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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 1996 COMMISSION FILE NUMBER 0-15542
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LAMONTS APPAREL, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE #75-2076160
(State of Incorporation) (I.R.S.Employer
Identification Number)
3650 131ST AVENUE S.E., BELLEVUE, WASHINGTON 98006
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(206) 562-8386
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the Registrant's voting stock held by
nonaffiliates of the Registrant as of April 10, 1996, was approximately
$1,000,000 (based on the closing quote of such stock on such date).
As of April 10, 1996, there were 17,899,549 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
Exhibit Index on Page 49
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
ANNUAL REPORT ON FORM 10-K
FOR THE 53 WEEKS ENDED FEBRUARY 3, 1996
PART I
ITEM 1 - BUSINESS
GENERAL BACKGROUND AND CHAPTER 11 REORGANIZATION
Lamonts Apparel, Inc. (the "Company" or "Lamonts") 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 are 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.
On January 6, 1995 (the "Petition Date") the Company 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.
The Company's principal office is located at 3650 131st Avenue, S.E., Bellevue,
Washington 98006, and its telephone number is (206) 562-8386. In May 1996, the
Company will be relocating its principal office to 12413 Willows Road N.E.,
Kirkland, WA 98034.
OPERATIONS
Lamonts offers an assortment of moderately priced fashion apparel and
accessories at competitive prices for the entire family. Management believes
that Lamonts has made substantial progress in the period since the filing of its
Chapter 11 petition. 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, new management, which began operating the Company in November 1994,
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, and the Company has also initiated a policy to mark-down and
clear out any unsold merchandise within its respective season.
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Sales promotion and inventory allocation decisions are made centrally by
Lamonts' corporate staff. The Company maintains uniformity with respect to
inventory, pricing decisions, selection of promotional goods and markdown
policies throughout all of its locations.
In May 1995, the Company replaced its 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 Fiscal 1995 (defined below) 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.
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.
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 12 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 dependent
upon its ability to obtain trade credit. See "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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 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
quaranteed by the Company. See "Item 2 - Properties".
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.
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 its employee relations are good.
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).
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TRADEMARKS. The Company currently owns various registered trademarks which are
part of its proprietary brand imports program. Management believes that,
although such trademarks are significant, the Company's business is not
dependent on any of such rights.
CREDIT POLICY. The Company offers its customers various methods of payment
including cash, check, Lamonts charge card, certain major credit cards and a
lay-away plan. Since its inception in July 1988, the Company's charge card
program has been expanded to approximately 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 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
Corporation, 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 by
either party after June 22, 1999, with 180 days prior written notice. The
Company paid National City $0.9 million for bad debt expense and $0.5 million
in fees during Fiscal 1995.
The Company is currently negotiating certain changes to the contract with
National City which it believes to be advantageous to the Company. However,
there can be no assurances that a new agreement will be reached or approved by
the Court.
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.
SEASONALITY. The Company's sales are seasonal, with the Christmas Season being
its strongest quarter. See "Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations - Seasonality".
REGULATIONS. The Company is subject to Federal, state and local laws and
regulations affecting retail apparel stores generally. The Company believes
that it is in substantial compliance with these laws and regulations.
REORGANIZATION
BACKGROUND
As a result of financial difficulties, during the second half of Fiscal 1992,
the Company and its financial advisors commenced negotiations with certain of
the Company's creditors and stockholders regarding a restructuring of the
Company's indebtedness. On October 30, 1992, the Company completed a
comprehensive recapitalization (the "Recapitalization") pursuant to which, among
other things, the Company issued an aggregate of $75.0 million in principal
amount of its 10-1/4% Senior Subordinated Notes due 1999 (the "10-1/4% Notes").
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 10-1/4% Notes, at par, together with accrued interest
through the repurchase date, and the concurrent amendment of the terms of the
10-1/4% Notes that remained outstanding to, among other things, prospectively
reduce the interest rate of such 10-1/4% Notes from 11-1/2% (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
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
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in cash, at a rate of 12% per annum, or in additional 10-1/4% Notes ("PIK
Interest"), at a rate of 13% per annum. 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 Warrants ("the 1994 Warrants")
initially to purchase up to an aggregate of approximately 2 million shares of
common stock, par value $.01 per share (the "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 projected results. In response to its deteriorating financial
condition, the Company determined that a more significant financial and
operational restructuring was necessary.
FILING
In January 1995, the Company filed for protection pursuant to Chapter 11, and as
a result of the filing, the Company is currently in default under all of its
funded debt agreements, except for the borrowings under the working capital
facility with Foothill (as defined below), in effect prior to the Petition Date.
