-COASTAL DESIGN GROUP INC Claim 549
SUN SPORTSWEAR Scheduled TRIBUNE PUBLISHING CO DBA/LEWISTON Claim 206
SUNBROOK COMMUNICATIONS Scheduled TRIMFIT INC Claim 393
SUNRICH FLOOR (EVERETT) Scheduled TRINA INC Claim 281
SUNRICH FLOOR (WOODINVILLE) Scheduled TRIPLE I COURIER SERVICES Claim 262
SUNSET WIRE ROPE CO Scheduled TRIPLE T FOOTWEAR LTD Claim 402
SUNSHINE DISPOSAL INC Scheduled TROPHIES BY BIG DADDY Scheduled
SUNSTAR INDUSTRIES INC Claim 92 TRUE FORM INTIMATE APPAREL Claim 362
SUPERIOR CLEANERS Claim 226 TRUMPER COMMUNICATIONS/PORTLAND Claim 198
SUPREME INTERNATIONAL CORP Claim 502 TSUMURA INTERNATIONAL Claim 459
SUPREME SLIPPER MFG CO INC Claim 287 TU OF THE NORTHLAND Scheduled
SUSAN CRANE INC Scheduled TUM A LUM Scheduled
SUTTON TIME/DIV OF E. GLUCK Claim 350 TURNER, BOB Scheduled
SVDP Scheduled TWO HANDS INC Claim 544
SWANK Scheduled U GOT IT INC Claim 122
SYMBOL TECHNOLOGIES INC Claim 619 U HAUL INTERNATIONAL INC Scheduled
SYMPHONY SCARFS Scheduled UDELHOVEN OILFIELD SYSTEMS Scheduled
T CAPPELLI HANDBAGS/TILLEPPAC INC Claim 467 UNIFORCE SERVICES INC Claim 146
T&M VENDING Claim 194 UNIFORCE SERVICES INC Claim 147
T&T INSTANT PLUMBING Scheduled UNION BULLETIN Scheduled
TACHER COMPANY INC, THE Claim 838 UNISOURCE CORP Claim 42
TACOA INC Claim 429 UNITED PARCEL SERVICE Claim 627
TACONY CORP Claim 221 UNITED PARCEL SERVICE Claim 681
TANDEM COMPUTERS INC Claim 141 UNITED SYSTEMS INC Claim 753
TANDEM IMPORTS CORP Claim 431 UNITED WAY OF ANCHORAGE Scheduled
TAPSCAN INC Claim 51 UNITED WAY OF BENTON COUNTY Scheduled
TARGET RADIO Scheduled UNITED WAY OF MISSOULA CNTY Claim 371
TBAC PRINCE GARDNER Claim 291 UNITED WAY/COLUMBIA-WILLIAMETTE Scheduled
TCI CABLE VISION OF WA INC Scheduled UNIVERSITY CITY SIGN ADVTG Claim 941
TEC MECHANICAL SERVICE CO Scheduled US ELEVATOR Scheduled
TECHNOLOGY UNLIMITED, INC Claim 483 US TV OF WASHINGTON STATE/KTZZ-TV Claim 202
TEKNO COPY Scheduled US WEST CELLULAR Scheduled
TELE-CONTRACTING SPEC INC Scheduled US WEST COMMUNICATION Scheduled
TELE-WAVES PAGERS Scheduled US WEST COMMUNICATIONS Claim 707
TELEPAGE NW Scheduled US WEST DIRECT Scheduled
TEMP-RIGHT Scheduled UT-INDUSTRIAL COMMISSION-SAFETY Scheduled
TENDER SENDER Claim 277 UTAH POWER & LIGHT Claim 934
TIMES COMMUNITY NEWSPAPERS Claim 65 VAL MODE Scheduled
TIMES NEWS Claim 450 VALLEY CHRISTIAN SCHOOL Scheduled
TIMEX CORPORATION Claim 981 VALLEY DAILY NEWS Scheduled
TJ LAWFORD Scheduled VANITY FAIR MILLS INC Claim 381
TMP WORLDWIDE/NYPSA Scheduled VICTORIA CREATIONS INC Claim 772
TNT REDDAWAY TRUCKLINE Claim 239 VICTORY LAUNDRY Scheduled
TNT UNITED TRUCK LINES INC Claim 25 VIKING FREIGHT SYSTEM Claim 652
TODOROFF, DON Claim 669 VILLA LIGHTING SUPPLY INC Scheduled
TOP BRAND SPORTSWEAR Claim 609 VISION PRODUCTS Claim 357
TOTAL ELECTIC SUPPLY COMPANY Claim 311 VITTORIA INTERNATIONAL ASSESSORIES Claim 54
TOTES INC Claim 345 VORHEES, FRANK/THE CASTER EXCHANGE Scheduled
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Claim Filed Claim No.
/Scheduled No. Creditor Name /Scheduled
<S> <C> <C> <C> <C> <C>
VT INTERNATIONAL LTD Claim 325 ZARAGOZA DESIGN Claim 235
WALL STREET JOURNAL Scheduled ZEE MEDICAL SERVICES Claim 322
WALL, DONALD Scheduled ZELLERBACH Claim 964
WALLACE COMPUTER SERVICES INC Claim 71 ZHG INDUSTRIES Scheduled
WALLACE, MARK M Claim 189
WALPERT INDUSTRIES LTD Claim 297
WALSH CONSTRUCTION CO Claim 533
WALTER HEIMLER INC Claim 13
WARNACO INC Claim 14
WARNER, TOM Scheduled
WARREN FEATHERBONE COMPANY Claim 163
WARREN GORMAN Claim 657
WASHINGTON FIRE & SAFETY EQUIPMENT Claim 534
WASHINGTON NATURAL GAS Claim 115
WASHINGTON SIGN COMPANY, THE Scheduled
WASHINGTON WATER POWER CO Claim 142
WASILLA REFUSE INC Claim 419
WASTE MANAGEMENT OF OREGON Scheduled
WASTE MANAGEMENT OF SEATTLE Claim 448
WASTE MANAGEMENT-KENNEWICK Claim 294
WASTE MANAGEMENT-NORTHWEST Claim 628
WASTE MANAGEMENT-WENATCHEE Claim 523
WASTE PAPER SERVICE Scheduled
WATER DISTRICT #49 Scheduled
WATSON BROTHERS LTD Claim 242
WCI FINANCIAL SERVICES INC Claim 615
WEE WILLES VACUUM Scheduled
WEINGEROFF ENTERPRISES Claim 545
WELDERS SERVICE INC Scheduled
WELLS FARGO AMORED SERVICES CORP Claim 99
WEMCO INC/BARRETT FACTOR Claim 149
WENATCHEE WORLD Claim 464
WESTERN BROADCASTING COMPANY Claim 736
WESTERN BUILDERS SUPPLY INC Claim 259
WESTERN MICRO SERVICES INC Claim 258
WESTERN PAPER CO Claim 255
WESTONE BANK-OGDEN UT Claim 416
WESTPORT CORP Claim 200
WESTWOOD CLEANERS Scheduled
WHISTLES INC Claim 205
WHITMORE OXYGEN CO Claim 748
WILLHIGHT RESEARCH INC Claim 144
WILLIAM CARTER COMPANY, THE Claim 688
WILLIAM E CONNER & ASSOCIATES LTD Claim 530
WILLIAM THOMPSON Scheduled
WILSON ENGRAVING CO Claim 480
WIRE COMMUNICATIONS Claim 90
WORKMAN PUBLISHING CO INC Claim 296
WOSCA SHIPPERS COOPERATIVE Claim 432
WOVENCRAFT Claim 802
WYEAST COLOR INC Claim 229
XEROX CORPORATION Claim 651
XEROX CORPORATION Claim 909
XTRMZ LTD Claim 725
YAKIMA HERALD-REPUBLIC Claim 954
YAKIMA VALLEY JANITORIAL Scheduled
YEHASSO Scheduled
YELLOW FREIGHT SYSTEM INC Claim 701
YOUNG ELECTRIC SIGN COMPANY Claim 224
</TABLE>
C-11
<PAGE>
ANNEX D
SCHEDULE OF PENDING OR THREATENED LITIGATION
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
1. Clayton v. Lamonts Apparel, Inc. 2. Edith and Fred Dowell v. Lamonts Apparel, Inc.
Washington Superior Court, King County Washington Superior Court, Thurston County
Cause No. 93-2-30040-9, filed 12/6/93 Cause No. 96-2-2933-2; Filed 8/16/96
Personal injury Personal injury
Plaintiff: Mrs. Clayton Plaintiff: Edith and Fred Dowell
c/o Peter Lukevich, Esq. c/o Steven R. Meeks
220 Lake City Professional Building Meeks Morgan Bauer
2611 N.E. 125th Street 1235 Fourth Avenue East, #200
Seattle, WA 98125 Olympia, WA 98506
3. Mara Carlos v. Lamonts Apparel, Inc. 4. Lamonts Apparel, Inc. v. Hickel Investment
Washington Superior Court, King County Company
Cause No. 94-2-27049-4 filed 10/21/94 United States District Court for Alaska
Race discrimination, retaliation Cause No. A95-0463 (HRH) filed 3/21/95
Plaintiff: Mara Carlos Recovery of overpayment of CAM charges
2019 S.W. 138th Place., #4C Defendant: Hickel Investment Company
Federal Way, WA 98023 P.O. Box 101700
Anchorage, AK 99510
5. Patty A. McGruder v. Lamonts Apparel, Inc. 6. Lamonts Apparel, Inc. v. Si-Lloyd Associates
EEOC issued a Dismissal and Notice of Rights Oregon Court of Appeals
on 4/22/96; No lawsuit has been filed Cause No. CA A91907 filed 2/16/96
Sexual harassment, retaliation Lease dispute
Potential plaintiff: Patty A. McGruder Defendant: Si-Lloyd Associates
108 W. 16th Street, Apt. #A c/o Katherine McDowell
Coeur d'Alene, ID 83814 Stoel Rives Boley Jones & Grey
Standard Insurance Center
900 S.W. Fifth Avenue, #2300
Portland, OR 97204-1268
7. Glen Hegbloom v. Lamonts Apparel, Inc. 8. Saundra Humphry v. Lamonts Apparel, Inc.
Pending EEOC Charge No. 380951541 filed 9/19/95 Alaska Third Judicial District
No lawsuit has been filed Cause No. 3AN-94-C filed 3/11/94;
Discrimination under Americans with Disabilities Act Personal injury
Potential plaintiff: Glen Hegbloom Plaintiff: Saundra Humphry
3511 Alderwood Mall Blvd., #203 3300 Old Muldoun Rd.
Lynnwood, WA 98036-4725 Anchorage, AK 99504
9. Georgia Proctor v. Lamonts Apparel, Inc. 10. Alycia Farrel v. Lamonts Apparel, Inc.
Washington Superior Court, Pierce County Washington State, Kitsap County District Court
Cause No. 93-2-11166-1 filed 11/9/93 Cause No. C-95-1371-5 filed 10/24/95
Personal injury Personal injury
Plaintiff: Georgia Proctor Plaintiff: Alycia Farrel
1815 N. Vasault c/o David Hedger
Tacoma, WA 98498 104 Tremont Street, #200
Port Orchard, WA 98366
11. Berhane Belai v. Lamonts Apparel, Inc. 12. Karen Kilsgaard v. Lamonts Apparel, Inc.
Washington Superior Court, King County Washington Superior Court, Pierce County
Cause No. 96-2-14058-9, filed 5/22/96 Cause No. 93-2-05817-0, filed 7/13/93
Discrimination and assault Personal injury
Plaintiff: Berhane Belai Plaintiff: Karen Kilsgaard
c/o Michael Holland c/o Alvin Mayher, Jr.
464 12th Avenue, Suite 410 Mayhew - Froehling
Seattle, WA 98122 2728 E. Main Street
Puyallup, WA 98372
</TABLE>
D-1
<PAGE>
ANNEX D
SCHEDULE OF PENDING OR THREATENED LITIGATION
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
13. Carlotta King v. Lamonts Apparel, Inc. 14. Elva McLane v. Lamonts Apparel, Inc.
Oregon Superior Court, Multnomah County Washington Superior Court, Snohomish
Cause No. 9509-06410 filed 9/95 County
Personal injury Cause No. 95-2-076091 filed 10/3/95
Plaintiff: Carlotta King Personal injury
c/o J. Randolph Pickett Plaintiff: Elva McLane
621 S.W. Morrison Street, #900 c/o James E. Deno
Portland, OR 97205 3411 Colby Avenue
Everett, WA 98201
15. Hinman v. Lamonts Apparel, Inc. 16. Lamonts Apparel, Inc. v. Prudential Insurance
No lawsuit has been filed Co. of America
Product liability Oregon Superior Court, Multnomah County
Potential plaintiff: Bill and Tamie Hinman Cause No. 94-09-06103 filed 9/2/94
c/o Christopher L. Otorowski Breach of contract
298 Winslow Way W. Defendant: Stephen Janik
Bainbridge Is., WA 98110 One Main Place
101 S.W. Main Street, #1100
Portland OR 97204-3274
17. Dain Childers Corporation v. Lamonts Apparel, Inc. 18. New Jersey Dept. of Environmental Protection ISRA
Washington Superior Court, Clark County Case Nos. 88A14 and 88990 issued 10/22/88
Cause No. 94-2-02799-2 filed 8/94 No lawsuit has been filed
Breach of contract Regulatory action pursuant to the Industrial Site
Plaintiff: Dain Childers Corporation Recovery Act
24495 Butteville Rd. N.E. Potential plaintiff: New Jersey Dept. of
Aurora, OR 97002 Environmental Protection
Attn: Kenneth J. Kahora
401 E. State Street, CN028
Trenton, NJ 08625
19. Georgetta Whitesell v. Lamonts Apparel, Inc. 20. David Bradlow, assignee for the Benefit of
Idaho District Court, Twin Falls County Creditors of Laurel Burch, Inc. v. Lamonts
Case No. CV-96-2562 filed 7/15/96 Apparel, Inc.
Personal injury California Municipal Court, Alameda County
Plaintiff: Georgetta Whitesell Case No. 456357-8 filed 12/8/94
c/o Rockne Lammers Breach of contract
Hutchinson, Lammers & Clark Plaintiff: David Bradlow
113 Main Avenue W., Suite 202 c/o Andrea J. Ingram
Twin Falls, ID 83303-0207 Rosenblum, Parish & Isaacs
555 Montgomery Street, 15th Floor
San Francisco, CA 94111
21. Any claims or rights of the Debtor under its
rights or otherwise to any offset, credit or
reimbursement for overpayment of taxes,
insurance or common area maintenance
charges.
</TABLE>
D-2
<PAGE>
Judge: The Honorable Thomas T. Glover
Chapter: 11
Hearing Location: Park Place Building
1200 Sixth Avenue
Seattle, Washington
Room 416
Confirmation Hearing Date: January 6, 1997
Confirmation Hearing Time: 3:00 PM
Objection Date: December 2, 1996
UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
In re ) Case No.95-00100
)
LAMONTS APPAREL, INC., )
a Delaware corporation, dba )
LAMONTS, LAMONTS FOR KIDS, fka )
TEXSTYRENE CORPORATION, a ) PLAN DOCUMENTARY
Delaware corporation, ARIS ) SUPPLEMENT TO "DEBTOR'S
CORPORATION, a Delaware ) AMENDED PLAN OF REORGANIZATION
corporation, LAMONTS ) UNDER CHAPTER 11 OF THE
CORPORATION, a Delaware ) BANKRUPTCY CODE"
corporation, and LAMONTS )
APPAREL, INC., a Washington )
corporation, )
)
Debtor. )
)
Taxpayer Identification )
No. 75-2076160 )
)
Debtor's Former Address: )
- --------------------------
3650 131st Avenue S.E. )
Bellevue, WA 98006 )
)
Debtor's Current Address: )
- --------------------------
12413 Willows Road N.E. )
Kirkland, WA 98034 )
________________________________ )
PLAN DOCUMENTARY SUPPLEMENT TO "DEBTOR'S STUTMAN, TREISTER & GLATT
AMENDED PLAN OF REORGANIZATION UNDER CHAPTER PROFESSIONAL CORPORATION
11 OF THE BANKRUPTCY CODE" 3699 WILSHIRE BLVD., SUITE 900
LOS ANGELES, CA 90010
SPECIAL REORGANIZATION COUNSEL FOR
DEBTOR AND DEBTOR IN POSSESSION
<PAGE>
This Plan Documentary Supplement is filed by Lamonts Apparel, Inc., a
Delaware corporation, debtor and debtor in possession, in conjunction with the
"Debtor's Amended Plan of Reorganization under Chapter 11 of the Bankruptcy
Code" (the "Plan"). Attached hereto are the forms of certain documents referred
to in the Plan. All documents attached to this Plan Documentary Supplement are
incorporated into and made a part of the Plan as though set forth in full
therein.
DATED: October 23, 1996 LAMONTS APPAREL, INC.,
a Delaware corporation
By /s/Loren R. Rothschild
---------------------------------
LOREN R. ROTHSCHILD
Vice-Chairman of the
Board of Directors
SUBMITTED BY:
/s/ Jeffrey Davidson
- -----------------------------------
JEFFREY H. DAVIDSON and
MICHAEL H. GOLDSTEIN, Members of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
Special Reorganization Counsel
for Debtor and Debtor in Possession
-and-
/s/ Richard J. Hyatt
- ----------------------------------
RICHARD J. HYATT (WSBA No. 14048)
RYAN SWANSON & CLEVELAND
1201 Third Avenue, Suite 3400
Seattle, WA 98101 (206) 464-4224
Counsel for Debtor and
Debtor in Possession
PLAN DOCUMENTARY SUPPLEMENT TO "DEBTOR'S STUTMAN, TREISTER & GLATT
AMENDED PLAN OF REORGANIZATION UNDER CHAPTER PROFESSIONAL CORPORATION
11 OF THE BANKRUPTCY CODE" 3699 WILSHIRE BLVD., SUITE 900
LOS ANGELES, CA 90010
SPECIAL REORGANIZATION COUNSEL FOR
DEBTOR AND DEBTOR IN POSSESSION
2
<PAGE>
TABLE OF CONTENTS
DOCUMENT TAB
-------- ---
Amended and Restated Certificate of Incorporation 1
Amended and Restated Bylaws 2
New Warrant Agreement 3
Form of New Warrant Certificate 4
Form of New Common Stock Certificate 5
Grant of Registration Rights 6
Employee Stock Option Plan 7
Gordian Warrant Agreement 8
PLAN DOCUMENTARY SUPPLEMENT TO "DEBTOR'S STUTMAN, TREISTER & GLATT
AMENDED PLAN OF REORGANIZATION UNDER CHAPTER PROFESSIONAL CORPORATION
11 OF THE BANKRUPTCY CODE" 3699 WILSHIRE BLVD., SUITE 900
LOS ANGELES, CA 90010
SPECIAL REORGANIZATION COUNSEL FOR
DEBTOR AND DEBTOR IN POSSESSION
3
<PAGE>
TAB 1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
<PAGE>
SECOND RESTATED
CERTIFICATE OF INCORPORATION
OF
LAMONTS APPAREL, INC.
Under Sections 242, 245 and 303 of the General
Corporation Law of the State of Delaware
The undersigned being the [ ] of Lamonts Apparel, Inc. (the
"Corporation"), a corporation organized and existing under the laws of the State
of Delaware, do hereby certify as follows:
FIRST: The name of the corporation is Lamonts Apparel, Inc. The date
of the filing of the Corporation's original Certificate of Incorporation was
December 12, 1985; and the date of the filing of the Corporation's Restated
Certificate of Incorporation was October 30, 1992. The Corporation was
originally incorporated under the name of Texstyrene Corporation.
SECOND: This Restated Certificate of Incorporation, which amends and
restates the Corporation's Certificate of Incorporation, is being filed in
connection with the Corporation's plan of reorganization dated [ ] (as
such plan may be amended from time to time, the "Plan of Reorganization") and
was duly adopted in accordance with the provisions of 242, 245 and 303 of the
General Corporation Law of the State of Delaware ("GLC"). The Plan of
Reorganization was confirmed on [ ], by the United States Bankruptcy
Court for the Western District of Washington at Seattle.
THIRD: The Restated Certificate of Incorporation of the Corporation
is hereby amended and restated so as to read in its entirety as follows:
ARTICLE I
The name of the Corporation is Lamonts Apparel, Inc. (hereinafter the
"Corporation").
<PAGE>
ARTICLE II
The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle, 19801. The name of the registered agent at that address is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the GLC.
ARTICLE IV
The total number of shares of stock which the Corporation shall have
authority to issue is 50 million, consisting of 40 million shares of common
stock, each having a par value of $.01 per share (the "Common Stock"), and 10
million shares of preferred stock, each having a par value $.01 per share (the
"Preferred Stock"). The designation, powers, preferences and relative,
participating, optional or other special rights, including voting rights, and
qualifications, limitations or restrictions of the Preferred Stock, or any
series thereof, shall be established by resolution of the Board of Directors
pursuant to Section 151 of the GCL.
ARTICLE V
The Corporation shall not issue nonvoting equity securities to the
extent prohibited by Section 1123 of the United States Bankruptcy Code (the
"Bankruptcy Code") as in effect on the effective date of the Plan of
Reorganization; PROVIDED, that this Article V: (i) will have no further force
and effect beyond that required under Section 1123 of the Bankruptcy Code; (ii)
will have such force and effect, if any, only for so long as such section of the
Bankruptcy Code is in effect and applicable to the Corporation; and (iii) in all
events may be amended or eliminated in accordance with applicable law as from
time to time in effect.
2
<PAGE>
ARTICLE VI
The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the
By-Laws of the Corporation.
(3) The number of directors of the Corporation shall be as from
time to time fixed by, or in the manner provided in, the By-Laws of
the Corporation. Election of directors need not be by written ballot
unless the By-Laws so provide.
(4) No director of the Corporation serving on or after
January 6, 1995 shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant
to Section 174 of the GCL or (iv) for any transaction from which the
director derived an improper personal benefit. Any repeal or
modification of this Article VI by the stockholders of the Corporation
shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification
with respect to acts or omissions occurring prior to such repeal or
modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the GCL, this Certificate of
3
<PAGE>
Incorporation, and any By-Laws adopted by the stockholders; PROVIDED,
HOWEVER, that no By-Laws hereafter adopted by the stockholders shall
invalidate any prior act of the directors which would have been valid
if such By-Laws had not been adopted.
ARTICLE VII
Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the GCL) outside the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors or in the By-Laws of the Corporation.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be executed in its corporate name this
____________ day of ___________, 1996.
---------------------------
[Name]
[Title]
<PAGE>
TAB 2
AMENDED AND RESTATED BYLAWS
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
LAMONTS APPAREL, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
-------
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
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 the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at
<PAGE>
which meetings 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.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law,
Special Meetings of Stockholders, for any purpose or purposes, shall be called
by the Secretary or any Assistant Secretary, if there be one, at the request in
writing of (i) a majority of the Board of Directors or (ii) stockholders owning
a majority of the capital stock of the Corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
SECTION 4. QUORUM. Except as otherwise provided by law, the holders
of a majority of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum at
all meetings of the stockholders for the transaction of business. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting.
SECTION 5. VOTING. Unless otherwise required by law, the Certificate
of Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any action
required or permitted to be taken at any Annual or Special Meeting of
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Stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 7 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors
shall consist of not less than one nor more than fifteen members, the exact
number of which shall initially be fixed from time to time by the Board of
Directors. Except as provided in Section 2 of this Article, directors shall be
elected by a plurality of the votes cast at Annual Meetings of Stockholders, and
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each director so elected shall hold office until the next Annual Meeting and
until his successor is duly elected and qualified, or until his earlier
resignation or removal. Any director may resign at any time upon notice to the
Corporation. Directors need not be stockholders.
SECTION 2. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier resignation or removal.
SECTION 3. DUTIES AND POWERS. The business of the Corporation shall
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President, or any directors. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by mail not less than forty-eight (48) hours before the date of the
meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such
shorter notice as the person or persons calling such meeting may deem necessary
or appropriate in the circumstances.
SECTION 5. QUORUM. Except as may be otherwise specifically provided
by law, the Certificate of Incorporation or these By-Laws, at all meetings of
the Board of Directors, a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors. If a quorum shall not be present at any meeting of
the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
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SECTION 6. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of 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 7 shall
constitute presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. 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 any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
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 absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
SECTION 9. COMPENSATION. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation
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therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 10. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited
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by law, the Certificate of Incorporation or these By-Laws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board of Directors, need such officers be directors of
the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may
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exercise such other powers as from time to time may be assigned to him by these
By-Laws or by the Board of Directors.
SECTION 5. PRESIDENT. The President shall, subject to the control of
the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall execute all bonds, mortgages, contracts and other instruments
of the Corporation requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by these By-Laws, the Board of Directors or the President.
In the absence or disability of the Chairman of the Board of Directors, or if
there be none, the President shall preside at all meetings of the stockholders
and the Board of Directors. If there be no Chairman of the Board of Directors,
the President shall be the Chief Executive Officer of the Corporation. The
President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these By-Laws or by the
Board of Directors.
SECTION 6. VICE PRESIDENTS. At the request of the President or in
his absence or in the event of his inability or refusal to act (and if there be
no Chairman of the Board of Directors), the Vice President or the Vice
Presidents if there is more than one (in the order designated by the Board of
Directors) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If
there be no Chairman of the Board of Directors and no Vice President, the Board
of Directors shall designate the officer of the Corporation who, in the absence
of the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
SECTION 7. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, under whose
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supervision he shall be. If the Secretary shall be unable or shall refuse to
cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either the Board of Directors or the President may choose another officer to
cause such notice to be given. The Secretary shall have custody of the seal of
the Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature. The Secretary shall see that all
books, reports, statements, certificates and other documents and records
required by law to be kept or filed are properly kept or filed, as the case may
be.
SECTION 8. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
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SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
SECTION 11. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) 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.
SECTION 2. 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.
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SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
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 his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these By-Laws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
SECTION 5. RECORD DATE. 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 entitled to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. 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 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
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ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given
personally or by telegram, telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. 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 from time to time, in its absolute discretion, deems 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 any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
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SECTION 2. DISBURSEMENTS. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any Eligible Indemnitee (as
defined below) who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director or
officer of the Corporation, or is or was a director or officer of the
Corporation serving at the request of the Corporation as a director or officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with
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respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
"Eligible Indemnitee" means any person who is or was a director or
officer of the Corporation on or after January 6, 1995.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR
IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any Eligible Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the Eligible Indemnitee is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1 or
Section 2 of this Article VIII, as the case may be. Such determination shall be
made (i) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that an
Eligible Indemnitee has been successful on the merits or otherwise in defense of
any action, suit or proceeding described above, or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and
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reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 shall mean
any other corporation or any partnership, joint venture, trust, employee benefit
plan or other enterprise of which such person is or was serving at the request
of the Corporation as a director, officer, employee or agent. The provisions of
this Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any Eligible
Indemnitee may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2 of this Article VIII. The basis of such indemnification by a court
shall be a determination by such court that indemnification of the Eligible
Indemnitee is proper in the circumstances because he has met the applicable
standards of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be. Neither a contrary determination in the specific case under
Section 3 of this Article VIII nor the absence of any determination thereunder
shall be a defense to such application or create a presumption that the director
or officer seeking indemnification has not met any applicable standard of
conduct. Notice of any application for indemnification pursuant to this Section
5 shall be given to the Corporation promptly upon the filing of such
application. If successful, in whole or in part, the director or officer
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
15
<PAGE>
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by an
Eligible Indemnitee in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article VIII shall not be
deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power or the obligation to indemnify him against such
liability under the provisions of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent
16
<PAGE>
corporation, or is or was a director or officer of such constituent corporation
serving at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, shall stand in the same position
under the provisions of this Article VIII with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued. For purposes of this
Article VIII, references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
17
<PAGE>
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS. These By-Laws may be altered, amended or
repealed, in whole or in part, or new By-Laws may be adopted by the stockholders
or by the Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX and
in these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
18
<PAGE>
TAB 3
NEW WARRANT AGREEMENT
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
BETWEEN
LAMONTS APPAREL, INC.
AND
_________________________,
as Warrant Agent
Dated as of ____________, 199_
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ISSUANCE, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES . . . . . . . . . . . 4
Section 2.1 Form of Warrant Certificates . . . . . . . . . . . . . . . . 4
Section 2.2 Execution of Warrant Certificates. . . . . . . . . . . . . . 4
Section 2.3 Issuance of Warrant Certificates . . . . . . . . . . . . . . 5
Section 2.4 Transfer and Exchange of Warrant Certificates. . . . . . . . 5
Section 2.5 Lost, Stolen, Mutilated or Destroyed Warrant Certificates. . 6
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
EXERCISE PRICE AND EXERCISE OF WARRANTS. . . . . . . . . . . . . . . . . . . . 6
Section 3.1 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Registration of Warrant Shares . . . . . . . . . . . . . . . 6
Section 3.3 Exercise of Warrants . . . . . . . . . . . . . . . . . . . . 7
Section 3.4 Issuance of Warrant Shares . . . . . . . . . . . . . . . . . 8
Section 3.5 Certificates for Unexercised Warrants. . . . . . . . . . . . 8
Section 3.6 Reservation of Warrant Shares. . . . . . . . . . . . . . . . 9
Section 3.7 No Impairment. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.8 Disposition of Proceeds. . . . . . . . . . . . . . . . . . . 9
Section 3.9 Payment of Taxes and Charges . . . . . . . . . . . . . . . . 9
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ADJUSTMENTS, NOTICE PROVISIONS AND ISSUANCE OF ADDITIONAL SECURITIES . . . . .10
Section 4.1 Adjustment of Exercise Price . . . . . . . . . . . . . . . .10
Section 4.2 Sales of Certain Securities. . . . . . . . . . . . . . . . .11
Section 4.3 No Adjustments to Exercise Price . . . . . . . . . . . . . .13
Section 4.4 Adjustment of Number of Shares . . . . . . . . . . . . . . .13
Section 4.5 Reorganizations. . . . . . . . . . . . . . . . . . . . . . .13
Section 4.6 Intentionally Omitted. . . . . . . . . . . . . . . . . . . .14
Section 4.7 Intentionally Omitted. . . . . . . . . . . . . . . . . . . .14
Section 4.8 Notice of Certain Actions. . . . . . . . . . . . . . . . . .14
Section 4.9 Certificate of Adjustments . . . . . . . . . . . . . . . . .14
Section 4.10 Warrant Certificate Amendments . . . . . . . . . . . . . . .15
(ii)
<PAGE>
Section 4.11 Fractional Shares . . . . . . . . . . . . . . . . . . . . .15
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
SPLIT UP, COMBINATION, EXCHANGE, TRANSFER AND CANCELLATION OF WARRANT
CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Section 5.1 Split Up, Combination, Exchange and Transfer of Warrant
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Section 5.2 Cancellation of Warrant Certificates . . . . . . . . . . . .16
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
PROVISIONS CONCERNING THE WARRANT AGENT. . . . . . . . . . . . . . . . . . . .16
Section 6.1 Resignation or Removal of Warrant Agent. . . . . . . . . . .16
Section 6.2 Notice of Appointment. . . . . . . . . . . . . . . . . . . .17
Section 6.3 Merger of Warrant Agent. . . . . . . . . . . . . . . . . . .17
Section 6.4 Company Responsibilities . . . . . . . . . . . . . . . . . .17
Section 6.5 Certification for the Benefit of Warrant Agent . . . . . . .17
Section 6.6 Liability of Warrant Agent . . . . . . . . . . . . . . . . .18
Section 6.7 Use of Attorneys, Agents and Employees . . . . . . . . . . .18
Section 6.8 Indemnification. . . . . . . . . . . . . . . . . . . . . . .18
Section 6.9 Acceptance of Agency . . . . . . . . . . . . . . . . . . . .19
Section 6.10 Conflict of Interest . . . . . . . . . . . . . . . . . . . .19
ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 7.1 Changes to Agreement . . . . . . . . . . . . . . . . . . . .19
Section 7.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 7.3 Successor to Company . . . . . . . . . . . . . . . . . . . .19
Section 7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . .20
Section 7.5 Defects in Notice. . . . . . . . . . . . . . . . . . . . . .21
Section 7.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . . .21
Section 7.7 Standing . . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 7.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 7.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . .21
Section 7.10 Availability of the Agreement. . . . . . . . . . . . . . . .21
Section 7.11 Entire Agreement . . . . . . . . . . . . . . . . . . . . . .21
Section 7.12 Rights of Warrant Holders. . . . . . . . . . . . . . . . . .22
(iii)
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement") is made as of ________________,
199_ between LAMONTS APPAREL, INC., a Delaware corporation (as reorganized
pursuant to Chapter 11, Title 11 of the United States Code) (the "Company"), and
the Warrant Agent (as defined herein).
WITNESSETH THAT:
WHEREAS, pursuant to a Plan of Reorganization of the Company (the "Plan"),
and a confirmation order confirming the Plan issued by the United States
Bankruptcy Court for the Western District of Washington, the Company proposes to
issue and deliver Warrant Certificates evidencing Warrants (each, as defined
herein) to acquire up to an aggregate of 3,003,557 shares, subject to
adjustment, of Common Stock (as defined herein);
WHEREAS, the Company desires the Warrant Agent to act, and the Warrant
Agent is willing to act, on behalf of the Company in connection with the
issuance, exchange, transfer, substitution and exercise of Warrants; and
WHEREAS, the Company desires to enter into this Agreement to set forth the
terms and conditions of the Warrants and the rights of the holders thereof.
NOW THEREFORE in consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings (all terms defined herein in the
singular are to have the correlative meanings when used in the plural and vice
versa):
"AFFILIATE" means, with respect to any corporation, any Person that,
directly or indirectly, owns or controls 10% or more of the outstanding voting
securities of such corporation or is a Person in which such corporation has a
10% or greater direct or indirect equity interest. In addition, the term
"Affiliate," when used with reference to any Person, shall also mean any other
Person that, directly or indirectly, controls or is controlled by or is under
common control with such Person. As used in the preceding sentence, (A) the
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of the entity
referred to, whether through ownership of voting securities, by contract or
otherwise and (B) the terms "controlling" and "controls" shall have meanings
correlative to the foregoing.
<PAGE>
"AGGREGATE EQUITY TRADING VALUE" means, as of any date, the product of (a)
either (i) if the Common Stock is listed on any national securities exchange or
quoted on a national quotation system, the average of the daily Closing Prices
of the Common Stock for the five (5) Trading Days immediately preceding such
date, or (ii) if the Common Stock is not so listed or quoted, the fair market
value per share of the Common Stock determined in good faith by the Company's
Board of Directors as of a date within 30 days of such date, multiplied by
(b) the total number of issued and outstanding shares of Common Stock as of such
date (assuming for purposes of determining such number of shares the exercise in
full of all in-the-money options outstanding on such date to purchase shares of
Common Stock and, for purposes of determining whether the Class B Initial
Exercise Date has occurred, the exercise of all Class B Warrants which are
exercisable as of such date).
"CLASS A INITIAL EXERCISE DATE" means the first date on which the Aggregate
Equity Trading Value equals or exceeds Twenty Million Dollars ($20,000,000.00).
"CLASS B INITIAL EXERCISE DATE" means the first date on which the Aggregate
Equity Trading Value equals or exceeds Twenty-Five Million Dollars
($25,000,000.00).
"CLASS A WARRANTS" means the Class A Warrants exercisable for shares of
Common Stock issued pursuant to this Agreement and the Plan.
"CLASS B WARRANTS" means the Class B Warrants exercisable for shares of
Common Stock issued pursuant to this Agreement and the Plan.
"CLOSING PRICE" means, for any date, the last sale price reported in the
WALL STREET JOURNAL or other trade publication regular way or, in case no such
reported sale takes place on such date, the average of the last reported bid and
asked prices regular way, in either case on the principal national securities
exchange on which the Common Stock is listed if that is the principal market for
the Common Stock or, if not listed on any national securities exchange or if
such national securities exchange is not the principal market for the Common
Stock, the average of the closing high bid and low asked prices as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
or its successor, if any, or if the Common Stock is not so reported, as
furnished by the National Quotation Bureau, Inc., or if such firm is not then
engaged in the business of reporting such prices, as furnished by any similar
firm then engaged in such business and selected by the Company or, if there is
no such firm, as furnished by any NASD member selected by the Company.
"COMMON STOCK" means the Common Stock of the Company, par value $.01 per
share.
"COMPANY ORDER" means a written order from the Company executed by an
officer of the Company regarding the issuance and delivery of Warrant
Certificates.
2
<PAGE>
"DATE OF EXERCISE" means, with respect to any Warrant, the date on which
such Warrant is exercised.
"EXPIRATION DATE" means __________, 200_ [10 years following the Effective
Date].
"OFFICERS' CERTIFICATE" means a certificate signed by any two of the
Chairman of the Board, the President, any Vice President, the Chief Financial
Officer, the Treasurer, the Secretary, an Assistant Secretary or the Controller
of the Company.
"PERSON" means any natural person, corporation, partnership, trust, joint
venture, limited liability company, or any other entity or organization.
"RESTRICTED SECURITIES" means the Warrants issued to any Affiliate of the
Company on the date hereof and any Warrant Shares which have been issued or are
issuable upon the exercise of such Warrants until such time as any such
Restricted Securities (i) have been sold pursuant to an effective registration
statement under the Securities Act, (ii) are distributed pursuant to Rule 144
(or any similar provision then in force) under the Securities Act or (iii) have
been otherwise transferred without registration under the Securities Act
pursuant to an exemption from the registration requirements of the Securities
Act and if it has so requested, the Company has received an opinion of counsel
(either its own counsel or, if the Company so requests, counsel to the holders
of such Restricted Securities) reasonably acceptable to the Company that such
Restricted Securities may be so transferred without registration or pursuant to
an exemption under the Securities Act, and in each such instance the Warrant
Agent has delivered new Warrant Certificates not bearing the legend prescribed
by Section 2.4 hereof.
"SECURITIES ACT" means the Securities Act of 1993, as amended from time to
time, or any successor statute, and the rules and regulations of the Securities
and Exchange Commission promulgated thereunder.
"TRADING DAYS" means, with respect to the Common Stock (i) if the Common
Stock is quoted on the National Market System of the National Association of
Securities Dealers, Inc. or any similar system of automated dissemination of
quotations of securities prices, days on which trades may be made on such system
or (ii) if the Common Stock is listed or admitted for trading on any national
securities exchange, days on which such national securities exchange is open for
business.
"WARRANT AGENT" means ____________________ or any successor Warrant Agent
appointed pursuant to Section 6.2 hereof.
"WARRANT AGENT'S OFFICE" means, for so long as ______________ shall be the
Warrant Agent, the principal business address of __________________________ as
specified in Section 7.4 and, thereafter, the office or agency maintained by the
successor Warrant Agent in
3
<PAGE>
the Borough of Manhattan, New York, New York or the principal office of the
successor Warrant Agent.
"WARRANT CERTIFICATES" means the certificates representing the Warrants.
"WARRANT SHARES" means the shares of Common Stock issuable upon the
exercise of any Warrant.
"WARRANTS" means, collectively, the Class A Warrants and Class B Warrants.
ARTICLE II
ISSUANCE, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES
Section 2.1 FORM OF WARRANT CERTIFICATES. The Warrant Certificates shall
be issued in registered form only and shall be substantially in the form of
EXHIBIT A attached hereto. In addition, the Warrant Certificates may have such
letters, numbers or other marks of identification or designation and such
legends, summaries, or endorsements stamped, printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as, in any particular case, may be required to
comply with any law or with any rule or regulation of any regulatory authority
or agency, or to conform to customary usage, provided, however, that no such
change shall be made which affects the duties or obligations of the Warrant
Agent without the consent of the Warrant Agent or the Company without the
consent of the Company. Each Warrant shall evidence the right, subject to the
provisions of this Agreement and of the Warrant Certificate, to purchase one
share of Common Stock at the Exercise Price (as defined in Section 3.1), subject
to adjustment pursuant to the provisions of Article IV hereof.
Section 2.2 EXECUTION OF WARRANT CERTIFICATES. The Warrant Certificates
shall be executed on behalf of the Company by its Chairman or President or any
Vice President and attested to by its Secretary or Assistant Secretary, either
manually or by facsimile signature printed thereon. The Warrant Certificates
shall be manually countersigned and dated the date of countersignature by the
Warrant Agent and shall not be valid for any purpose unless so countersigned and
dated. In case any authorized officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer of the Company either
before or after delivery thereof by the Company to the Warrant Agent, the
signature of such person on such Warrant Certificates shall be valid
nevertheless and such Warrant Certificate may be countersigned by the Warrant
Agent, and issued and delivered to the person entitled to receive the Warrant
represented thereby with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be such officer of the
Company.