As a result, all unpaid principal of, and accrued prepetition interest on, such
debt became immediately due and payable. The payment of such debt and accrued
but unpaid prepetition interest is prohibited during the pendency of the
Company's Chapter 11 case. Further, the Company has not accrued interest on its
funded debt agreements, excluding the DIP Facility, since the date of filing.
For additional information related to the Company's Chapter 11 case, see
"Item 3 - Legal Proceedings."
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 March 31,
1996, the Company has rejected nine real property leases and certain executory
contracts and assumed six leases (with certain conditions and limitations)..
DEBTOR-IN-POSSESSION FINANCING
The Company is currently receiving debtor-in-possession financing from Foothill
Capital Group ("Foothill"). Pursuant to this loan and security agreement dated
February 17, 1995 (the "DIP Facility"), the Company is able to borrow up to $32
million in revolving loans, including up to $15 million of letters of credit.
Borrowings under the DIP 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 DIP
Facility. The DIP Facility is secured by inventory and certain other assets and
is an allowed administrative expense claim with priority over certain other
administrative expenses in the Chapter 11 case. The DIP 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 maintain a minimum net worth (as defined therein).
The DIP Facility has been extended from its initial maturity date of May 17,
1996 and will now expire 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.
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. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a more detailed description of the New Facilities.
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
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apparel retailers. Accordingly, the accompanying information includes the 53
weeks ended February 3, 1996 ("Fiscal 1995"), the 52 weeks ended January 28,
1995, the Quarter ended January 28, 1995 (the "January Quarter"), the 52 weeks
ended October 29, 1994 ("Fiscal 1994"), and the 52 weeks ended October 28, 1993
("Fiscal 1993").
ITEM 2 - PROPERTIES
The Company considers its ability to maintain attractive, high traffic store
locations to be a critical element of its business and a key determinant of
Lamonts' future growth and profitability. Lamonts' stores are designed to
maximize selling space while providing a fashionable, pleasant shopping
environment.
The Company currently operates 42 stores in the following locations:
Alaska 7 Washington 24 Utah 1
- --------------------- ----------------------------- ----------------
- - Anchorage: 3 stores - Seattle: 6 stores - Logan
- - Fairbanks - Bellevue/Eastside: 4 stores
- - Juneau - Spokane: 3 stores
- - Soldotna - Tacoma: 2 stores Montana 1
- - Wasilla - Aberdeen ----------------
- Marysville
Idaho 6 - Moses Lake - Missoula
- --------------------- - Olympia
- Port Angeles Oregon 3
- - Coeur d'Alene - Silverdale ----------------
- - Idaho Falls - Tri-Cities
- - Lewiston - Wenatchee - Astoria
- - Moscow - Yakima - Corvallis
- - Pocatello - Hillsboro
- - 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
commences 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 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 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 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 continues
to own the building subject to a ground lease and is currently attempting to
market the building for sale. If a purchaser is not located, ownership of the
building will revert to the owner of the underlying land.
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Accordingly, the book value of the building has been fully reserved in the
Financial Statements as of February 3, 1996. (See Note 9 to the Consolidated
Financial Statements included herein.)
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. (See Note 16 to the Consolidated Financial
Statements included herein.)
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.
ITEM 3 - LEGAL PROCEEDINGS
COMMENCEMENT OF CHAPTER 11 PROCEEDINGS
On January 6, 1995, the Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Western District of Washington at Seattle, Case No. 95-00100. The ability of
the Company to effect a successful reorganization under Chapter 11 depends, in
significant part, upon the Company's ability to formulate a confirmable
reorganization plan that is approved by the Court and meets the standards for
plan confirmation under the Bankruptcy Code. In a Chapter 11 reorganization
plan, the rights of the Company's creditors and stockholders may be
substantially altered. Creditors may realize substantially less than the full
face amount of their claim. Equity interests of the Company's stockholders may
be diluted or even canceled. Investment in any security of the Company,
therefore, should be regarded as highly speculative.
The following summary sets forth certain aspects of the Company's Chapter 11
case. This summary is not intended to be an exhaustive summary. For additional
information regarding the effect of the Chapter 11 case on the Company,
reference should be made to the Bankruptcy Code.