4
<PAGE>
Section 2.3 ISSUANCE OF WARRANT CERTIFICATES. Upon receipt of a written
Company Order, the Warrant Agent shall within five (5) business days complete
and countersign Warrant Certificates representing the total number of Warrants
to be issued and shall thereafter deliver such Warrant Certificates in
accordance with such Company Order. The Warrant Agent shall maintain books (the
"Warrant Register") for the registration of Warrant Certificates and the
registration of transfers of Warrant Certificates.
Section 2.4 TRANSFER AND EXCHANGE OF WARRANT CERTIFICATES.
(a) Warrant Certificates evidencing Restricted Securities and only
such Warrant Certificates will bear a legend in substantially the following
form:
NEITHER THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE ISSUANCE OF ANY SECURITIES ISSUABLE UPON EXERCISE HEREOF HAS
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i)
A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES
UNDER THE SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER OR
(ii) AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(b) Following the transfer or exchange of a Restricted Security or
Securities (other than pursuant to an effective registration statement under the
Securities Act) the transferor of such Restricted Security or Securities shall,
upon request of the Company, deliver to the Company an opinion of counsel, in
substance reasonably satisfactory to the Company, to the effect that such
Restricted Security to be issued upon such transfer or exchange may be so issued
without the foregoing legend.
(c) Subject to paragraph (a) above, the Warrant Agent shall register
the transfer of all or any whole number of Warrants covered by any outstanding
Warrant Certificate in the Warrant Register upon surrender at the Warrant
Agent's Office of Warrant Certificates accompanies by a written instrument or
instruments of transfer, in form satisfactory to the Company and the Warrant
Agent, duly executed by the registered Warrant holder or his attorney duly
authorized in writing. Upon any such registration of transfer a new Warrant
Certificate shall be countersigned by the Warrant Agent and issued to the
transferee and the surrendered Warrant Certificate shall promptly be canceled by
the Warrant Agent. Warrant Certificates may be exchanged at the option of the
holder thereof, upon surrender, properly endorsed by the registered holders, at
the Warrant Agent's Office, with written instructions, for other Warrant
Certificates countersigned by the Warrant Agent representing in the aggregate a
like number of Warrants. The Company or the Warrant Agent may require
5
<PAGE>
the payment of a sum sufficient to cover any tax or governmental charge that may
be imposed in connection with any such exchange or transfer.
Section 2.5 LOST, STOLEN, MUTILATED OR DESTROYED WARRANT CERTIFICATES. If
any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company in its discretion may direct the Warrant Agent to execute and deliver,
in exchange and substitution for and upon cancellation of a mutilated Warrant
Certificate, or in lieu of or in substitution for a lost, stolen or destroyed
Warrant Certificate, a substitute Warrant Certificate, but only upon receipt of
evidence of such loss, theft or destruction of such Warrant Certificate, and of
the ownership thereof, and indemnity, if requested by either the Company or the
Warrant Agent, all satisfactory to the Company and the Warrant Agent.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges incidental
thereto as the Company or Warrant Agent may prescribe. Any such new Warrant
Certificate shall constitute an original contractual obligation of the Company,
whether or not the allegedly lost, stolen, mutilated or destroyed Warrant
Certificate shall be at any time enforceable by anyone.
ARTICLE III
EXERCISE PRICE AND EXERCISE OF WARRANTS
Section 3.1 EXERCISE PRICE. Each Warrant Certificate shall, when signed
by the Chairman or President or any Vice President and attested to by the
Secretary or Assistant Secretary of the Company and countersigned by the Warrant
Agent, entitle the registered holder thereof subject to the provisions thereof
and of this Agreement, to purchase from the Company at any time after (a) in the
case of the Class A Warrants, the opening of business on the Class A Initial
Exercise Date and (b) in the case of the Class B Warrants, the opening of
business on the Class B Initial Exercise Date, and in each case before
5:00 p.m., New York time, on the Expiration Date, one share of Common Stock for
each of the Warrants specified therein, at a purchase price of $0.01 per share
(the "Exercise Price") or such adjusted number of shares at such adjusted
exercise price as may be established from time to time pursuant to the
provisions of Article IV hereof, payable in full in accordance with Section 3.3
hereof, at the time of exercise of the Warrant. Except as the context otherwise
requires, the term "Exercise Price" as used in this Agreement shall mean the
purchase price of one Warrant Share pursuant to the Warrant Certificates
reflecting all appropriate adjustments made in accordance with the provisions of
Article IV hereof.
Section 3.2 REGISTRATION OF WARRANT SHARES. The Company shall secure the
effective registration of the Warrants and the Warrant Shares under the
Securities Act and applicable state laws and maintain such registration or
qualification in effect, all in accordance with and to the extent required by
the Registration Rights Grant adopted pursuant to the Plan. Promptly after a
registration statement under the Securities Act covering the Warrants has become
6
<PAGE>
effective, the Company shall cause notice thereof together with a copy of the
prospectus covering the Warrants to be mailed to the Warrant Agent.
Section 3.3 EXERCISE OF WARRANTS.
(a) Commencing (i) in the case of the Class A Warrants, at the
opening of business on the Class A Initial Exercise Date and (ii) in the case of
the Class B Warrants, at the opening of business on the Class B Initial Exercise
Date, Warrants may be exercised by surrendering the Warrant Certificate
evidencing such Warrants at the Warrant Agent's Office with the Election to
Purchase form set forth on the reverse of the Warrant Certificate duly completed
and executed by the registered holder thereof or his attorney duly authorized in
writing, accompanied by payment in full, as set forth below, to the Warrant
Agent for the account of the Company the Exercise Price for each share of Common
Stock as to which Warrants are exercised and any taxes that the registered
holder is required to pay as set forth in Section 3.9. Such Exercise Price
shall be paid in full by (i) cash or a certified check or a wire transfer in
same day funds in an amount equal to the then applicable Exercise Price
multiplied by the number of Warrant Shares then being purchased, (ii) delivery
to the Company of that number of shares of Common Stock, duly endorsed, having
an aggregate Fair Market Value (as defined in Section 4.1(d)) equal to the then
applicable Exercise Price multiplied by the number of Warrant Shares then being
purchased or (iii) by any combination of (i) and (ii). In the alternative, the
holder of a Warrant Certificate may exercise its right to purchase some or all
of the Warrant Shares subject to such Warrant Certificate, on a net basis, such
that, without the exchange of any funds, such holder receives that number of
Warrant Shares subscribed to pursuant to such Warrant Certificate less that
number of shares of Common Stock having an aggregate Fair Market Value at the
Date of Exercise equal to the aggregate Exercise Price that would otherwise have
been paid by such holder for the number of Warrant Shares subscribed to pursuant
to such Warrant Certificate. A registered Warrant holder may exercise all or
any number of whole Warrants represented by a Warrant Certificate.
(b) Upon receiving notice that any Warrants are to be exercised, the
Warrant Agent will promptly provide a notice of exercise to the Company (the
"Exercise Notice"). The Exercise Notice shall set forth the name of the
registered holder, the number of Warrants to be exercised, the number of shares
to be issued, the Date of Exercise, the method of payment and the Warrant
Certificate number. Promptly following the receipt by the Company of an
Exercise Notice, the Company shall provide to the Warrant Agent, in the event
that shares of Common Stock are surrendered in payment of the Exercise Price,
with the aggregate Fair Market Value with respect to such shares of Common
Stock. If, upon exercise of any Warrants, shares of Common Stock are
surrendered to the Warrant Agent, the Warrant Agent shall promptly deliver such
shares of Common Stock to the Company. If, upon exercise of any Warrants,
shares of Common Stock are surrendered in an amount in excess of the amount to
be applied to the Exercise Price of Warrants exercised, then the Warrant Agent
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shall so notify the Company and the Company shall deliver the amount of such
excess in the form of shares of Common Stock to the holder.
(c) A Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of the due surrender for exercise of
the Warrant Certificate and payment to the Warrant Agent for the account of the
Company of the Exercise Price and any applicable taxes that the registered
holder is required to pay as set forth in Section 3.9. Each Person in whose
name any such certificate for shares of Common Stock is issued shall for all
purposes be deemed to have become the holder of record of such shares at the
close of business on the date on which the Warrant Certificate was duly
surrendered to the Warrant Agent and payment of the Exercise Price and any such
applicable taxes was made to the Warrant Agent for the account of the Company,
irrespective of the date of delivery of such share certificate, except that, if
the date of such surrender and payment is a date when the stock transfer books
of the Company are closed, such person shall be deemed to have become the holder
of such shares at the close of business on the next succeeding date on which the
stock transfer books are open (whether before or after the Expiration Date).
(d) The Warrant Agent may deem and treat the person named as the
registered holder on the face of any Warrant as the true and lawful owner
thereof for all purposes. If the Warrant Agent is instructed to deliver shares
upon the exercise of Warrants or to deliver a Warrant Certificate representing
unexercised Warrants, in either case registered in a name or names other than
the name or names in which a Warrant Certificate tendered in connection with
such exercise is registered, the Warrant Agent may require such documents, and
such evidence of payment of applicable transfer taxes, as it may deem necessary
to enable it to carry out the instructions of the bearer.
Section 3.4 ISSUANCE OF WARRANT SHARES. As soon as practicable and no
later than ten (10) business days after the Date of Exercise of any Warrants,
the Company shall issue, or cause its transfer agent to issue a certificate or
certificates for the number of full Warrant Shares to which the holder is
entitled, registered in accordance with the instructions set forth in the
Election to Purchase, together with cash, as provided in Section 4.11 hereof, in
respect of any fractional share. All Warrant Shares issued upon the exercise of
any Warrants shall be validly authorized and issued, fully paid and non-
assessable, free of preemptive rights and free from all taxes, liens, security
interests and charges created by the Company in respect of the issuance thereof.
Section 3.5 CERTIFICATES FOR UNEXERCISED WARRANTS. In the event that
fewer than all of the Warrants represented by a Warrant Certificate are
exercised, the Warrant Agent shall execute and mail, by first-class mail, within
ten (10) Business days of the Date of Exercise, to the registered holder of such
Warrant Certificate, or such other Person as shall be designated in the Election
to Purchase, a new Warrant Certificate representing the number of Warrants not
exercised.
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Section 3.6 RESERVATION OF WARRANT SHARES. The Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants a number
of its authorized but unissued shares or treasury shares, or both, of Common
Stock that will be sufficient to permit the exercise in full of all outstanding
Warrants.
Section 3.7 NO IMPAIRMENT. The Company shall not by any action,
including, without limitation, amending its certificate of incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, stock split, stock dividend or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of the Warrants, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such actions as may
be reasonably necessary or appropriate to protect the rights of the Warrant
holders against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares receivable
upon the exercise of the Warrants above the amount payable therefor upon such
exercise immediately prior to such increase in par value, (b) from time to time
take all such action as may be reasonably necessary to assure that the par value
of the Common Stock is at all times equal to or less than the Exercise Price
(including without limitation approving and submitting to the stockholders of
the Company for approval an amendment to the Company's Restated Certificate of
Incorporation to reduce such par value), (c) take all such action as may be
necessary in order that the Company may validly and legally issue fully paid and
non-assessable Warrant Shares upon the exercise of any Warrant, and (d) use its
reasonable best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under the Warrants.
Section 3.8 DISPOSITION OF PROCEEDS. The Warrant Agent shall account
promptly to the Company with respect to Warrants exercised and shall
concurrently deliver to the Company all funds (after payment of the Warrant
Agent's fees and expenses as provided herein) and deliver to the Company for
cancellation all shares of Common Stock applied to the purchase of Warrant
Shares upon exercise of Warrants.
Section 3.9 PAYMENT OF TAXES AND CHARGES. The Company will from time to
time promptly pay to the Warrant Agent, or make provisions satisfactory to the
Warrant Agent for the payment of, all taxes and charges that may be imposed by
the United States or any state upon the Company or the Warrant Agent in
connection with the issuance or delivery of Warrant Shares upon the exercise of
any Warrants, provided, however, any additional transfer taxes in connection
with the issuance of Warrant Certificates or Certificates for Warrant Shares in
any name other than that of the registered holder of the Warrant Certificate
surrendered shall be paid by such registered holder; and, in such case, the
Company shall not issue or deliver any Warrant Certificate or Certificates for
Warrant Shares and the Warrant Agent shall not be required to deliver any
Warrant Certificates or Warrant Shares until such taxes shall have been paid or
it has been established to the Company's and the Warrant
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Agent's satisfaction that no tax is due. The Warrant Agent shall have no duty
to determine if any tax is due.
ARTICLE IV
ADJUSTMENTS, NOTICE PROVISIONS AND ISSUANCE
OF ADDITIONAL SECURITIES
Section 4.1 ADJUSTMENT OF EXERCISE PRICE. Subject to the provisions of
this Article IV, the Exercise Price in effect from time to time shall be subject
to adjustment, as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of Common Stock in shares of Common Stock
or any class thereof, (ii) subdivide or reclassify the outstanding shares of
Common Stock or any class thereof into a greater number of shares, or
(iii) combine or reclassify the outstanding shares of its Common Stock into a
smaller number of shares, the Exercise Price in effect immediately after the
record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately before such dividend,
distribution, subdivision, combination or reclassification, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such dividend, distribution, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
specified above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights, options, warrants or convertible or exchangeable securities to all
holders of its Common Stock entitling them (for a period expiring within forty-
five (45) days after such record date) to subscribe for or purchase shares of
its Common Stock at a price per share less than the Fair Market Value on such
record date the Exercise Price shall be adjusted immediately thereafter so that
it shall equal the price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so offered would purchase at the Fair Market Value per
share, and of which the denominator shall be the number of shares of Common
Stock outstanding on such record date plus the number of additional shares of
Common Stock offered for subscription or purchase. Such adjustment shall be
made successively whenever such a record date is fixed. To the extent that any
such rights, options, warrants or convertible or exchangeable securities are not
so issued or expire unexercised, the Exercise Price then in effect shall be
readjusted to the Exercise Price which would then be in effect if such unissued
or unexercised rights, options, warrants or convertible or exchangeable
securities had not been issuable.
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(c) In case the Company shall fix a record date for the making of a
distribution to all holders of shares of Common Stock (i) of shares of any class
other than Common Stock or (ii) of evidences of its indebtedness or (iii) of
assets (excluding cash dividends or distributions (other than extraordinary cash
dividends or distributions), and dividends or distributions referred to in
Subsection 4.1(a) hereof) or (iv) of rights, options, warrants or convertible or
exchangeable securities (excluding those rights, options, warrants or
convertible or exchangeable securities referred to in Subsection 4.1(b) hereof),
then in each such case the Exercise Price in effect immediately thereafter shall
be determined by multiplying the Exercise Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the total number of
shares of Common Stock outstanding on such record date multiplied by the Fair
Market Value per share on such record date, less the aggregate fair market value
as determined in good faith by the Board of Directors of the Company of said
shares or evidences of indebtedness or assets or rights, options, warrants or
convertible or exchangeable securities so distributed, and of which the
denominator shall be the total number of shares of Common Stock outstanding on
such record date multiplied by such Fair Market Value per share. Such
adjustment shall be made successively whenever such a record date is fixed. In
the event that such distribution is not so made, the Exercise Price then in
effect shall be readjusted to the Exercise Price which would then be in effect
if such record date had not been fixed.
(d) For the purpose of any computation under Section 4.1(b) or 4.1(c)
hereof, the "Fair Market Value" per share at any date (the "Computation Date")
shall be as follows: (i) if the Common Stock is listed on a national securities
exchange or quoted on a national quotation system, the Current Market Price,
which shall be deemed to be the average of the Closing Prices of the Common
Stock for the five (5) Trading Days immediately preceding the Computation Date;
PROVIDED, HOWEVER, that if there shall have occurred prior to the Computation
Date any event described in Section 4.1(a), 4.1(b) or 4.1(c) which shall have
become effective with respect to market transactions at any time (the "Market-
Effect Date") on or after the beginning of such 5-day period, the Closing Price
for each Trading Day preceding the Market-Effect Date shall be adjusted, for
purposes of calculating such average, by multiplying such Closing Price by a
fraction the numerator of which is the Exercise Price as in effect immediately
prior to the Computation Date and the denominator of which is the Exercise Price
as in effect immediately prior to the Market-Effect Date, it being understood
that the purpose of this proviso is to ensure that the effect of such event on
the market price of the Common Stock shall, as nearly as possible, be eliminated
in order that the distortion in the calculation of the Fair Market Value may be
minimized or (ii) if there is no public market for Common Stock, the fair market
value per share of Common Stock as determined in good faith by the Company's
Board of Directors.
Section 4.2 SALES OF CERTAIN SECURITIES.
(a) In case the Company shall on or after the date hereof issue
Common Stock or rights, options, warrants or convertible or exchangeable
securities containing the
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right to subscribe for or purchase shares of Common Stock (excluding Excluded
Securities, as defined in Subsection 4.2(b) below) to any Affiliate, officer,
director or employee of the Company at a price per share less than the Closing
Price of a share of Common Stock on the date of such issuance, then the Exercise
Price shall be adjusted immediately thereafter so that it shall equal the price
determined by multiplying the Exercise Price in effect immediately prior thereto
by a fraction, of which the numerator shall be the number of shares of Common
Stock outstanding immediately prior to such issuance plus the number of
additional shares of Common Stock the Aggregate Consideration Receivable (as
defined in Subsection 4.2(d) below) would purchase at the Closing Price per
share on such date, and of which the denominator shall be the number of shares
of Common Stock outstanding immediately prior to such issuance plus the number
of additional shares of Common Stock sold or offered for subscription or
purchase. Such adjustment shall be made successively whenever such issuance
shall occur. To the extent that any such rights, options, warrants or
convertible or exchangeable securities are not so issued or expire unexercised,
the Exercise Price then in effect shall be readjusted to the Exercise Price
which would then be in effect if such unissued or unexercised rights, options,
warrants or convertible or exchangeable securities had not been issuable.
(b) "Excluded Securities" means (i) rights, options, warrants, or
convertible or exchangeable securities issued in any of the transactions
described in Section 4.1(b), 4.1(c) and 4.5 hereof, (ii) shares of Common Stock
issuable upon exercise of the Warrants; (iii) shares of Common Stock issuable
upon exercise of rights, options or warrants or conversion or exchange of
convertible or exchangeable securities issued or sold under circumstances
causing an adjustment pursuant to this Section 4.2, and (iv) options to purchase
up to 1,000,000 shares of Common Stock of the Company that are issued to
employees and directors of the Company and its subsidiaries pursuant to the
Lamonts Apparel, Inc. 1996 Stock Option Plan.
(c) The price per share of Common Stock referred to in Subsection
4.2(a) above shall be determined by dividing (i) the Aggregate Consideration
Receivable in respect of the Common Stock, rights, options, warrants or
convertible or exchangeable securities issued, by (ii) the total number of
shares of Common Stock issued or covered by such rights, options, warrants or
convertible or exchangeable securities.
(d) "Aggregate Consideration Receivable" means the aggregate amount
paid to the Company for the Common Stock, rights, options, warrants or
convertible or exchangeable securities, plus the aggregate consideration or
premiums stated in such rights, options, warrants or convertible or exchangeable
securities to be payable for the shares of Common Stock covered thereby.
(e) In case the Company shall sell and issue Common Stock or rights,
options, warrants or convertible or exchangeable securities containing the right
to subscribe for or purchase shares of Common Stock, for a consideration
consisting, in whole or in part,
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of property (other than cash) or services or its equivalent, then in determining
the "price per share of Common Stock" referred to in Sections 4.2(a) and 4.2(c)
above and the "Aggregate Consideration Receivable" referred to in Sections
4.2(a), 4.2(b), 4.2(c) and 4.2(d) above, the Board of Directors of the Company
shall determine, in good faith and on a reasonable basis, the fair value of said
property.
Section 4.3 NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in the
Exercise Price in accordance with the provisions of Section 4.1(a), 4.1(b) or
4.1(c) or Section 4.2(a) hereof need be made unless such adjustment would amount
to a change of at least .5% in such Exercise Price of the Warrant Certificates;
PROVIDED, HOWEVER, that the amount by which any adjustment is not made by reason
of the provisions of this Section 4.3 shall be carried forward and taken into
account at the time of any subsequent adjustment in the Exercise Price.
Section 4.4 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to Subsection 4.1(a), (b) or (c) or Subsection 4.2(a)
hereof, each Warrant shall thereupon evidence the right to purchase that number
of Warrant Shares (calculated to the nearest hundredth of a share) obtained by
multiplying the number of Warrant Shares purchasable immediately prior to such
adjustment upon exercise of the Warrant by the Exercise Price in effect
immediately prior to such adjustment and dividing the product so obtained by the
Exercise Price in effect immediately after such adjustment.
Section 4.5 REORGANIZATIONS. In case of any capital reorganization, other
than in the cases referred to in Section 4.1 hereof, or the consolidation or
merger of the Company with or into another corporation (other than a merger or
consolidation in which the Company is the continuing corporation and which does
not result in any reclassification of the outstanding shares of Common Stock or
the conversion of such outstanding shares of Common Stock into shares of other
stock or other securities or property), or the sale or conveyance of the
property of the Company as an entirety or substantially as an entirety
(collectively such actions being hereinafter referred to as "Reorganizations"),
there shall thereafter be deliverable upon exercise of any Warrant (in lieu of
the number of Warrant Shares theretofore deliverable) the number of shares of
stock or other securities or property to which a holder of the number of Warrant
Shares which would otherwise have been deliverable upon the exercise of such
Warrant would have been entitled upon such Reorganization if such Warrant was
fully exercisable and had been exercised in full immediately prior to such
Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, shall be made
in the application of the provisions herein set forth with respect to the rights
and interests of Warrant holders so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares or
other property thereafter deliverable upon exercise of Warrants. Any such
adjustment shall be made by and set forth in a supplemental agreement prepared
by the Company or any successor thereto, between the Company, or any successor
thereto, and the Warrant Agent and shall for all purposes hereof conclusively be
deemed to be an appropriate adjustment. The Company shall not effect any such
Reorganization, unless upon or prior to the consummation thereof the
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successor corporation, or if the Company shall be the surviving corporation in
any such Reorganization and is not the issuer of the shares of stock or other
securities or property to be delivered to holders of shares of the Common Stock
outstanding at the effective time thereof, then such issuer, shall assume by
written instrument the obligation to deliver to the registered holder of any
Warrant Certificate such shares of stock, securities, cash or other property as
such holder shall be entitled to purchase in accordance with the foregoing
provisions.
Section 4.6 INTENTIONALLY OMITTED.
Section 4.7 INTENTIONALLY OMITTED.
Section 4.8 NOTICE OF CERTAIN ACTIONS. In the event the Company shall:
(a) declare any dividend payable in stock to the holders of the
Common Stock or make any other distribution in property other than cash to the
holders of the Common Stock;
(b) offer to the holders of the Common Stock rights to subscribe for
or purchase any shares of any class of stock or any other rights or options; or
(c) effect any reclassification of the Common Stock (other than a
reclassification involving merely the subdivision or combination of outstanding
shares of Common Stock) or any capital reorganization or any consolidation or
merger (other than a merger in which no distribution of securities or other
property is made to holders of Common Stock), or any sale, transfer or other
disposition of its property, assets and business substantially as an entirety,
or the liquidation, dissolution or winding up of the Company;
then, in each such case, the Company shall mail notice of such proposed action
to the Warrant Agent at least thirty (30) days prior to such action and shall
cause the Warrant Agent to mail such notice to each registered holder of a
Warrant Certificate. Such notice shall specify the date on which the books of
the Company shall close, or a record be taken, for determining holders of Common
Stock entitled to receive such stock dividend or other distribution or such
rights or options, or the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition, liquidation,
dissolution, winding up or exchange shall take place or commence, as the case
may be, and the date as of which it is expected that holders of record of Common
Stock shall be entitled to receive securities or other property deliverable upon
such action, if any such date has been fixed. Such notice to the Warrant Agent
shall be mailed in the case of any action covered by paragraph (a) or (b) of
this Section 4.8, at least fifteen (15) days prior to the record date for
determining holders of the Common Stock for purposes of receiving such payment
or offer, and in the case of any action covered by paragraph (c) of this
Section 4.8, at least fifteen (15) days prior to the earlier of the
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date upon which such action is to take place or any record date to determine
holders of Common Stock entitled to receive such securities or other property.
Section 4.9 CERTIFICATE OF ADJUSTMENTS. Whenever any adjustment is to be
made pursuant to this Article IV, the Company shall prepare an Officers'
Certificate setting forth such adjustment to be mailed to the Warrant Agent, to
each other transfer agent for the Common Stock and to each registered holder of
a Warrant Certificate at least fifteen (15) days prior thereto, such notice to
include in reasonable detail (i) the events precipitating the adjustment,
(ii) the computation of any adjustments, and (iii) the Exercise Price and the
number of Warrant Shares or the securities or other property purchasable upon
exercise of each Warrant after giving effect to such adjustment. With respect
to adjustments made pursuant to Section 4.2(a) hereof, such notice shall be made
as soon as practicable thereafter. The Warrant Agent shall be fully protected
in relying on any such Officers' Certificate and on any adjustment therein
contained, and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such an Officers' Certificate.
Section 4.10 WARRANT CERTIFICATE AMENDMENTS. Irrespective of any
adjustments pursuant to this Article IV, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates thereafter
issued shall bear an appropriate legend or other notice of any adjustments;
provided the Company may, at its option, issue new Warrant Certificates
evidencing Warrants in such form as may be approved by its Board of Directors to
reflect any adjustment in the Exercise Price and number of Warrant Shares
purchasable under the Warrant Certificates and deliver the same to the Warrant
Agent in substitution for existing Warrant Certificates.
Section 4.11 FRACTIONAL SHARES. The Company shall not be required upon
the exercise of any Warrant to issue fractional Warrant Shares which may result
from adjustments in accordance with this Article IV to the Exercise Price or
number of Warrant Shares purchasable under each Warrant or otherwise. If more
than one Warrant is exercised at one time by the same registered holder, the
number of full Warrant Shares which shall be deliverable shall be computed based
on the number of shares deliverable in exchange for the aggregate number of
Warrants exercised. With respect to any final fraction of a Warrant Share
called for upon the exercise of any Warrant or Warrants, the Company shall pay a
cash adjustment to the registered holders of the Warrants in respect of such
final fraction in an amount equal to the same fraction of the Closing Price of a
Warrant Share, as determined by the Company on the basis of the Closing Price
per share of Common Stock on the business day next preceding the date of such
exercise. The registered holder of each Warrant Certificate, by his acceptance
of the Warrant Certificate, shall expressly waive any right to receive any
fractional Warrant Share upon exercise of the Warrants. All calculations under
this Section 4.11 shall be made to the nearest hundredth of a share.
ARTICLE V
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SPLIT UP, COMBINATION, EXCHANGE, TRANSFER AND
CANCELLATION OF WARRANT CERTIFICATES
Section 5.1 SPLIT UP, COMBINATION, EXCHANGE AND TRANSFER OF WARRANT
CERTIFICATES. Warrant Certificates, subject to the provisions of Section 5.2,
may be split up, combined or exchanged for other Warrant Certificates of the
same type representing a like aggregate number of Warrants or may be transferred
in whole or in part. Any holder desiring to split up, combine or exchange a
Warrant Certificate or Warrant Certificates shall make such request in writing
delivered to the Warrant Agent at the Warrant Agent's Office and shall surrender
the Warrant Certificate or Warrant Certificates so to be split up, combined or
exchanged at said office. Subject to any applicable laws, rules or regulations
restricting transferability, any restriction on transferability that may appear
on a Warrant Certificate in accordance with the terms hereof, or any "stop-
transfer" instructions the Company may give to the Warrant Agent to implement
any such restrictions (which instructions the Company is expressly authorized to
give), transfers of outstanding Warrant Certificates may be effected by the
Warrant Agent from time to time upon the books of the Company to be maintained
by the Warrant Agent for that purpose, upon a surrender of the Warrant
Certificate to the Warrant Agent at the Warrant Agent's Office with the form of
Assignment thereon duly executed. Upon any such surrender for split up,
combination, exchange or transfer, the Warrant Agent shall execute and deliver
to the person entitled thereto a Warrant Certificate or Certificates, as the
case may be, as so requested. The Warrant Agent may require the holder to pay a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any split up, combination, exchange or transfer of Warrant
Certificates prior to the issuance of any new Warrant Certificate.
Section 5.2 CANCELLATION OF WARRANT CERTIFICATES. Any Warrant Certificate
surrendered upon the exercise of Warrants or for split up, combination, exchange
or transfer, or purchased or otherwise acquired by the Company, shall be
canceled and shall not be reissued by the Company; and, except as provided in
Section 3.5 hereof in case of the exercise of less than all of the Warrants
evidenced by a Warrant Certificate or in Section 5.1 in case of a split up,
combination, exchange or transfer, no Warrant Certificate shall be issued
hereunder in lieu of such cancelled Warrant Certificate. Any Warrant
Certificate so cancelled shall be destroyed by the Warrant Agent unless
otherwise directed by the Company.
ARTICLE VI
PROVISIONS CONCERNING THE WARRANT AGENT
Section 6.1 RESIGNATION OR REMOVAL OF WARRANT AGENT. The Warrant Agent
may resign its duties and be discharged from all further duties and liabilities
hereunder after giving at least thirty (30) days prior notice in writing to the
Company, except that such shorter notice
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may be given as the Company shall, in writing, accept as sufficient. Upon
comparable notice to the Warrant Agent, the Company may remove the Warrant
Agent. If the office of Warrant Agent becomes vacant by resignation or
incapacity to act or otherwise, the Company shall appoint in writing a new
Warrant Agent. If the Company shall fail to make such appointment within a
period of thirty (30) days after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Warrant Agent or by
the registered holder of any Warrant Certificate, then the registered holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new Warrant Agent. Any new Warrant Agent appointed hereunder
shall execute, acknowledge and deliver to the Company, an instrument accepting
such appointment under substantially the same terms and conditions as are
contained herein. If for any reason it becomes necessary or expedient to have
the former Warrant Agent execute and deliver any further assurance, conveyance,
act or deed, the same shall be done at the expense of the Company and shall be
legally and validly executed and delivered by the former Warrant Agent.
Section 6.2 NOTICE OF APPOINTMENT. Not later than five (5) business days
prior to the effective date of the appointment of a new Warrant Agent, the
Company shall cause notice thereof to be mailed to the former Warrant Agent and
the transfer agent for the Common Stock, and shall forthwith cause a copy of
such notice to be mailed to each registered holder of a Warrant Certificate.
Failure to mail such notice, or any defect contained therein, shall not affect
the legality or validity of the appointment of the successor Warrant Agent.
Section 6.3 MERGER OF WARRANT AGENT. Any company into which the Warrant
Agent may be merged or with which it may be consolidated or any company
resulting from any merger or consolidation to which the Warrant Agent shall be a
party, shall be the successor Warrant Agent under this Agreement without further
act. Any such successor Warrant Agent may adopt the prior countersignature of
any predecessor Warrant Agent and distribute Warrant Certificates countersigned
but not distributed by such predecessor Warrant Agent, or may countersign the
Warrant Certificate in its own name.
Section 6.4 COMPANY RESPONSIBILITIES. The Company agrees that it shall
(i) pay the Warrant Agent reasonable remuneration for its services as Warrant
Agent hereunder and will reimburse the Warrant Agent upon demand for all
reasonable expenses, advances, and expenditures that the Warrant Agent may
reasonably incur in the execution of its duties hereunder (including reasonable
fees and expenses of its counsel); (ii) provide the Warrant Agent, upon request,
with sufficient funds to pay any cash or taxes due pursuant to this Agreement;
and (iii) perform, execute, acknowledge and deliver or cause to be performed,
executed, acknowledged and delivered all further and other acts, instruments and
assurances as may reasonably be required by the Warrant Agent for the carrying
out or performing by the Warrant Agent of the provisions of this Agreement. In
no case shall the Warrant Agent be required to advance its own funds for any
purpose under this Agreement.
17
<PAGE>
Section 6.5 CERTIFICATION FOR THE BENEFIT OF WARRANT AGENT. Whenever in
the performance of its duties under this Agreement the Warrant Agent shall deem
it necessary or desirable that any matter be proved or established or that any
instructions with respect to the performance of its duties hereunder be given by
the Company prior to taking or suffering any action hereunder, such matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established, or such instructions may be
given, by a certificate or instrument signed by the Chairman, the President, a
Vice President, the Secretary, Assistant Secretary or the Treasurer of the
Company and delivered to the Warrant Agent. Such certificate or instrument may
be conclusively relied upon by the Warrant Agent for any action or refusal to
act taken or suffered in good faith by it under the provisions of this
Agreement, without further investigation; but in its discretion the Warrant
Agent may in lieu thereof accept other evidence of such matter or may require
such further or additional evidence as it may deem reasonable including, without
limitation, an opinion of counsel to the Company. In addition, the Warrant
Agent may consult with counsel of its choice, and any opinion of such counsel
shall be full and complete authorization to the Warrant Agent in respect of any
action taken or omitted to be taken in good faith, in reliance on such opinion.
Section 6.6 LIABILITY OF WARRANT AGENT. The Warrant Agent shall be liable
hereunder solely for direct damages resulting from its own gross negligence, bad
faith or wilful misconduct provided, further, that the Warrant Agent shall not
be liable for any special or consequential damages in connection with any
liability hereunder. The Warrant Agent shall act hereunder solely as an agent
for the Company and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Warrant
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only. The Warrant Agent will not incur any liability or
responsibility to the Company or to any holder of any Warrant Certificate for
any action taken, or any failure to take action, in reliance on any notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument reasonably believed by the Warrant Agent to be genuine and to have
been signed, sent or presented by the proper party or parties. The Warrant
Agent shall not be under any responsibility in respect of the validity of this
Agreement or the execution and delivery thereof by the Company or in respect of
the validity or execution of any Warrant Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Warrant Certificate; nor shall it be responsible for the making of any
adjustment required under the provisions of Article IV hereof or responsible for
the manner, method or amount of any such adjustment or the facts that would
require any such adjustment; nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
Warrant Shares or other securities to be issued pursuant to this Agreement or
any Warrant Certificate or as to whether any Warrant Shares or other securities
will when issued be validly authorized and issued and fully paid and non-
assessable.
18
<PAGE>
Section 6.7 USE OF ATTORNEYS, AGENTS AND EMPLOYEES. The Warrant Agent may
execute and exercise any of the rights or powers hereby vested in it or perform
any duty hereunder either itself or by or through its attorneys, agents or
employees.
Section 6.8 INDEMNIFICATION. Each party hereto hereby irrevocably
indemnifies the other and saves it harmless against any and all reasonable out
of pocket losses, expenses or liabilities, including judgments, costs and
reasonable counsel fees and expenses arising out of or in connection with this
Agreement, except as a direct result of the gross negligence, bad faith or
willful misconduct of such party.
Section 6.9 ACCEPTANCE OF AGENCY. The Warrant Agent hereby accepts the
agency established by this Agreement and agrees to perform the same upon the
terms and conditions herein set forth.
Section 6.10 CONFLICT OF INTEREST. The Warrant Agent and any stockholder,
director, officer or employee of the Warrant Agent may buy, sell or deal in any
of the Warrant Certificates or other securities of the Company or have a
pecuniary interest in any transaction in which the Company may be interested, or
contract with or lend money to the Company or otherwise act as fully and freely
as though the Warrant Agent were not Warrant Agent under this Agreement.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company.
ARTICLE VII
MISCELLANEOUS
Section 7.1 CHANGES TO AGREEMENT. The Company, when authorized by its
Board of Directors, and the Warrant Agent, together, with the written consent of
the registered holder or holders of at least 50% of the outstanding Warrants may
amend or supplement this Agreement. The Warrant Agent may, without the consent
or concurrence of any registered holder of a Warrant Certificate, by
supplemental agreement or otherwise, join with the Company in making any changes
or corrections in this Agreement that the Company shall have been advised by
counsel (i) are required to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error herein
contained, (ii) add to the covenants and agreements of the Company or the
Warrant Agent in this Agreement such further covenants and agreements thereafter
to be observed, or (iii) result in the surrender of any right or power reserved
to or conferred upon the Company or the Warrant Agent in this Agreement, but
which changes or corrections do not or will not adversely affect, alter or
change the rights, privileges or immunities of the registered holders of Warrant
Certificates. The Warrant Agent may conclusively rely on a certificate of the
Company regarding any such changes.
19
<PAGE>
Section 7.2 ASSIGNMENT. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns.
Section 7.3 SUCCESSOR TO COMPANY. The Company will not merge or
consolidate with or into any other corporation or sell or otherwise transfer its
property, assets and business substantially as an entirety to a successor
corporation, unless the corporation resulting from such merger, consolidation,
sale or transfer (if not the Company) shall expressly assume, by supplemental
agreement satisfactory in form and substance to the Warrant Agent and delivered
to the Warrant Agent, the due and punctual performance and observance of each
and every covenant and condition of this Agreement to be performed and observed
by the Company.
Section 7.4 NOTICES. Any notice or demand required by this Agreement to
be given or made by the Warrant Agent or by the registered holder of any Warrant
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class or registered mail, postage prepaid, addressed (until another
address is filed in writing by the Company with the Warrant Agent) as follows:
Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, WA 98034
Attention: Ms. Debbie Brownfeld
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Los Angeles, CA 90071
Attention: Michael A. Woronoff, Esq.
Any notice or demand required by this Agreement to be given or made by the
registered holder of any Warrant Certificate or by the Company to or on the
Warrant Agent shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed (until another address is filed in
writing with the Company by the Warrant Agent), as follows:
__________________
__________________
__________________
With a copy to:
__________________
20
<PAGE>
__________________
__________________
Any notice or demand required by this Agreement to be given or made by the
Company or the Warrant Agent to or on the registered holder of any Warrant
Certificate shall be sufficiently given or made, whether or not such holder
receives the notice, three (3) days after mailing if sent by first-class or
registered mail, postage prepaid, addressed to such registered holder at his
last address as shown on the books of the Company maintained by the Warrant
Agent. Otherwise, such notice or demand shall be deemed given when received by
the party entitled thereto.
Section 7.5 DEFECTS IN NOTICE. Failure to file any certificate or notice
or to mail any notice, or any defect in any certificate or notice pursuant to
this Agreement shall not affect in any way the rights of any registered holder
of a Warrant Certificate or the legality or validity of any adjustment made
pursuant to Section 4.1 or Section 4.2 hereof, or any transaction giving rise to
any such adjustment, or the legality or validity of any action taken or to be
taken by the Company.
Section 7.6 GOVERNING LAW. This Agreement and each Warrant Certificate
issued hereunder shall be governed by the laws of the State of New York without
regard to principles of conflicts of laws thereof.
Section 7.7 STANDING. Nothing in this Agreement expressed and nothing
that may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company, the Warrant Agent, and the registered holders of the Warrant
Certificates any right, remedy or claim under or by reason of this Agreement or
of any covenant, condition, stipulation, promise or agreement contained herein;
and all covenants, conditions, stipulations, promises and agreements contained
in this Agreement shall be for the sole and exclusive benefit of the Company and
the Warrant Agent and their successors, and the registered holders of the
Warrant Certificates.
Section 7.8 HEADINGS. The descriptive headings of the articles and
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts shall together constitute but one and the same instrument.
Section 7.10 AVAILABILITY OF THE AGREEMENT. The Company shall keep copies
of this Agreement available for inspection by holders of Warrants during normal
business hours.
21
<PAGE>
Copies of this Agreement may be obtained upon written request addressed to the
Company at the address set forth in Section 7.4 hereof.
Section 7.11 ENTIRE AGREEMENT. This Agreement, including the Exhibits
referred to herein and the other writings specifically identified herein or
contemplated hereby, is complete, reflects the entire agreement of the parties
with respect to its subject matter, and supersedes all previous written or oral
negotiations, commitments and writings.
Section 7.12 RIGHTS OF WARRANT HOLDERS. No Warrant Certificate shall
entitle the registered holder thereof to any of the rights of a stockholder of
the Company, including, without limitation, the right to vote, to receive
dividends and other distributions, to receive any notice of, or to attend,
meetings of stockholders or any other proceedings of the Company.
[Remainder of page intentionally left blank]
22
<PAGE>
WARRANT AGREEMENT COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto under their respective corporate seals as of the day and year first above
written.
LAMONTS APPAREL, INC.