Pursuant to section 362 of the Bankruptcy Code, the commencement of the
Company's Chapter 11 case operates as a stay, applicable to all entities, with
certain exceptions, of the following: (i) commencement or continuation of a
judicial, administrative, or other proceeding against the Company that was or
could have been commenced prior to commencement of the Company's Chapter 11
case, or to recover for a claim that arose before the commencement of the
Company's Chapter 11 case; (ii) enforcement of any judgments against the Company
that arose before the commencement of the Company's Chapter 11 case; (iii) the
taking of any action to obtain possession of property of the Company or to
exercise control over property of the Company; (iv) the creation, perfection or
enforcement of any lien against the property of the Company; (v) the taking of
any action to collect, assess or recover a claim against the Company that arose
before the commencement of the Company's Chapter 11 case; or (vi) the setoff of
any debt owing to the Company that arose prior to the commencement of the
Company's Chapter 11 case against a claim held by such creditor or
party-in-interest against the Company that arose before the commencement of the
Company's Chapter 11 case. Any entity may apply to the Court for relief from
the automatic stay so that it may enforce any of the aforesaid remedies that are
automatically stayed by operation of law at the commencement of the Company's
Chapter 11 case.
In connection with the Company's Chapter 11 case, the United States Trustee has
appointed the Committees for the Company's (i) bondholders, (ii) other general
unsecured creditors, and (iii) equity holders.
Although the Company is authorized to operate its business as
debtor-in-possession, it may not engage in transactions outside the ordinary
course of business without first complying with the notice and hearing
provisions of the Bankruptcy Code and obtaining Court approval.
As debtor-in-possession, the Company has the right, subject to the approval of
the Court, under the relevant provisions of the Bankruptcy Code, to assume or
reject executory contracts, including real property leases. Certain parties to
such executory contracts with the Company, including parties to such real
property leases, may file motions with the Court seeking to require the Company
to assume or reject those contracts or leases. In this context, "assumption"
requires that the Company cures, or provides adequate assurance that it will
cure, all existing defaults under the contract or lease and provides adequate
assurance of future performance under the contract or lease. "Rejection," which
is a remedy available under the relevant provisions of the Bankruptcy Code,
means that the Company is relieved from its obligations to perform further under
the contract or lease. Rejection of an executory contract or lease may
constitute a breach of that contract and may afford the non-debtor party the
right to assert a claim against the bankruptcy estate for damages arising out of
the breach which shall be allowed or disallowed as if such claim had arisen
before the date of the filing of the petition.
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Prepetition claims that were contingent, unliquidated, or disputed as of the
commencement of the Chapter 11 case, including, without limitation, those that
arise in connection with rejection of executory contracts, may be allowed or
disallowed depending on the nature of the claim. Such claims may be fixed by
the Court or otherwise settled or agreed upon by the parties.
Under the Bankruptcy Code, an allowed claim of a creditor that is secured by a
lien on property of the Company's estate, or that is subject to a valid right of
setoff, is a secured claim to the extent of the value of such creditor's
interest in the estate's interest in such property, or to the extent of the
amount subject to setoff, as the case may be, and is an unsecured claim to the
extent that the value of such creditor's interest or the amount so subject to
setoff is less than the amount of such allowed claim. Generally, claims for
unmatured interest are not allowable. To the extent that an allowed secured
claim is secured by property whose value, after recovery of the reasonable,
necessary costs and expenses of preserving or disposing of such property, is
greater than the amount of such claim, the holder of such claim generally is
allowed interest on such claim and any reasonable fees, costs or charges
provided for under the agreement under which such claim arose.
For 120 days after the Petition Date, the Company had the exclusive right to
propose and file a plan of reorganization with the Court. Such time period has
been extended to August 27, 1996.
Section 501 of the Bankruptcy Code allows any creditor or indenture trustee to
file a proof of claim with the Court and any equity security holder to file a
proof of interest with the Court. A claim or interest, proof of which is timely
filed under Bankruptcy Code section 501, is deemed allowed, unless a
party-in-interest (including the Company) objects thereto. If an objection is
made to the allowance of a claim, the Court, after notice and hearing, will
determine the amount, validity, and priority of such claim. The last date for
filing proofs of claim or proofs of interest was April 28, 1995.
A $27 million claim was filed by a former landlord of one of the Company's
stores located in Ogden, Utah allegedly based upon closing of the store and
rejection of the store lease pursuant to the Bankruptcy Code. The Company has
settled such claim with the former landlord in the amount of $0.85 million,
which amount may be reduced in the event the landlord is able to mitigate its
damages.
A claim was filed 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.
A $2.3 million claim was filed by a former landlord of the Company's store
located in Lloyd Center in Portland, Oregon allegedly based upon rejection of
the store lease pursuant to the Bankruptcy Code. The Company disputed the claim
and pursued a lawsuit against this landlord for damages for wrongfully refusing
to consent to the Company's attempted assignment of this store to other users.
In November 1995, the Company prevailed in a lawsuit following a jury trial in
the State Court in Oregon. On motion for judgment notwithstanding the verdict,
the jury verdict was overturned and judgment entered in favor of the landlord.