By: _____________________________
Name:
Title:
________________________________,
as Warrant Agent
By: _____________________________
Name:
Title:
23
<PAGE>
TAB 4
FORM OF NEW WARRANT CERTIFICATE
<PAGE>
EXHIBIT A
FORM OF
CLASS [A] [B] WARRANT CERTIFICATE
NEITHER THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE ISSUANCE OF ANY SECURITIES ISSUABLE UPON EXERCISE HEREOF HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES MAY
NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE
SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER OR (ii) AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
NO. W [A][B]-_____
CERTIFICATE FOR________________CLASS [A][B] WARRANTS
NOT EXERCISABLE AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON ______, 200_ [10 YEARS FOLLOWING EFFECTIVE DATE]
LAMONTS APPAREL, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES that ___________________________________ or its registered
assigns is the registered holder (the "Registered Holder") of__________________
Class [A][B] Warrants, each of which represents the right to purchase one fully
paid and non-assessable share of Common Stock, par value $.01 per share (the
"Common Stock"), of Lamonts Apparel, Inc., a Delaware corporation (the
"Company"), at an initial exercise price (the "Exercise Price") equal to $.01
per share, at the times provided in the Warrant Agreement (as hereinafter
defined), by surrendering this Warrant Certificate, with the ELECTION TO
PURCHASE on the reverse hereof duly executed, at the principal office of
_____________ or its successor as warrant agent (any such warrant agent being
herein called the "Warrant Agent"), at ______________________, and by paying in
full the Exercise Price, plus transfer taxes, if any. Payment of the Exercise
Price may be made at the option of the holder hereof by (i) cash, certified
check or a wire transfer in same day funds in an amount equal to the then
applicable Exercise Price multiplied by the number of Warrant Shares then being
purchased, (ii) delivery to the Company of that number of shares of Common Stock
having an aggregate Fair Market Value equal to the then applicable Exercise
Price multiplied by the number of Warrant Shares then being purchased or
(iii) by any combination of (i) and (ii). In the alternative, the Registered
Holder may exercise its right to purchase some or all of the Warrant Shares
subject to Warrant Certificate, on a net basis, such that, without the exchange
of any funds, the Registered Holder receives that number of Warrant Shares
subscribed to pursuant to this Warrant Certificate less that number of shares of
Common Stock having an aggregate Fair Market Value at the time of exercise equal
to the aggregate Exercise Price that would otherwise have been paid by such
holder for the number of Warrant Shares subscribed to pursuant to this Warrant
Certificate.
No Warrant may be exercised after 5:00 P.M., New York City time, on
_________, 200_ (the "Expiration Date"). All Warrants evidenced hereby shall
thereafter become void, subject to the terms of the Warrant Agreement.
Prior to the Expiration Date, subject to any applicable laws, rules or
regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate and in accordance
with the
<PAGE>
terms of the Warrant Agreement, the Registered Holder shall be entitled to
transfer this Warrant Certificate, in whole or in part, upon surrender of this
Warrant Certificate at the Warrant Agent's Office with the ASSIGNMENT on the
reverse hereof. Upon any such transfer, a new Warrant Certificate or Warrant
Certificates representing the same aggregate number of Warrants will be issued
in accordance with instructions in the form of assignment.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled to
exchange this Warrant Certificate, with or without other Warrant Certificates,
for another Warrant Certificate or Warrant Certificates for the same aggregate
number of Warrants, upon surrender of this Warrant Certificate at the Warrant
Agent's Office as set forth in the Warrant Agreement. Upon certain events
provided for in the Warrant Agreement, the Exercise Price and the number of
shares of Common Stock issuable upon the exercise of each Warrant are required
to be adjusted. No fractional shares will be issued upon the exercise of
Warrants. As to any final fraction of a share which the Registered Holder of
one or more Warrant Certificates, the rights under which are exercised in the
same transaction, would otherwise be entitled to purchase upon such exercise,
the Company shall pay the cash value thereof determined as provided in the
Warrant Agreement.
This Warrant Certificate is issued under and in accordance with the Warrant
Agreement dated as of ______, 199_ between the Company and the Warrant Agent
(the "Warrant Agreement") and is subject to the terms and provisions contained
in said Warrant Agreement, to all of which terms and provisions the Registered
Holder consents by acceptance hereof. All capitalized terms not defined herein
shall have the meaning set forth in the Warrant Agreement.
This Warrant Certificate shall not entitle the Registered Holder to any of
the rights of a stockholder of the Company, including, without limitation, the
right to vote, to receive dividends and other distributions, or to attend or
receive any notice of meetings of stockholders or any other proceedings of the
Company.
This Warrant Certificate shall not be valid for any purpose until it shall
have been countersigned by the Warrant Agent.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its facsimile Corporate Seal.
LAMONTS APPAREL, INC.
By:
------------------------------
Name:
Title:
Seal Attest:
---------------------------------
Assistant Secretary
Countersigned: _______________________________,
as Warrant Agent
Dated: By:
------------------------------
Authorized Signature
3
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise ________________ of
the Warrants represented by this Warrant Certificate and to purchase the shares
of Common Stock issuable upon the exercise of said Warrants, and requests that
Certificates for such shares be issued and delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
at______________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby exercised is less than all the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the number of full Warrants not exercised be
issued and delivered as set forth above.
In full payment of the exercise price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$_______ by (i) $______ in cash, certified check or wire transfer in same day
funds, (ii) surrender to the Warrant Agent of certificate no(s) ____________
representing ______ shares of Common Stock duly endorsed to the Warrant Agent,
(iii) a combination of (i) an (ii) or (iv) exercising the Warrants exercised on
a net basis such that the number of shares of Common Stock otherwise receivable
by the Registered Holder pursuant to the Warrants exercised shall be reduced by
the number of shares of Common Stock having an aggregate Fair Market Value equal
to the exercise price with respect to the Warrants exercised.
Date: ______________, 19__ ________________________________________
Signature
(Signature must conform in all
respects to name of holder
as specified on the face of
the Warrant Certificate.)
4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant Certificate, with respect to the number of
Warrants set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF WARRANTS
- ---------------- ------- ---------------
and does hereby irrevocably constitute and appoint__________________________,
Attorney, to make such transfer on the books of Lamonts Apparel, Inc. maintained
for that purpose, with full power of substitution in the premises.
Date: ______________, 19__ ___________________________________
Signature
(Signature must conform in all
respects to name of holder
as specified on the face of
the Warrant Certificate.)
5
<PAGE>
TAB 5
FORM OF NEW STOCK CERTIFICATE
<PAGE>
[CERTIFICATE]
INCORPORATED UNDER THE
LAWS OF THE STATE OF DELAWARE
<TABLE>
<S> <C> <C>
COMMON STOCK COMMON STOCK
NUMBER SHARES
[ LA ] LAMONTS APPAREL, INC. [ ]
THIS CERTIFICATE IS TRANSFERABLE CUSIP
IN DALLAS, TEXAS; CLEVELAND, OHIO; SEE REVERSE FOR CERTAIN LEGENDS
AND NEW YORK, NEW YORK AND DEFINITIONS
THIS CERTIFIES THAT
Is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES, OF THE PAR VALUE OF $.01 PER SHARE, OF THE COMMON STOCK OF
Lamonts Apparel, Inc. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent
and registered by the Registrar.
Witness the facsimile signatures of the duly authorized Officers of the Corporation.
Dated Countersigned and Registered
KEYCORP SHAREHOLDER SERVICES, INC.
TRANSFER AGENT
AND REGISTAR
BY
CHAIRMAN OF THE BOARD SECRETARY AUTHORIZED SIGNATURE
</TABLE>
<PAGE>
THE CORPORATION IS AUTHORIZED TO ISSUE SHARES OF TWO CLASSES, COMMON
STOCK AND PREFERRED STOCK. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO
EACH STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE POWERS, 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.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIP GIFT MIN ACT- _______Custodian________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ______________________
in common State
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint___________________________________________
_______________________ Attorney to transfer the said stock on the books of the
within named Corporation with full power of substitution in the premises.
Dated
---------------------------------
--------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER
<PAGE>
TAB 6
GRANT OF REGISTRATION RIGHTS
<PAGE>
GRANT OF REGISTRATION RIGHTS
Lamonts Apparel, Inc., a Delaware corporation as reorganized pursuant to
Chapter 11, Title 11 of the United States Code (the "Company"), hereby grants to
each Holder (as hereinafter defined), effective as of the Effective Date (as
defined in the Plan of Reorganization of the Company (the "Plan"), as confirmed
by order of the United States Bankruptcy Court for the Western District of
Washington) the registration rights provided for herein.
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings:
"ADVICE" has the meaning set forth in Section 5.
"AFFILIATE" means, with respect to any specified Person, any other Person
who, directly or indirectly through one or more intermediaries, (a) controls, is
controlled by, or is under common control with such specified Person, (b) serves
as trustee or in a similar fiduciary capacity for such specified Person or
(c) acts as investment manager or adviser for such specified person.
"BUSINESS DAY" means any day other than a day on which banks are authorized
or required to be closed in the State of New York.
"CLASS A WARRANTS" means the Class A Warrants to purchase Common Stock held
by the Holders.
"CLASS B WARRANTS" means the Class B Warrants to purchase Common Stock held
by the Holders.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON SHARES" means the shares of Common Stock held by the Holders.
"COMMON STOCK" means the common stock, par value $0.01 per share, of the
Company.
"COMPANY" has the meaning set forth in the first paragraph hereof and shall
include the Company's successors by merger, acquisition, reorganization or
otherwise.
"CONTROLLING PERSONS" has the meaning set forth in Section 8(a).
<PAGE>
"EFFECTIVE DATE" has the meaning set forth in the first paragraph.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"HOLDER" means (a) each holder of a Class 4 Claim and/or Class 5 Interest
under the Plan which, together with its Affiliates, directly or indirectly,
beneficially owns in excess of ten percent (10%) of the issued and outstanding
shares of Common Stock on the Effective Date, and (b) each Person to whom such
holder transfers Registrable Securities if either (i) after giving effect to
such transfer such Person (together with its Affiliates and together with any
Persons who are members of a "group" (within the meaning of Section 13 of the
Exchange Act and the rules and regulations promulgated thereunder) with such
Person), directly or indirectly, beneficially owns ten percent (10%) or more of
the issued and outstanding shares of Common Stock as of the date of such
transfer, or (ii) such Person has not met with respect to such Registrable
Securities the holding period requirement of Rule 144(k) promulgated under the
Securities Act (or any successor provision).
"HOLDERS' COUNSEL" means Goodwin, Procter & Hoar or any successor counsel
selected by Holders of a majority in interest of the Registrable Securities.
"INSPECTORS" has the meaning set forth in Section 4(m).
"LOCK-UP REQUEST" has the meaning set forth in Section 10.
"NASD" has the meaning set forth in Section 4(q).
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.
"PIGGY-BACK REGISTRATION" has the meaning set forth in Section 3(a).
"PROSPECTUS" means the prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to the prospectus, including post-effective
amendments, and in each case including all material incorporated by reference or
deemed to be incorporated by reference in such prospectus.
2
<PAGE>
"QUALIFIED INVESTOR" means a Person who, pursuant to a transaction approved
by the Company's Board of Directors (including a majority of the disinterested
directors) acquires Common Stock (or securities convertible into Common Stock)
representing at least thirty-five percent (35%) of the Common Stock issued and
outstanding immediately following such transaction.
"RECORDS" has the meaning set forth in Section 4(m).
"REGISTRABLE SECURITIES" means, collectively, the Common Shares, the
Warrants and the Warrant Shares until such time as such Registrable Securities
are held by a Person who (a) (together with its Affiliates and together with any
Persons who are members of a "group" (within the meaning of Section 13 of the
Exchange Act and the rules and regulations promulgated thereunder) with such
Person), directly or indirectly, beneficially owns less than ten percent (10%)
of the issued and outstanding shares of Common Stock and (b) has met with
respect to such Registrable Securities the holding period requirement of
Rule 144(k) promulgated under the Securities Act or any successor provision).
"REGISTRATION EXPENSES" has the meaning set forth in Section 7.
"REGISTRATION STATEMENT" means any registration statement of the Company
that covers any of the Registrable Securities pursuant to the provisions of this
Grant of Registration Rights (including any Shelf Registration Statement), and
all amendments and supplements to any such registration statement, including
post-effective amendments, in each case including the Prospectus, all exhibits,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
"RULE 144A" has the meaning set forth in Section 9(b).
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time, or any successor statute, and the rules and regulations of the Commission
promulgated thereunder.
"SHELF REGISTRATION" has the meaning set forth in Section 2(a).
"SHELF REGISTRATION STATEMENT" has the meaning set forth in Section 2(a).
"SUSPENSION NOTICE" has the meaning set forth in Section 5.
"SUSPENSION PERIOD" has the meaning set forth in Section 5.
"TARGET EFFECTIVE DATE" means the date forty-five (45) days after the
Effective Date.
"TARGET EFFECTIVE PERIOD" has the meaning set forth in Section 2(a).
3
<PAGE>
"WARRANTS" means, collectively, the Class A Warrants and the Class B
Warrants.
"WARRANT SHARES" means the shares of Common Stock issuable upon the
exercise of the Warrants held by the Holders.
SECTION 2. SHELF REGISTRATION.
(a) FILING; EFFECTIVENESS. If, as of the Target Effective Date, a shelf
registration statement (the "Shelf Registration Statement") on the appropriate
form for an offering to be made on a continuous basis pursuant to Rule 415 under
the Securities Act (or such successor rule or similar provision then in effect)
covering all of the Registrable Securities (a "Shelf Registration") is not
effective or the effectiveness thereof has been suspended, then the Company
shall use its reasonable best efforts to cause such Shelf Registration Statement
to be effective as soon as practicable. Once the Shelf Registration Statement
is effective, the Company shall use its reasonable best efforts to keep such
Shelf Registration Statement continuously effective for a period (the "Target
Effective Period") ending on the date on which no Registrable Securities are
outstanding. The Company further agrees, if necessary, to supplement or amend
the Shelf Registration Statement, as required by the registration form used by
the Company for such Shelf Registration Statement or by the instructions
applicable to such registration form or by the Securities Act or as reasonably
requested (which request shall result in the filing of a supplement or amendment
if required) by any Holder of Registrable Securities to which such Shelf
Registration Statement relates, but only to the extent such request relates to
information with respect to such Holder, and the Company agrees to furnish to
each Holder, Holders' Counsel and any managing underwriter copies of any such
supplement or amendment. The Holders shall be permitted to withdraw all or any
part of the Registrable Securities from a Shelf Registration Statement no later
than 10 Business Days prior to the expected effective date of such Shelf
Registration Statement.
(b) LIQUIDATED DAMAGES.
(i) If the Shelf Registration Statement has not been filed or is
filed but has not become effective (other than as a result of the action or
inaction of any Holder) on or before the Target Effective Date, the Company
shall pay liquidated damages to each Holder in an amount equal to $.10 per
500 Common Shares of (or in the case of any Warrant, per 500 Warrant
Shares) per week beginning on the Target Effective Date. If the
ineffectiveness of the Shelf Registration Statement shall not have been
cured within 90 days after the Target Effective Date, the weekly liquidated
damages shall increase to $.20 per 500 Common Shares (or in the case of any
Warrant, per 500 Warrant Shares). If the ineffectiveness of the Shelf
Registration Statement shall not have been cured within 180 days after the
Target Effective Date, the weekly liquidated damages shall increase to $.30
per 500 Common Shares (or in the case of any Warrant, per 500 Warrant
Shares).
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(ii) If during the Target Effective Period a stop order is imposed,
for any other reason the effectiveness of the Shelf Registration Statement
is suspended or there is a Suspension Period exceeding the length of time
permitted by Section 5 hereof or not otherwise permitted by Section 5
hereof, then the Company shall pay liquidated damages to each Holder in an
amount equal to $.10 per 500 Common Shares (or in the case of any Warrant,
per 500 Warrant Shares) per week beginning on the date of such stop order,
the date of such other suspension of effectiveness or the date on which
such Suspension Period Failed to comply with Section 5 hereof, as the case
may be. If the stop order, other suspension of effectiveness of the Shelf
Registration Statement or excessive or impermissible Suspension Period
shall not have been cured within 90 days after such stop order was imposed,
the effectiveness of such Shelf Registration Statement was otherwise
suspended or the Suspension Period failed to comply with Section 5 hereof,
as the case may be, the weekly liquidated damages shall increase to $.20
per 500 Common Shares (or in the case of any Warrant, per 500 Warrant
Shares). It the stop order, other suspension of effectiveness of the Shelf
Registration Statement or excessive or impermissible Suspension Period
shall not have been cured within 180 days after such stop order was
imposed, the effectiveness of such Shelf Registration Statement was
otherwise suspended or the Suspension Period failed to comply with
Section 5 hereof, as the case may be, the weekly liquidated damages shall
increase to per 500 Common Shares (or in the case of any Warrant, $.30 per
500 Warrant Shares).
(iii) The liquidated damages to be paid to Holders pursuant to this
Section 2(b) shall begin to accrue on the date on which such liquidated
damages are triggered as set forth above occurs and shall cease to accrue
on (A) the day after the Shelf Registration Statement is declared
effective, (B) the day after the reinstatement of effectiveness of the
Shelf Registration Statement or (C) the day after any excessive or
impermissible Suspension Period ends, as the case may be.
(iv) The Registrable Securities with respect to which liquidated
damages shall accrue and be payable in accordance with this Section 2(b)
shall be those Registrable Securities held by the Holders which are
included or proposed to be included in the Shelf Registration Statement and
which have not been sold prior to the occurrence of the event triggering
such liquidated damages. The Company shall pay the liquidated damages due
with respect to any Registrable Securities at the end of each week during
which such damages accrue. Liquidated damages shall be paid to the Holders
of Registrable Securities entitled to receive such liquidated damages by
wire transfer in immediately available funds to the accounts designated in
writing by such Holders or by check, if not so designated.
(v) The parties hereto agree that the liquidated damages provided
for in this Section 2(b) constitute a reasonable estimate of the damages
that will be suffered by Holders of Registrable Securities by reason of the
failure of the Shelf Registration Statement to be declared effective and/or
remain effective, in accordance with this Grant of Registration Rights.
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(c) EFFECTIVE REGISTRATION. A registration will not be deemed to have
been effected as a Shelf Registration unless the Shelf Registration Statement
with respect thereto has been declared effective by the Commission and the
Company has complied in all material respects with its obligations under this
Grant of Registration Rights with respect thereto. If a Shelf Registration is
deemed not to have been effected (other than as a result of the action or
inaction of any Holder), then the Company shall continue to be obligated to
effect a Shelf Registration pursuant to this Section 2.
(d) SELECTION OF UNDERWRITER. If the Holders so elect, the offering of
Registrable Securities pursuant to a Shelf Registration Statement shall be in
the form of an underwritten offering. If they so elect, the Holders
participating in such Shelf Registration Statement shall select one or more
nationally recognized firms of investment bankers to act as the book-running
managing underwriter or underwriters in connection with such offering; provided
that such selection shall be subject to the consent of the Company, which
consent shall not be unreasonably withheld.
SECTION 3. PIGGY-BACK REGISTRATION.
(a) REQUEST FOR REGISTRATION. Each time the Company proposes to file a
registration statement under the Securities Act with respect to an offering by
the Company for its own account or for the account of any of its securityholders
of any class of equity security (other than (i) a registration statement on Form
S-4 or S-8 (or any substitute form that is adopted by the Commission) or (ii) a
registration statement filed in connection with an exchange offer or offering of
securities solely to the Company's existing securityholders), and the form of
registration statement to be used permits the registration of Registrable
Securities, then the Company shall give written notice of such proposed filing
to the Holders of Registrable Securities as soon as reasonably practicable (but
in no event less than 30 days before the anticipated effective date), and such
notice shall offer such Holders the opportunity to register such Registrable
Securities as each such Holder may request (which request shall specify the
Registrable Securities intended to be disposed of by such Holder and the
intended method of distribution thereof) within 20 days after the date such
notice is received by such Holder from the Company (a "Piggy-Back
Registration"). The Company shall cause the managing underwriter or
underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
on substantially the same terms and conditions as any similar securities of the
Company or any other securityholder included therein and to permit the sale or
other disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. Any Holder shall have the right to withdraw its
request for inclusion of its Registrable Securities in any registration
statement pursuant to this Section 3 by giving written notice to the Company of
such withdrawal no later than 10 Business Days prior to the anticipated
effective date. The Company may withdraw a Piggy-Back Registration at any time
prior to the time it becomes effective, provided that the Company shall give
prompt notice of such withdrawal to the Holders of Registrable Securities
requested to be included in such Piggy-Back Registration.
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(b) REDUCTION OF OFFERING. If the managing underwriter or underwriters of
an underwritten offering with respect to which Piggy-Back Registration has been
requested as provided in Section 3(a) hereof shall have informed the Company, in
writing, that in the opinion of such underwriter or underwriters the total
number of shares which the Company, Holders of Registrable Securities and any
other Persons participating in such registration intend to include in such
offering is such as to materially and adversely affect the success of such
offering (including without limitation any material decrease in the proposed
public offering price), then the number of shares to be offered for the account
of all Persons (other than the Company and any executive officers of the
Company) participating in such registration shall be reduced or limited (to zero
if necessary) PRO RATA in proportion to the respective number of shares
requested to be registered by such Persons to the extent necessary to reduce the
total number of shares requested to be included in such offering to the number
of shares, if any, recommended by such managing underwriter or underwriters;
provided that if such registration is being effected pursuant to the exercise of
demand registration rights by a Qualified Investor, then the number of shares to
be offered for the account of all Persons (other than the Qualified Investor,
the Company and any executive officers of the Company) participating in such
registration shall be reduced or limited (to zero if necessary) PRO RATA in
proportion to the respective number of shares requested to be registered by such
Persons to the extent necessary to reduce the total number of shares requested
to be included in such offering to the number of shares, if any, recommended by
such managing underwriter or underwriters.
No registration effected under this Section 3, and no failure to effect a
registration under this Section 3 shall relieve the Company of its obligation to
effect a Shelf Registration pursuant to Section 2 hereof. No failure to effect
a registration under this Section 3 and to complete the sale of Registrable
Securities in connection therewith shall relieve the Company of any other
obligation under this Grant of Registration Rights, including without
limitation, the Company's obligations under Sections 7 and 8 hereof.
SECTION 4. REGISTRATION PROCEDURES.
In connection with the obligations of the Company to effect or cause the
registration of any Registrable Securities pursuant to the terms and conditions
of this Grant of Registration Rights, the Company shall use its best efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended method of distribution thereof as quickly as reasonably
practicable, and in connection therewith:
(a) prior to filing a Registration Statement or Prospectus or any
amendments or supplements thereto, excluding for purposes of this Section
4(a) documents incorporated by reference after the initial filing of the
Registration Statement, the Company will furnish to the Holders of the
Registrable Securities covered by such Registration Statement (the "Selling
Holders"), Holders' Counsel and the underwriters, if any, draft copies of
all such documents proposed to be filed at least 10 Business Days prior
thereto, which documents will be subject to the reasonable review of such
Holders' Counsel and the underwriters, if any, and the Company will not,
unless
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required by law, file any Registration Statement or amendment thereto or
any Prospectus or any supplement thereto to which Selling Holders of at
least a majority in interest of the Registrable Securities (the "Objecting
Party") shall reasonably object pursuant to notice given to the Company
prior to the filing of such amendment or supplement (the "Objection
Notice") and no later than 5 Business Days after receipt of the documents
to which the Objection Notice relates. The Objection Notice shall set
forth the objections and the specific areas in the draft documents where
such objections arise. The Company shall have five Business Days after
receipt of the Objection Notice to correct such deficiencies to the
reasonable satisfaction of the Objecting Party, and will notify each
Selling Holder of any stop order issued or threatened by the Commission in
connection therewith and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered.
(b) The Company shall promptly prepare and file with the Commission
such amendments and post-effective amendments to each Registration
Statement as may be necessary to keep such Registration Statement effective
for as long as such registration is required to remain effective pursuant
to the terms hereof; shall cause the Prospectus to be supplemented by any
required Prospectus supplement, and, as so supplemented, to be filed
pursuant to Rule 424 under the Securities Act; and shall comply with the
provisions of the Securities Act applicable to it with respect to the
disposition of all Registrable Securities covered by such Registration
Statement during the applicable period in accordance with the intended
methods of disposition by the Holders set forth in such Registration
Statement or supplement to the Prospectus;
(c) The Company shall promptly furnish to any Holder and the
underwriters, if any, without charge, such reasonable number of conformed
copies of each Registration Statement and any post-effective amendment
thereto and such number of copies of the Prospectus (including each
preliminary Prospectus) and any amendments or supplements thereto, any
documents incorporated by reference therein and such other documents as
such Holder or underwriter may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Securities being
sold by such Holder.
(d) The Company shall, (i) on or prior to the date on which a
Registration Statement is declared effective, use its reasonable best
efforts to register or qualify the Registrable Securities covered by such
Registration Statement under such other securities or "blue sky" laws of
such states of the United States as any Holder, Holders' Counsel or
underwriter requests; (ii) do any and all other acts and things which may
be reasonably necessary to enable such Holder to consummate the disposition
of such Registrable Securities owned by such Holder; and (iii) use its
reasonable best efforts to keep each such registration or qualification (or
exemption therefrom) effective during the period which the Registration
Statement is required to be kept effective in accordance with the
provisions of this Grant of Registration Rights; PROVIDED, HOWEVER, that
the Company shall not be required (x) to qualify generally to
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<PAGE>
do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 4(d) or (y) to file any general consent to
service of process.
(e) The Company shall cause the Registrable Securities covered by a
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be reasonably necessary by
virtue of the business and operations of the Company to enable the Holders
to consummate the disposition of such Registrable Securities.
(f) The Company shall promptly notify each Holder, Holders' Counsel
and any underwriter in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed and, with respect to
a Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the Commission or any state
securities authority for amendments and supplements to a Registration
Statement and Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv) of
the issuance by any state securities commission or other regulatory
authority of any order suspending the qualification or exemption from
qualification of any of the Registrable Securities under state securities
or "blue sky" laws or the initiation of any proceedings for that purpose,
and (v) of the happening of any event which makes any statement made in a
Registration Statement or related Prospectus untrue or which requires the
making of any changes in such Registration Statement or Prospectus so that
they will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(g) The Company shall make generally available to the Holders an
earnings statement satisfying the provisions of Section 11(a) of the
Securities Act no later than 45 days (90 days in the event it relates to a
fiscal year) after the end of the 12-month period beginning with the first
day of the Company's first fiscal quarter commencing after the effective
date of a Registration Statement, which earnings statement shall cover said
12-month period, and which requirement will be deemed to be satisfied if
the Company timely files complete and accurate information on forms 10-Q,
10-K and 8-K under the Exchange Act and otherwise complies with Rule 158
under the Securities Act.
(h) The Company shall promptly use its reasonable best efforts to
prevent the issuance of any order suspending the effectiveness of a
Registration Statement, and if one is issued use its reasonable best
efforts to obtain the withdrawal of any order suspending the effectiveness
of a Registration Statement at the earliest possible moment.
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(i) The Company shall, if requested by the managing underwriter or
underwriters, if any, Holders' Counsel, or any Holder promptly incorporate
in a Prospectus supplement or post-effective amendment such information as
such managing underwriter or underwriters reasonably requests, or Holders'
Counsel reasonably requests, to be included therein, including, without
limitation, with respect to the Registrable Securities being sold by such
Holder to such underwriter or underwriters, the purchase price being paid
therefor by such underwriter or underwriters and with respect to any other
terms of an underwritten offering of the Registrable Securities to be sold
in such offering, and promptly make all required filings of such Prospectus
supplement or post-effective amendment.
(j) The Company shall, as promptly as practicable after filing with
the Commission any document which is incorporated by reference into a
Registration Statement (in the form in which it was incorporated), deliver
a copy of each such document to each of the Holders.
(k) The Company shall cooperate with the Holders and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates (which shall not bear any restrictive legends
unless required under applicable law) representing securities sold under a
Registration Statement, and enable such securities to be in such
denominations and registered in such names as the managing underwriter or
underwriters, if any, or such Holders may reasonably request and keep
available and make available to the Company's transfer agent prior to the
effectiveness of such Registration Statement a supply of such certificates.
(l) The Company shall enter into such customary agreements
(including, if applicable, an underwriting agreement in customary form) and
take such other actions as the Holders or the underwriters retained by the
Holders participating in an underwritten public offering, if any, may
reasonably request in order to expedite or facilitate the disposition of
Registrable Securities.
(m) The Company shall promptly make available to each Holder, any
underwriter participating in any disposition pursuant to a Registration
Statement, and any attorney, accountant or other agent or representative
retained by any such Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records"), as
shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
Inspector in connection with such Registration Statement; PROVIDED that,
unless the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such Registration Statement or the release of
such Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction, the Company shall not be required to provide any
information under this paragraph (1) if the Company believes, after
consultation with
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counsel for the Company and counsel for the Holders, that to do so would
cause the Company to forfeit an attorney-client privilege that was
applicable to such information or (2) if either (i) the Company has
requested and been granted from the Commission confidential treatment of
such information contained in any filing with the Commission or documents
provided supplementally or otherwise or (ii) the Company reasonably
determines in good faith that such Records are confidential and so notifies
the Inspectors in writing unless prior to furnishing any such information
with respect to (i) or (ii) such Holder of Registrable Securities
requesting such information agrees to enter into a confidentiality
agreement in customary form and subject to customary exceptions reasonably
acceptable to the Company; and PROVIDED, FURTHER that each Holder of
Registrable Securities agrees that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction, give notice
to the Company and allow the Company at its expense, to undertake
appropriate action and to prevent disclosure of the Records deemed
confidential.
(n) In the case of any underwritten public offering, the Company
shall furnish to each Holder and to each underwriter a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion or opinions of
counsel to the Company, and (ii) a comfort letter or comfort letters from
the Company's independent public accountants, each in customary form and
covering such matters of the type customarily covered by opinions or
comfort letters, as the case may be, as the managing underwriter therefor
reasonably requests.
(o) The Company shall, on or prior to the effective date of any
Registration Statement, cause the Common Stock to be authorized for
quotation and/or listing, as applicable, on either (i) the New York Stock
Exchange, (ii) the American Stock Exchange , (iii) the National Market
System of the NASDAQ Stock Market or (iv) in the event that the Common
Stock is not, following the exercise of reasonable best efforts by the
Company, eligible for listing on any exchange or quotation system described
in the preceding clauses (i), (ii) and (iii), such other exchange or
quotation system for which the Common Stock is eligible for listing as a
majority in interest of the Holders may approve, which approval shall not
be unreasonably withheld.
(p) The Company shall provide a CUSIP number for all Registrable
Securities covered by a Registration Statement not later than the effective
date of such Registration Statement.
(q) The Company shall cooperate with each Holder and each
underwriter participating in the disposition of Registrable Securities and
their respective counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc. ("NASD").
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(r) The Company shall, during the period when the Prospectus is
required to be delivered under the Securities Act, promptly file all
documents required to be filed with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act.
(s) The Company shall appoint a transfer agent and registrar for
all the shares of Common Stock covered by a Registration Statement not
later than the effective date of such Registration Statement.
(t) In connection with an underwritten offering, the Company will
participate, to the extent reasonably requested by the managing underwriter
for the offering or the Holders, in customary efforts to sell the
securities under the offering, including without limitation, participating
in "road shows."
SECTION 5. SUSPENSION PERIOD.
In the case of a Shelf Registration Statement, each Holder, upon receipt of
any notice (a "Suspension Notice") from the Company of the happening of any
event of the kind described in Section 4(f)(vi), shall forthwith discontinue
disposition of the Registrable Securities pursuant to the Shelf Registration
Statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
4(f) or until it is advised in writing (the "Advice") by the Company that the
use of the Prospectus may be resumed, and has received copies of any additional
or supplemental filings which are incorporated by reference in the Prospectus,
and, if so directed by the Company, such Holder will, or will request the
managing underwriter or underwriters, if any, to, deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice; PROVIDED, HOWEVER, that (w) the
Company shall not give a Suspension Notice until after the Shelf Registration
Statement has been declared effective, (x) the Company shall not give more than
two Suspension Notices during any period of twelve consecutive months, (y) in no
event shall the period from the date on which any Holder receives a Suspension
Notice to the date on which any Holder receives either the Advice or copies of
the supplemented or amended Prospectus contemplated by Section 4(f) (the
"Suspension Period") exceed 45 days and (z) in no event shall the aggregate
length of all Suspension Periods during any period of twelve consecutive months
exceed 60 days. In the event that the Company shall give any Suspension Notice,
(i) the Company shall use its reasonable best efforts and take such actions as
are reasonably necessary to end the Suspension Period as promptly as
practicable, (ii) the time periods for which a Shelf Registration Statement is
required to be kept effective pursuant to Section 2 hereof shall be extended by
the number of days during the Suspension Period and (iii) immediately following
expiration of the Suspension Period, the Company shall, to the extent necessary,
prepare and file with the Commission and furnish a supplement or amendment to
such Prospectus so that, as thereafter deliverable to the purchasers of such
Registrable Securities, such Prospectus will not contain any untrue statement of
a material fact
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or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
SECTION 6. HOLDER INFORMATION.
If any Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right, to the extent permitted by law, to require (i) the insertion therein of
language, in form and substance reasonably satisfactory to such Holder, to the
effect that the holding by such Holder of such securities is not to be construed
as a recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such Holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar Federal or state "blue sky"
statute and the rules and regulations thereunder then in force, the deletion of
the reference to such Holder.
SECTION 7. REGISTRATION EXPENSES.
Any and all expenses incident to the Company's performance of or compliance
with this Grant of Registration Rights, including without limitation all
Commission and securities exchange, NASDAQ or NASD registration and filing fees,
all fees and reasonable expenses incurred in connection with compliance with
state securities or "blue sky" laws (including reasonable fees and disbursements
of one counsel for all underwriters in connection with "blue sky" qualifications
of the Registrable Securities), printing expenses, messenger and delivery
expenses, internal expenses (including, without limitation, all salaries and
expenses of the Company's officers and employees performing legal or accounting
duties), all reasonable expenses for word processing, printing and distributing
any Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements and other
documents relating to the performance of and compliance with this Grant of
Registration Rights, the fees and expenses incurred in connection with the
listing of the Registrable Securities, the fees and disbursements of counsel for
the Company and of the independent certified public accountants of the Company
(including the expenses of any special audit or comfort letters) Securities Act
liability insurance (if the Company elects to obtain such insurance), the fees
and expenses of any special experts or other Persons retained by the Company in
connection with any registration, the reasonable fees and disbursements of
Holders' Counsel (all such expenses being herein called "Registration
Expenses"), will be borne by the Company whether or not the Registration
Statement to which such expenses relate becomes effective PROVIDED, HOWEVER,
that Registration Expenses shall not include underwriting fees, discounts or
commissions attributable to the sale or disposition of Registrable Securities.
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SECTION 8. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless, to the fullest extent permitted by law, each Holder, its
partners, officers, directors, trustees, stockholders, employees, agents and
investment advisers, and each Person who controls such Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act, or
is under common control with, or is controlled by, such Holder, together with
the partners, officers, directors, trustees, stockholders, employees and agents
of such controlling Person (collectively, the "Controlling Persons"), from and
against all losses, claims, damages, liabilities and expenses (including without
limitation any reasonable legal or other fees and expenses actually incurred in
connection with defending or investigating any action or claim in respect
thereof) (collectively, the "Damages") to which such Holder, its partners,
officers, directors, trustees, stockholders, employees, agents and investment
advisers, and any such Controlling Person may become subject under the
Securities Act, insofar as such Damages (or proceedings in respect thereof)
arise out of or are based upon any untrue or alleged untrue statement of
material fact contained in any Registration Statement (or any amendment thereto)
pursuant to which Registrable Securities were registered under the Securities
Act, including all documents incorporated therein by reference, or caused by any
omission or alleged omission to state therein a material fact necessary to make
the statements therein in light of the circumstances under which they were made
not misleading, or caused by any untrue statement or alleged untrue statement of
a material fact contained in any Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact necessary
to make the statements therein in light of the circumstances under which they
were made not misleading, except insofar as such Damages arise out of or are
based upon any such untrue statement or omission based upon information relating
to such Holder furnished in writing to the Company by such Holder (or by a
Person authorized to provide such information on behalf of such Holder)
expressly for use therein.
(b) INDEMNIFICATION BY THE HOLDERS. Each Holder agrees, severally and not
jointly, to indemnify and hold harmless to the fullest extent permitted by law
the Company, its directors, officers, stockholder employee, agents, attorneys,
and investment advisers and each Person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, or is under common control with, or is controlled by, the Company,
together with its Controlling Person, from and against all Damages to which the
Company and any such Controlling Persons may become subject under the Securities
Act insofar as such Damages (or proceedings in respect thereof) arise out of or
are based upon any untrue or alleged untrue statement of material fact contained
in any Registration Statement (or any amendment thereto) pursuant to which
Registrable Securities were registered under the Securities Act (including all
documents incorporated therein by reference), or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein in light of the circumstances under which they were made not
misleading, or caused by any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (as amended or supplemented if the
Company shall
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have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact necessary to make the
statements therein in light of the circumstances under which they were made not
misleading, to the extent, but only to the extent that such Damages arise out of
or are based upon any such untrue statement or alleged untrue statement or
omission or alleged omission based upon information relating to such Holder
furnished in writing to the Company by such Holder (or by a Person authorized to
provide such information on behalf of such Holder) expressly for inclusion
therein; PROVIDED, HOWEVER, that such selling Holder shall not be liable in any
such case to the extent that such Damages result from the failure of the Company
to promptly amend or take action to correct or supplement any such Registration
Statement or Prospectus on the basis of corrected or supplemental information
provided in writing by such selling Holder to the Company expressly for such
purpose.
(c) INDEMNIFICATION PROCEDURES. In case any proceeding (including any
governmental investigation) shall be instituted involving any Person in respect
of which indemnity may be sought pursuant to either paragraph (a) or (b) above,
such Person (the "indemnified party") shall promptly notify the Person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceedings and shall pay the
reasonable fees and disbursements of such counsel relating to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, or (ii) the
indemnifying party fails promptly to assume the defense of such proceeding or
fails to employ counsel reasonably satisfactory to such indemnified party or
parties, or (iii) (A) the named parties to any such proceeding (including any
impleaded parties) include both such indemnified party or parties and any
indemnifying party or an Affiliate of such indemnified party or parties or of
any indemnifying party, (B) there may be one or more legal defenses available
to such indemnified party or parties or such Affiliate of such indemnified party
or parties that are different from or additional to those available to any
indemnifying party or such Affiliate of any indemnifying party and (C) such
indemnified party or parties shall have been advised by such counsel that there
may exist a legal conflict of interest between or among such indemnified party
or parties or such Affiliate of such indemnified party or parties and any
indemnifying party or such Affiliate of any indemnifying party, in which case,
if such indemnified party or parties notifies the indemnifying party or parties
in writing that it elects to employ separate counsel of its choice at the
reasonable expense of the indemnifying parties, the indemnifying parties shall
not have the right to assume the defense thereof and such counsel shall be at
the reasonable expense of the indemnifying parties, it being understood,
however, that unless there exists a conflict among indemnified parties, the
indemnifying parties shall not, in connection with any one such proceeding or
separate but substantially similar or related proceedings in the same
jurisdiction, arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys at
any time for such indemnified party or parties. The indemnifying party
15
<PAGE>
shall not be liable for any settlement of any proceeding effected without its
written consent (which will not be unreasonably withheld) but, if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party or parties from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent (which will not be unreasonably
withheld) of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which such indemnified party is a party, and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
(d) CONTRIBUTION. To the extent that the indemnification provided for in
paragraph (a) or (b) of this Section 8 is unavailable to an indemnified party or
insufficient in respect of any Damages, then each indemnifying party under such
paragraph, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such Damages in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the Holders on the other hand in
connection with the statements or omissions that resulted in such Damages, as
well as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of the Holders on the other hand shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
Notwithstanding the provisions of this Section 8(d), no Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Holder were offered to the
public exceeds the amount of any damages which such Holder has otherwise been
required to pay by reason of such untrue statement or omission. Each Holder's
obligation to contribute pursuant to this Section 8(d) is several in the
proportion that the proceeds of the offering received by such Holder bears to
the total proceeds of the offering received by all the Holders and not joint.
If indemnification is available under paragraph (a) or (b) of this Section
8, the indemnifying parties shall indemnify each indemnified party to the full
extent provided in such paragraphs without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 8(d).
The Company and each Holder agrees that it would not be just or equitable
if contribution pursuant to this Section 8(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the Damages referred to in this Section 8
shall be deemed to include, subject to the limitations set forth above, any
reasonable legal or other expenses incurred (and not otherwise reimbursed) by
such
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<PAGE>
indemnified party in connection with investigating or defending any such action
or claim. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
remedies provided for in this Section 8 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any indemnified party
at law or in equity.
SECTION 9.
(a) RULE 144. The Company covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act (or, if
the Company is not required to file such reports, it will, upon the request of
any Holder, make publicly available other information so long as necessary to
permit sales under Rule 144 under the Securities Act), and it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rules may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any Holder, the Company will deliver to
such Holder a written statement as to whether it has complied with such
requirements.
(b) RULE 144A. Upon the request of any Holder, the Company shall deliver
to such holder within 20 days following receipt by the Company of such request,
the information required by Section (d)(4) of Rule 144A under the Securities
Act, as such rule may be amended from time to time or any similar rule or
regulation hereafter adopted by the Commission ("Rule 144A"), and will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitations or the exemptions
provided by Rule 144A. All information shall be "reasonably current" as defined
in Rule 144A.
SECTION 10. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Grant of Registration
Rights, including the provisions of this sentence, may not be amended, modified
or supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless the Company has obtained the written consent of
the Holders of a majority in interest of the Registrable Securities then
outstanding.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by registered or certified mail (return
receipt requested), postage prepaid or courier to any Holder, at such Holder's
address as set forth in the Company's books or, if to
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the Company, to Lamonts Apparel, Inc., 12413 Willows Road N.E., Kirkland, WA
98034 (or at such other address for any party as shall be specified by like
notice, provided that notices of a change of address shall be effective only
upon receipt thereof). All such notices and communications shall be deemed to
have been received: at the time delivered by hand, if personally delivered; two
business days after being deposited in the mail, postage prepaid, if mailed; and
on the next business day if timely delivered to a courier guaranteeing overnight
delivery.
(c) SUCCESSORS AND ASSIGNS. This Grant of Registration Rights shall inure
to the benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders of Registrable Securities. If any Holder
shall acquire Registrable Securities in any manner, whether by operation of law
or otherwise, such Registrable Securities shall be held subject to all of the
terms of this Grant of Registration Rights, and by taking and holding such
Registrable Securities such person shall be entitled to receive the benefits
hereof.
(d) HEADINGS. The headings in this Grant of Registration Rights are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(e) GOVERNING LAW. This Grant of Registration Rights shall be governed by
and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of law.
(f) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
(g) ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Grant of Registration Rights or where any provision hereof is
validly asserted as a defense, the successful party shall, to the extent
permitted by applicable law, be entitled to recover reasonable attorneys' fees
and expenses in addition to any other available remedy.
(h) FURTHER ASSURANCES. Each party shall cooperate and take such action
as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Grant of Registration Rights and the
transactions contemplated hereby.
(i) REMEDIES. Except as provided in Section 2 hereof with respect to
liquidated damages, in the event of a breach or a threatened breach by the
Company of its obligations under this Grant of Registration Rights, any party
injured or to be injured by such breach will be entitled to specific performance
of its rights under this Grant of Registration Rights or to injunctive relief,
in addition to being entitled to exercise all rights granted by law. Except as
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<PAGE>
otherwise provided in Section 2 hereof with respect to liquidated damages, the
parties agree that the provisions of this Grant of Registration Rights shall be
specifically enforceable, it being agreed by the parties that the remedy at law,
including monetary damages, is inadequate and that any objection in any action
for specific performance or injunctive relief that a remedy at law would be
adequate is waived.
(j) REGISTRATION RIGHTS TO OTHERS. The Company shall not provide to any
holder of its securities (other than a Qualified Investor) registration rights
with respect to the registration of such securities under the Securities Act;
provided that the Company may grant "piggyback" registration rights which are
not senior in priority to the rights of Holders of Registrable Securities
pursuant to Section 3 hereof.
(m) LIMITATION OF LIABILITY. The Company hereby acknowledges and agrees
that the obligations of this Grant of Registration Rights are not binding upon
any of the partners, trustees, officers, employees, beneficiaries or
shareholders of any Holder individually, but are binding only upon the assets
and property of such Holder. The Company agrees that no beneficiary, employee,
shareholder, trustee or officer of any Holder may be held personally liable or
responsible for any obligations of such Holder arising out of this Grant of
Registration Rights. With respect to obligations of any such Holder arising out
of this Grant of Registration Rights, the Company shall look for payment or
satisfaction of any claim solely to the assets and property of such Holder.
With respect to any Holder which is a portfolio of a Massachusetts business
trust, the Company is expressly put on notice that the rights and obligations of
each series of shares of such Holder under its Declaration of Trust are separate
and distinct from those of any and all other series. Each Holder hereby
acknowledges and agrees that the obligations of the Company under this Grant of
Registration Rights are not binding upon any of the directors, employees,
officers or shareholders of the Company individually, and that no such person
may be held personally liable or responsible for any obligations of the Company
arising out of this Grant of Registration Rights.
[Remainder of Page Intentionally Left Blank]
19
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TAB 7
EMPLOYEE STOCK OPTION PLAN
<PAGE>
LAMONTS APPAREL, INC.
1996 STOCK OPTION PLAN
<PAGE>
LAMONTS APPAREL, INC.
1996 STOCK OPTION PLAN
Section Page
- ------- ----
1. Purpose; Grants of Options; Construction . . . . . . . . . . . 1
2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Administration . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Stock Subject to the Plan. . . . . . . . . . . . . . . . . . . 8
6. Specific Terms of Options. . . . . . . . . . . . . . . . . . . 9
7. Change in Control Provisions . . . . . . . . . . . . . . . . . 11
8. Loan Provisions. . . . . . . . . . . . . . . . . . . . . . . . 11
9. General Provisions . . . . . . . . . . . . . . . . . . . . . . 11
1
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LAMONTS APPAREL, INC.
1996 STOCK OPTION PLAN
1. PURPOSE; TYPES OF OPTIONS; CONSTRUCTION.
The 1996 Stock Option Plan (the "Plan") of Lamonts Apparel, Inc. (the
"Company") is adopted pursuant to the "Debtor's Amended Plan of Reorganization
under Chapter 11 of the Bankruptcy Code" (the "Reorganization Plan") which was
filed by the Company and confirmed by order of the United States Bankruptcy
Court for the Western District of Washington at Seattle on ___________________,
1997, and shall be effective as of the "Effective Date" as defined in the
Reorganization Plan. The purpose of the Plan is to afford an incentive to
selected employees, consultants and directors of the Company, or any Subsidiary
or Affiliate which now exists or hereafter is organized or acquired, to acquire
a proprietary interest in the Company, to continue as employees or consultants,
as the case may be, to increase their efforts on behalf of the Company and to
promote the success of the Company's business. Pursuant to Section 6 of the
Plan, nonqualified stock options may be granted under the Plan. The Plan also
provides the authority to make loans to purchase Stock Option shares. The Plan
is designed to comply with the requirements of Regulation G (12 C.F.R. Section
207) regarding the purchase of shares on margin and the conditions for exemption
from short-swing profit recovery rules under Rule 16b-3 of the Exchange Act, and
shall be interpreted in a manner consistent with the requirements thereof.
2. DEFINITIONS.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity if, at the time of granting of
an Option or a Loan, (i) the Company, directly or indirectly, owns at least 50%
of the combined voting power of all classes of stock of such entity or at least
50% of the ownership interests in such entity or (ii) such entity, directly or
indirectly, owns at least 50% of the combined voting power of all classes of
stock of the Company.
(b) "Aggregate Equity Trading Value" shall have the meaning set
forth in the Warrant Agreement.
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(c) "Beneficiary" means the person, persons, trust or trusts
which have been designated by an Optionee in his or her most recent written
beneficiary designation filed with the Company to receive the benefits specified
under the Plan upon his or her death, or, if there is no designated Beneficiary
or surviving designated Beneficiary, then the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive such
benefits.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means a change in control of the Company
which will be deemed to have occurred if:
(i) any "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than (A) the Company, (B) any
trustee or other fiduciary holding securities under an employee
benefit plan of the Company, (C) any corporation owned, directly or
indirectly, by the shareholders of the Company in substantially the
same proportions as their ownership of Stock or (D) as a result of the
exercise of warrants issued under the Warrant Agreement), becomes
after the Effective Date the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities
of the Company representing 50% or more of the combined voting power
of the Company's then outstanding voting securities;
(ii) during any period of two consecutive years individuals
who at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described
in clause (i), (iii) or (iv) of Section 2(e)) whose election by the
Board or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority
thereof;
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result
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in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving or parent
entity) 50% or more of the combined voting power of the voting
securities of the Company or such surviving or parent entity
outstanding immediately after such merger or consolidation or (B) a
merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquired 50% or more of the combined voting power
of the Company's then outstanding securities; or
(iv) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect).
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" means the Board or the committee established by
the Board to administer the Plan, the composition of which shall at all times
satisfy the provisions of Rule 16b-3.
(h) "Company" means Lamonts Apparel, Inc., a corporation
organized under the laws of the State of Delaware, or any successor corporation.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(j) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
Committee. Unless otherwise determined by the Committee in good faith, the per
share Fair Market Value of Stock as of a particular date shall mean (i) the
closing sales price per share of Stock on the national securities exchange on
which the Stock is principally traded, for the last preceding date on which
there was a sale of such Stock on such exchange, or (ii) if the shares of Stock
are then traded in an over-the-counter market, the average of the closing bid
and asked
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prices for the shares of Stock in such over-the-counter market for the last
preceding date on which there was a sale of such Stock in such market, or (iii)
if the shares of Stock are not then listed on a national securities exchange or
traded in an over-the-counter market, such value as the Committee, in its sole
discretion, shall determine.
(k) "Loan" means the proceeds from the Company borrowed by a
Plan participant under Section 8 of the Plan.
(l) "NQSO" means any Option that is designated as a nonqualified
stock option.
(m) "Option" means a right, granted to an Optionee under Section
6, to purchase shares of Stock.
(n) "Option Agreement" means any written agreement, contract, or
other instrument or document evidencing an Option granted under the Plan.
(o) "Optionee" means a person who, as an employee or consultant
of the Company, a Subsidiary or an Affiliate, has been granted an Option under
the Plan.
(p) "Plan" means this Lamonts Apparel, Inc. 1996 Stock Option
Plan, as amended from time to time.
(q) "Rule 16b-3" means Rule 16b-3, as from time to time in
effect promulgated by the Securities and Exchange Commission under Section 16 of
the Exchange Act, including any successor to such Rule.
(r) "Stock" means shares of the common stock, par value $.01 per
share, of the Company.
(s) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of an
Option, each of the corporations (other than the last corporation in the
unbroken chain) owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain.
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(t) "Warrant Agreement" means that certain Warrant Agreement,
dated as of _____________, 1997, between the Company and ______________, as
Warrant Agent, adopted pursuant to the Reorganization Plan.
3. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee shall
have the authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan or the Reorganization Plan, to administer the
Plan and to exercise all the powers and authorities either specifically granted
to it under the Plan or necessary or advisable in the administration of the
Plan, including, without limitation, the authority to grant Options and make
Loans; to determine the persons to whom and the time or times at which Options
shall be granted and Loans shall be made; to determine number of Options to be
granted and the amount of any Loan, the number of shares of Stock to which an
Option may relate and the terms, conditions and performance criteria (if any)
relating to any Loan; and to determine whether, to what extent, and under what
circumstances an Option may be settled, cancelled, forfeited, exchanged, or
surrendered; to make adjustments in the terms and conditions of, and the
criteria and performance objectives (if any) included in, Options and Loans in
recognition of unusual or non-recurring events affecting the Company or any
Subsidiary or Affiliate or the financial statements of the Company or any
Subsidiary or Affiliate, or in response to changes in applicable laws,
regulations or accounting principles; to designate Affiliates; to construe and
interpret the Plan and any Option or Loan; to prescribe, amend and rescind rules
and regulations relating to the Plan; to determine the terms and provisions of
the Option Agreements and any promissory note or agreement related to any Loan
(which need not be identical for each Optionee); and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The Committee may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by written consent. The
Committee may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations and
interpreta-
5
<PAGE>
tions of the Committee shall be final and binding on all persons, including the
Company, and any Subsidiary, Affiliate or Optionee (or any person claiming any
rights under the Plan from or through any Optionee) and any shareholder.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Option
granted or Loan made hereunder.
4. ELIGIBILITY.
Options and Loans may be granted to selected employees, consultants
and directors (including directors who are employees of the Company) of the
Company and its present or future Subsidiaries and Affiliates, in the discretion
of the Committee, but subject to the requirements of the Reorganization Plan.
In determining the persons to whom Options and Loans shall be granted and the
amount of any Loan (including the number of shares and exercise price to be
covered by such Option), the Committee shall take into account such factors as
the Committee shall deem relevant in connection with accomplishing the purposes
of the Plan.
5. STOCK SUBJECT TO THE PLAN.
The number of shares of Stock reserved for the grant of Options under
the Plan shall be 1,375,000 shares of Stock, subject to adjustment as provided
herein, of which 1,000,000 shall be distributed in accordance with the
Employment Agreements (as defined below) and 375,000 shares shall be reserved
for the grant of Options under the Plan if, and to the extent, the Committee
determines that such reservation of additional shares is in the best interest of
the Company. Such shares may, in whole or in part, be authorized but unissued
shares of Stock or shares that shall have been or may be reacquired by the
Company in the open market, in private transactions or otherwise. If any shares
subject to an Option are forfeited, cancelled, exchanged or surrendered or if an
Option otherwise terminates or expires without a distribution of shares to the
Optionee, the shares of Stock with respect to such Option shall, to the extent
of any such forfeiture, cancellation, exchange, surrender, termination or
expiration, again be available for Options under the Plan.
If any dividend or other distribution (whether in the form of cash,
Stock or other property), recapitalization, stock split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase or
share exchange,
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or other similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Optionees under the Plan, then the Committee shall make such equitable
changes or adjustments as are reasonably necessary or appropriate to any or all
of (i) the number and kind of shares of Stock that may thereafter be issued in
connection with Options, (ii) the number and kind of shares of Stock issued or
issuable in respect of outstanding Options, and (iii) the grant or exercise
price relating to any Option.
Without limiting the foregoing, (a) on the first date on which the
Aggregate Equity Trading Value equals or exceed $20,000,000, the number of
shares of Stock issuable under each outstanding Option shall be multiplied by
1.244814, without any change in the aggregate exercise price relating to such
Option and (b) on the first date on which the Aggregate Equity Trading Value
equals or exceed $25,000,000, the number of shares of Stock issuable in under
each outstanding Option (as adjusted) shall be further multiplied by
1.071428342, without any change in the aggregate exercise price relating to such
Option; PROVIDED, however, that the foregoing adjustments shall not be made with
respect to the Options to purchase the additional 375,000 shares of stock which
may be granted in accordance with Section 5.
6. SPECIFIC TERMS OF OPTIONS.
(a) GENERAL. The term of each Option shall be for such period
as may be determined by the Committee. In addition, the Committee may impose on
any Option or the exercise thereof, at the date of grant or thereafter, such
additional terms and conditions, not inconsistent with the provisions of the
Plan, as the Committee shall determine. Notwithstanding anything to the
contrary contained herein, and without any effect resulting from subsequent
amendments to the Plan in accordance with Section 9(d) hereof, Options to
purchase 1,000,000 shares shall be granted as set forth on Exhibit A hereto and
otherwise in accordance with the terms of those certain employment agreements
between each of Messrs. Schlesinger and Rothschild and the Company in effect on
the Effective Date (the "Employment Agreements").
(b) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee; PROVIDED THAT,
in no event shall the exercise price for the purchase of shares be less than par
value. The exercise price for Stock subject to an Option may be paid in cash or
by an exchange of Stock previously owned by the Optionee, or a combination
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<PAGE>
of both, in an amount having a combined value (based on the Fair Market Value of
such Stock) equal to such exercise price. An Optionee may also elect to pay all
or a portion of the aggregate exercise price by having shares of Stock with a
Fair Market Value on the date of exercise equal to the aggregate exercise price
withheld by the Company or sold by a broker-dealer under circumstances meeting
the requirements of 12 C.F.R. Section 220 or any successor thereof.
(c) TERM AND EXERCISABILITY OF OPTIONS. The date on which the
Committee adopts a resolution expressly granting an Option shall be considered
the day on which such Option is granted. Options shall be exercisable over the
exercise period (which shall not exceed ten years from the date of grant), at
such times and upon such conditions as the Committee may determine, as reflected
in the Option Agreement; PROVIDED THAT the Committee shall have the authority to
accelerate the exercisability of any outstanding Option at such time and under
such circumstances as it, in its sole discretion, deems appropriate. An Option
may be exercised to the extent of any or all full shares of Stock as to which
the Option has become exercisable, by giving written notice of such exercise to
the Committee or its designated agent.
(d) TERMINATION OF EMPLOYMENT, ETC. An Option may not be
exercised unless the Optionee is then a director of, in the employ of, or then
maintains a consulting relationship with, the Company or a Subsidiary or an
Affiliate (or a company or a parent or subsidiary company of such company
issuing or assuming the Option in a transaction to which Section 424(a) of the
Code applies), and unless the Optionee has remained continuously so employed, or
continuously maintained such relationship, since the date of grant of the
Option; PROVIDED THAT the Option Agreement may contain provisions extending the
exercisability of Options, in the event of specified terminations, to a date not
later than the expiration date of such Option.
(e) OTHER PROVISIONS. Options may be subject to such other
conditions including, but not limited to, restrictions on transferability of the
shares acquired upon exercise of such Options, as the Committee may prescribe in
its discretion or as may be required by applicable law.
7. CHANGE IN CONTROL PROVISIONS. In the event of a Change of
Control:
(a) any Option carrying a right to exercise that was not
previously exercisable and vested shall become fully exercisable and vested; and
8
<PAGE>
(b) the restrictions, deferral limitations, payment conditions
and forfeiture conditions applicable to any other Option granted under the Plan
shall lapse and such Options shall be deemed fully vested, and any performance
conditions imposed with respect to Options shall be deemed to be fully achieved.
8. LOAN PROVISIONS. Subject to the provisions of the Plan and all
applicable federal and state laws, rules and regulations including, but not
limited to, the requirements of Regulation G (12 C.F.R. Section 207), the
Committee shall have the authority to make Loans to Optionees (on such terms and
conditions as the Committee shall determine), to enable such Optionees to
purchase shares issuable upon the exercise of Options. Loans shall be evidenced
by a promissory note or other agreement, signed by the borrower, which shall
contain provisions for repayment and such other terms and conditions as the
Committee shall determine.
9. GENERAL PROVISIONS.
(a) NONTRANSFERABILITY. Options shall not be transferable by an
Optionee except by will or the laws of descent and distribution or, if then
permitted under Rule 16b-3, pursuant to a qualified domestic relations order as
defined under the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder, and shall be exercisable during
the lifetime of an Optionee only by such Optionee or his guardian or legal
representative.
(b) NO RIGHT TO CONTINUED EMPLOYMENT, ETC. Nothing in the Plan
or in any Option granted or Loan made or any Option Agreement, promissory note
or other agreement entered into pursuant hereto shall confer upon any Optionee
the right to continue in the employ of or to continue as a consultant of the
Company, any Subsidiary or any Affiliate or to be entitled to any remuneration
or benefits not set forth in the Plan or such Option Agreement, promissory note
or other agreement or to interfere with or limit in any way the right of the
Company or any such Subsidiary or Affiliate to terminate such Optionee's
employment or consulting relationship.
(c) TAXES. The Company or any Subsidiary or Affiliate is
authorized to withhold from any Option granted, any payment relating to an
Option under the Plan, including from a distribution of Stock, or any other
payment to an Optionee, amounts of withholding and other taxes due in connection
with any transaction involving an Option, and to take such other action as the
9
<PAGE>
Committee may deem advisable to enable the Company and Optionees to satisfy
obligations for the payment of withholding taxes and other tax obligations
relating to any Option. This authority shall include authority to withhold or
receive Stock or other property and to make cash payments in respect thereof in
satisfaction of an Optionee's tax obligations.
(d) AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any
time and from time to time alter, amend, suspend or terminate the Plan in whole
or in part; PROVIDED THAT, no amendment shall affect adversely any of the rights
of any Optionee, without such Optionee's consent, under any Option or Loan
theretofore granted under the Plan or the Reorganization Plan.
(e) NO RIGHTS TO OPTIONS OR LOANS; NO SHAREHOLDER RIGHTS. No
Optionee shall have any claim to be granted any Option or Loan under the Plan,
and there is no obligation for uniformity of treatment of Optionees. Except as
provided specifically herein, an Optionee or a transferee of an Option shall
have no rights as a shareholder with respect to any shares covered by an Option
until the date of the issuance of a stock certificate to him for such shares.
(f) UNFUNDED STATUS OF OPTIONS. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to an Optionee pursuant to an Option,
nothing contained in the Plan or any Option shall give any such Optionee any
rights that are greater than those of a general creditor of the Company.
(g) NO FRACTIONAL SHARES. No fractional shares of Stock shall
be issued or delivered pursuant to the Plan or any Option. The Committee shall
determine whether cash or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
(h) REGULATIONS AND OTHER APPROVALS.
(I) The obligation of the Company to sell or deliver Stock
with respect to any Option granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
10
<PAGE>
(II) Each Option is subject to the requirement that, if at
any time the Committee determines, in its absolute discretion, that the listing,
registration or qualification of Stock issuable pursuant to the Plan is required
by any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Stock, no such Option shall be granted or payment made or Stock issued, in whole
or in part, unless listing, registration, qualification, consent or approval has
been effected or obtained free of any conditions not acceptable to the
Committee.
(III) In the event that the disposition of Stock acquired
pursuant to the Plan is not covered by a then current registration statement
under the Securities Act and is not otherwise exempt from such registration,
such Stock shall be restricted against transfer to the extent required by the
Securities Act or regulations thereunder, and the Committee may require an
Optionee receiving Stock pursuant to the Plan, as a condition precedent to
receipt of such Stock, to represent to the Company in writing that the Stock
acquired by such Optionee is acquired for investment only and not with a view to
distribution.
(i) GOVERNING LAW. The Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of
Delaware without giving effect to the conflict of laws principles thereof.
(j) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall take
effect on the Effective Date.
11
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
NAME OPTIONS VESTING
GRANTED
- --------------------------------------------------------------------------------
Alan R. Schlesinger 600,000 50% on the Effective Date; 25% on
the first anniversary of the
Effective Date; and 25% on the
second anniversary of the Effective
Date.
- --------------------------------------------------------------------------------
Loren R. Rothschild 150,000 50% on the Effective Date; and 50%
on the first anniversary of the
Effective Date.
- --------------------------------------------------------------------------------
Other employees* 250,000 To be determined
- --------------------------------------------------------------------------------
Total 1,000,000
- --------------------------------------------------------------------------------
*To be granted to employees of the Company (other than Messrs. Rothschild and
Schlesinger) from time to time, in such amounts and subject to such terms, as
management of the Company shall determine.
The above options shall have an initial exercise price of $1.00 per share,
subject to adjustment to prevent dilution upon exercise of the Warrants, and a
term of ten years.
12
<PAGE>
TAB 8
GORDIAN WARRANT AGREEMENT
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of ___________, between Lamonts Apparel, Inc.
(the "Company"), and Gordian Group, L.P. ("Gordian") with respect to the
Company's issuance of warrants (the "Warrants") to purchase shares (the
"Warrant Shares") of the Company's common stock (the "Common Stock"). This
Warrant Agreement is adopted pursuant to the "Debtor's Amended Plan of
Reorganization under Chapter 11 of the Bankruptcy Code" (the "Reorganization
Plan") which was filed by the Company and confirmed by order of the United
States Bankruptcy Court for the Western District of Washington at Seattle on
________________, 1997, and shall be effective as of the "Effective Date" as
defined in the Reorganization Plan.
Section 1. CERTAIN DEFINITIONS. For the purposes of this Agreement,
(a) "CLOSING PRICE" means (i) the closing sales price per share on the
national securities exchange on which the common stock is principally traded,
or (ii) if the shares are then traded in an over-the-counter market, the
average of the closing bid and asked prices on such market, or (iii) if the
shares are not then traded on the national securities exchange or in an
over-the-counter market, then such value as Lamont's Board of Directors shall
in good faith reasonably determine; if Gordian disagrees with such
determination, then an investment banking firm shall be mutually agreed upon,
engaged and compensated by Lamonts for a definitive valuation of the
Normalized Share Price (as hereinafter defined).
(b) "COMMON STOCK" means (i) the class of stock designated as the common
stock of the Company on the date hereof or (ii) any other class of stock
resulting from successive changes or reclassifications of such shares
consisting solely of changes in par value, or from par value to no par value,
or from no par value to par value. Unless the context requires otherwise,
all references to Common Stock and Warrant Shares in this Agreement and in
the Warrant Certificates (as defined herein) shall, in the event of an
adjustment pursuant to Section 8 hereof, be deemed to refer also to any other
securities or property then issuable upon exercise of the Warrants as a
result of such adjustment.
(c) "EXERCISE PERIOD" means the period during which the Warrants may be
exercised.
Section 2. FORM OF WARRANT CERTIFICATE; PURCHASE PRICE.
2.1 The certificate(s) evidencing the Warrants (the "Warrant
Certificates") (and the forms of election to purchase Warrant Shares and of
assignment of Warrants to be printed on the reverse thereof) shall be
substantially in the form attached hereto as Exhibit A, and may have such
letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed or engraved thereon
as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto.
<PAGE>
2.2 Each Warrant shall entitle the holder thereof to purchase one
Warrant Share upon the exercise thereof at the applicable Exercise Price (as
defined in Section 3 hereof) subject to adjustment as provided in Section 8
hereof during the time period specified in Section 3 hereof; PROVIDED,
HOWEVER, that the Warrants are exercisable only for whole shares; cash will
be paid in lieu of fractional shares in accordance with Section 3.3. The
Warrant Certificate shall be executed on behalf of the Company by the manual
or facsimile signature of the present or any future President or any Vice
President of the Company, attested by the manual or facsimile signature of
the present or future Secretary or Assistant Secretary of the Company.
Warrants shall be dated as of the date of their initial issuance.
Section 3. DURATION AND EXERCISE OF WARRANTS.
3.1 (a) The Warrants may be exercised at any time on or after the date
of their issuance and, subject to earlier expiration pursuant to Section 10,
will expire at 5:00 p.m., New York time, on the fifth anniversary of the date
hereof (the "Expiration Date"). Upon the Expiration Date, all rights
evidenced by the Warrants shall terminate and the Warrants shall become void.
(b) Subject to the provisions of this Agreement, the registered holder
of each Warrant shall have the right to purchase from the Company (and the
Company shall issue and sell to such registered holder) one fully paid and
nonassessable Warrant Share (or such number of Warrant Shares as may result
from adjustments made from time to time as provided in this Agreement), at
the exercise price per Warrant Share in lawful money of the United States of
America (such exercise price per Warrant Share, as adjusted from time to time
as provided herein, being referred to herein as the "Exercise Price"), upon
(i) surrender of the Warrant Certificates to the Company, and (ii) payment,
in lawful money of the United States of America, of the Exercise Price for
the Warrant Share or Warrant Shares in respect of which such Warrant is then
exercised. The Warrants may be exercised for all or some of the Warrant
Shares. The number of shares for which the warrants will be exercisable in
the aggregate will be equal to $200,000 divided by the "Normalized Share
Price" defined below. The Exercise Price will be initially set equal to the
Normalized Share Price. The Normalized Share Price will be set equal to the
average closing price of the common stock for the 45 trading days commencing
45 calendar days following the Effective Date of the Reorganization Plan.
The Exercise Price payable upon exercise of Warrants may at the option of the
holder be paid in cash, certified check or money order payable to the order
of the Company. Except as provided in Section 8 hereof, no adjustment shall
be made for any dividends on any share of Common Stock issuable upon exercise
of a Warrant. Upon surrender of a Warrant Certificate, and payment of the
Exercise Price, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the registered holder of
such Warrant and in such name or names and in such per share amounts as such
registered holder may reasonably designate, a certificate or certificates for
the number of Warrant Shares so purchased upon the exercise of such Warrant,
together with cash in respect of any fraction of a Warrant Share issuable
upon such surrender.
<PAGE>
(c) Each person in whose name any certificate for Warrant Shares is
issued upon the exercise of Warrants shall for all purposes be deemed to have
become the holder of record of the Warrant Shares represented thereby, and
such certificate shall be dated the date upon which the Warrant Certificate
evidencing such Warrants was duly surrendered and payment of the Exercise
Price (and any applicable transfer taxes pursuant to Section 4 hereof) was
made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a
date upon which the Common Stock transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such Warrant
Shares on, and such certificate shall be dated, the next succeeding business
day on which the Common Stock transfer books of the Company are open.
3.2 The Warrants evidenced by a Warrant Certificate shall be
exercisable, at the election of the registered holder thereof, either as an
entirety or from time to time for only part of the number of Warrants
specified in the Warrant Certificate. In the event that less than all of the
Warrants represented by a Warrant Certificate are exercised before 5:00 p.m.,
New York time, on the Expiration Date, a new Warrant Certificate, duly
executed by the company, will be issued for the remaining number of Warrants
exercisable pursuant to the Warrant Certificate so surrendered.
3.3 No fractional shares of Common Stock shall be issued to any holder
in connection with the exercise of a Warrant. Instead of any fractional
shares of Common Stock that would otherwise be issuable to such holder, the
Company will pay to such holder a cash adjustment in respect of such
fractional interest in an amount equal to that fractional interest of the
then current Closing Price per share of Common Stock.
3.4 The number of Warrant Shares to be received upon the exercise of a
Warrant and the price to be paid for a Warrant Share are subject to
adjustment from time to time as hereinafter set forth.
Section 4. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the original issuance of the Warrants and of the
shares of Common Stock issuable upon the exercise of Warrants; PROVIDED,
HOWEVER, that the Company shall not be required to (a) pay any tax which may
be payable in respect to any transfer involved in the transfer and delivery
of Warrant Certificates or the issuance or delivery of certificates for
Warrant Shares in a name other than that of the registered holder of the
Warrant Certificate surrendered upon the exercise of a Warrant, or (b) issue
or deliver any certificate for Warrant Shares upon the exercise of any
Warrants until any such tax required to be paid under clause (a) shall have
been paid, all such tax being payable by the holder of such Warrant at the
time of surrender.
Section 5. MUTILATED OR MISSING WARRANTS. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company may in its
discretion issue, or in lieu of and substitution for the lost, stolen or
destroyed Warrant Certificate, a new Warrant Certificate of like tenor and
evidencing the number of Warrant Shares purchasable upon exercise of the
Warrant Certificate so mutilated, lost, stolen or destroyed, but only upon
receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant Certificate and indemnity, if requested, also
satisfactory to it. Applicants for such substitute Warrant Certificate shall
also
<PAGE>
comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe. Any such new Warrant Certificate shall
constitute an original contractual obligation of the Company, whether or not
the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall
be at any time enforceable by anyone.
Section 6. RESERVATION OF WARRANT SHARES; STOCK CERTIFICATES. The
Company shall at all times reserve for issuance and delivery upon exercise of
the Warrants, such number of Warrant Shares or other shares of capital stock
of the Company from time to time issuable upon exercise of the Warrants. All
such shares shall be duly authorized and, when issued upon such exercise,
shall be validly issued, fully paid and nonassessable, free and clear of all
liens, security interests, charges and other encumbrances or restrictions on
sale (other than restrictions on transfer imposed under federal or state
securities laws) and free and clear of all preemptive rights. The Company is
hereby irrevocably authorized to requisition from time to time from the
Company's transfer agent stock certificates issuable upon exercise of
outstanding Warrants. All Warrants surrendered upon exercise shall be
canceled by the Company and shall thereafter be delivered to the Company or
otherwise disposed of in a manner satisfactory to the Company. The Company
shall keep a copy of this Agreement on file with its transfer agent and with
every transfer agent for any shares of Common Stock.
Section 7. RIGHTS OF WARRANT CERTIFICATE HOLDER. The holder of any
Warrant Certificate or Warrant shall not, by virtue thereof, be entitled to
any rights of a stockholder of the Company, either at law or in equity, and
the rights of the holder are limited to those expressed in this Agreement.
Section 8. ANTIDILUTION PROVISIONS. The Exercise Price and the
number of Warrant Shares that may be purchased upon the exercise of a Warrant
will be subject to change or adjustment as follows:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If at any time after the date of
the issuance of the Warrants and before 5:00 p.m., New York time, on the
Expiration Date, (i) the Company shall fix a record date for the issuance of
any stock dividend payable in shares of Common Stock or (ii) the number of
shares of Common Stock shall have been increased by a subdivision or split-up
of shares of Common Stock, then, on the record date fixed for the
determination of holders of Common Stock entitled to receive such dividend or
immediately after the effective date of such subdivision or split-up, as the
case may be, the number of shares to be delivered upon exercise of any
Warrant will be appropriately increased so that each holder thereafter will
be entitled to receive the number of shares of Common Stock that such holder
would have owned immediately following such action had the warrant been
exercised immediately prior thereto, and the Exercise Price will be
appropriately adjusted.
(b) COMBINATION OF STOCK. If the number of shares of Common Stock
outstanding at any time after the date of the issuance of the Warrants and
before 5:00 p.m., New York time, on the Expiration Date shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of
shares of Common Stock to be delivered upon exercise of any Warrant will be
appropriately
<PAGE>
decreased so that each holder thereafter will be entitled to receive the
number of shares of Common Stock that such holder would have owned
immediately following such action had the Warrant been exercised immediately
prior thereto, and the Exercise Price will be appropriately adjusted.
(c) SPECIAL DIVIDENDS. If (other than in a dissolution or liquidation)
securities of the Company (other than shares of Common Stock) or assets
(other than cash dividends payable out of retained earnings or out of any
amounts legally available for dividends under the laws of the State of
Delaware) are issued by way of a dividend on outstanding shares of Common
Stock, then the Exercise Price shall be adjusted so that it shall equal the
price determined by multiplying the Exercise Price in effect immediately
prior to the close of business on the record date for the determination of
the stockholders entitled to receive such dividend by a fraction, the
numerator of which shall be the Closing Price on such record date less the
then fair market value as determined by the Board of Directors of the
Company, whose determination shall be conclusive, of the portion of the
securities or assets distributed applicable to one share of Common Stock, and
the denominator of which shall be such Closing Price. Such adjustment shall
become effective immediately prior to the opening of business on the day
following such record date.
(d) RIGHTS OFFERING. If the Company at any time after the date of
issuance of the Warrants and before 5:00 p.m., New York time, on the
Expiration Date shall issue or sell or fix a record date for the issuance of
rights, options, warrants or convertible or exchangeable securities to all
holders of Common Stock entitling the holders thereof to subscribe for or
purchase Common Stock (or securities convertible into Common Stock), in any
such case, at a price per share (or having a conversion price per share)
that, together with the value (if for consideration other than cash, as
determined in good faith by the Board of Directors of the Company) of any
consideration paid for any such rights, options, warrants or convertible or
exchangeable securities, is less than the Closing Price on the date of such
issuance or sale or on such record date, then, immediately after the date of
such issuance or sale or on such record date, as the case may be, the number
of shares to be delivered upon exercise of the Warrants shall be
appropriately increased so that each holder thereafter, during the Exercise
Period, will be entitled to receive the number of shares of Common Stock
determined by multiplying the number of shares such holder would have been
entitled to receive immediately before the date of such issuance or sale or
such record date by a fraction, the numerator of which will be the number of
shares of Common Stock outstanding on such date plus the number of additional
shares of Common Stock offered for subscription or purchase (or into which
the convertible securities so offered are initially convertible) and the
denominator of which will be the number of shares of Common Stock outstanding
on such date plus the number of shares of Common Stock that the aggregate
offering price of the total number of shares so offered for subscription or
purchase (or the aggregate initial conversion price of the convertible
securities so offered) would purchase at such Closing Price.
(e) NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in the Exercise Price
in accordance with the provisions of paragraph (a) or (b) of this Section 8 need
be made if such adjustment would amount to a change in such Exercise Price of
less than $.01; PROVIDED, HOWEVER, that the amount by which any adjustment is
not made by reason of the provisions of
<PAGE>
this Section shall be carried forward and taken into account at the time of
any subsequent adjustment in the Exercise Price.
(f) READJUSTMENTS, ETC. If an adjustment is made under paragraph (a),
(b), (c) or (d) of this Section 8, and the event to which the adjustment
relates does not occur, then any adjustments in the Exercise Price or Warrant
Shares that were made in accordance with such paragraphs shall be adjusted
back to the Exercise Price and the number of Warrant Shares that were in
effect immediately prior to the record date for such event.
(g) Neither the issuance not the exercise of options under the Company's
1996 Stock Option Plan or the Class A Warrants or the Class B Warrants, in
each case adopted pursuant to the Reorganization Plan, shall result in an
adjustment to the exercise price or the number of shares issuable upon the
exercise of the Warrants issued hereunder.
Section 9. OFFICER'S CERTIFICATE. Whenever the number of Warrant
Shares that may be purchased upon exercise of the Warrants or the Exercise
Price is adjusted as required by the provisions of this Agreement, the
Company will forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office an officer's certificate showing the
adjusted number of Warrant Shares that may be purchased upon exercise of the
Warrants and the adjusted Exercise Price, determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment and
the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the holder
of any Warrant. The Company shall, forthwith after each such adjustment,
cause a copy of such certificate to be mailed to the holder of any Warrant.
Section 10. NOTICE OF CERTAIN EVENTS. At any time before the last day
of the Exercise Period, in the event:
(a) the Company authorizes the issuance to all holders of the Common
Stock of rights, options or warrants to subscribe for or purchase shares or
of convertible or exchangeable securities; or
(b) the Company authorizes the distribution to all holders of the Common
Stock of evidences of its indebtedness or assets (other than cash dividends
payable out of retained earnings or out of amounts legally available for
distribution under the laws of the State of Delaware); or
(c) of any capital reorganization or reclassification of the Common
Stock (other than a subdivision or combination of the outstanding Common
Stock and other than a change in par value of the Common Stock) or any other
consolidation or merger to which the Company is a party (other than a
consolidation or merger in which the Company is the continuing corporation
and that does not result in any reclassification or change in the outstanding
Common Stock) or of the sale, lease or other transfer of all or substantially
all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution or winding-up of the
Company;
<PAGE>
then the Company will cause to be mailed to the registered holder of any
Warrant, at least 10 days before the applicable record or effective date, as
the case may be, a notice stating (A) the date as of which the holders of
Common Stock of record entitled to receive any such rights, warrants or
distributions are to be determined or (B) the date on which any such capital
reorganization or reclassification of Common Stock, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up is expected to
become effective, such that the holders of Common Stock of record will be
entitled to exchange their shares of Common Stock for securities or other
property, if any, deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding-up (the "Entitlement Date").
Section 11. SUCCESSORS. All covenants and provisions of this
Agreement by or for the benefit of the Company or the holders of the Warrants
shall bind and inure to the benefit of their respective successors, assigns,
heirs and personal representatives.
Section 12. TERMINATION. This Agreement shall terminate at 5:00 p.m.,
New York time, on the Expiration Date or on such earlier date upon which all
Warrants have been exercised.
Section 13. 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 agreement.
Section 14. HEADINGS. The headings of sections of this Agreement have
been inserted for convenience of reference only, are not to be considered a
part hereof and shall in no way modify or restrict any of the terms or
provisions hereof.
Section 15. SUPPLEMENTS AND AMENDMENTS. The Company may from time to
time supplement or amend this Agreement without the approval of any holders
of any Warrants in order to cure any ambiguity or to correct or supplement
any provisions contained herein which may be defective or inconsistent with
any provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company may deem necessary or desirable
and which do not adversely affect the interests of the holders of Warrants.
Any other supplement or amendment to this Agreement may be made with the
written consent of the Company and the affirmative vote or the written
consent of holders holding not less than two-thirds in interest of the then
outstanding Warrants; PROVIDED, HOWEVER, that, except as expressly provided
herein, this Agreement may not be amended to change (a) the Exercise Price,
(b) the Exercise Period, (c) the number or type of securities to be issued
upon the exercise of the Warrants, or (d) the provisions of this Section 15,
without the consent of each holder of the Warrants.
<PAGE>
Section 16. NOTICES. Any notice pursuant to this Agreement to be
given by the registered holder of any Warrant to the Company shall be
sufficiently given if sent by first-class mail, postage pre-paid, as follows:
<PAGE>
Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, WA 98034
Attn: ____________________________
Section 17. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any person or corporation, other than the
Company and the registered holders of the Warrant Certificates, any legal or
equitable right, remedy or claim under this Agreement, but this Agreement
shall be for the sole and exclusive benefit of the Company and the registered
holders of the Warrants.
Section 18. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
Section 19. EXEMPTION FROM REGISTRATION OF WARRANTS AND WARRANT
SHARES. The Reorganization Plan will provide that the Warrants and the
Warrant Shares will be issued in accordance with the securities law exemption
of section 1145 of the Bankruptcy Code of 1978, as amended.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the first date written above.
LAMONTS APPAREL, INC.
By: ________________________________
Name:_______________________________
Title: _____________________________
Attest:
By: ________________________________
Name:_______________________________
Title: _____________________________
GORDIAN GROUP, L.P.
By: ________________________________
Name:_______________________________
Title: _____________________________
Attest:
By: ________________________________
Name:_______________________________
Title: _____________________________