On February 16, 1996, the matter was appealed by the Company to the Oregon Court
of Appeals, and that appeal is currently pending.
A $1.7 million claim was filed by a former landlord of one of the Company's
stores located in Tacoma, Washington allegedly based upon closing of the store
and rejection of the store lease pursuant to the Bankruptcy Code. The Company
disputes the claim and believes that reletting of the store will substantially
reduce the claim. The Company is in the process of preparing a suitable
objection to the claim and will otherwise defend against the claim to the extent
necessary and appropriate.
Claims have been filed by two former officers of the Company in the total amount
of $1.5 million. These claims are allegedly based upon claims that employment
contracts between the Company and these former officers were breached by the
Company. The Company disputes the claims and will otherwise defend against
the claims to the extent necessary.
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.
8
<PAGE>
If at least one class of claims that is impaired under a plan of reorganization
has accepted a plan of reorganization, and certain other requirements of the
Bankruptcy Code relating to a plan of reorganization confirmation are satisfied,
the proponent of a plan of reorganization may invoke the so-called "cramdown"
provisions of section 1129(b) of the Bankruptcy Code. Under these provisions,
the Court, on request of the proponent of a plan of reorganization, shall
confirm a plan of reorganization if it does not discriminate unfairly, and is
fair and equitable, with respect to each class of claims or interests that is
impaired under, and has not accepted, a plan of reorganization. As used in the
Bankruptcy Code, the phrases "discriminate unfairly" and "fair and equitable"
have narrow and specific meanings. A "cramdown" might result in holders of
Common Stock receiving no property or other value for their equity security
interest in the Company. Because of this and other possibilities, the value of
the Company's securities, including the Common Stock, is highly speculative.
OTHER LEGAL PROCEEDINGS
As previously reported, 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 plan of reorganization or
operating results during the period in which such litigation is resolved.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock is traded in the over-the-counter market and, until January 20,
1995, was listed on the Nasdaq Stock Market's Smallcap Market ("Nasdaq"). As a
result of the filing, the Common Stock is no longer listed. The following table
sets forth, for the periods indicated, the high and low closing bid prices as
reported on Nasdaq 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.
<TABLE>
<CAPTION>
Fiscal 1994: High Low
- ------------------------------- ----------- -----------
<S> <C> <C>
Quarter ended January 29 2-3/4 2
Quarter ended April 30 2 1-1/4
Quarter ended July 30 1-3/4 3/4
Quarter ended October 29 13/16 5/8
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
</TABLE>
At April 10, 1996, there were 152 holders of record of the Common Stock.
DIVIDENDS
The Company has never declared or paid cash dividends on its Common Stock, or
any other equity security, and does not anticipate paying cash dividends on the
Common Stock or any other equity security in the foreseeable future. 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 FNBB Term Sheet will be restricted under the New Facilities.
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data for the Company
and should be read in conjunction with the Consolidated Financial Statements of
the Company and the Notes thereto included in Item 8. 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. However, for purposes
of comparing the data for Fiscal 1995, the Company has provided data for the
comparable prior year period which are derived from unaudited financial records
of the Company.
10
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
53 weeks ended 52 weeks ended Quarter ended 52 weeks ended
Feb 3, 1996 January 28, 1995 Jan 28, 1995 Oct 29, 1994
---------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
- ---------------------------------------------
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
BALANCE SHEET DATA (at end of period)
- ------------------------------------
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>
11
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
52 weeks 52 weeks 52 weeks
ended ended ended
Oct 30, 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 before other income/(expense),
income tax provision/(benefit), and
extraordinary item (1,423) 4,068 8,865
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
income tax provision/(benefit) and
extraordinary item (13,871) (18,868) (12,151)
Income tax provision/(benefit) (3,000) 710 (552)
--------------- -------------- -------------
Loss from continuing operations
before extraordinary item (10,871) (19,578) (11,599)
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
BALANCE SHEET DATA (at end of period)
- -------------------------------------
Working capital $43,060 $52,327 $52,319
Total assets 183,709 195,339 194,954
Long term debt and obligations under
capital leases, net of current maturities 93,130 94,615 154,694
Stockholders' equity (deficit) 36,208 46,773 (1,500)
</TABLE>
12
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
FOOTNOTES TO SELECTED FINANCIAL DATA
(1) The additional week in Fiscal 1995 accounted for $2.2 million of
revenues.
(2) Non-cash interest expense is comprised of amortization of discounts on
the Company's long term debt and interest paid through issuance of
additional debt.
(3) Extraordinary item reflects gain on cancellation of debt associated
with the Recapitalization.
(4) Represents per common share earnings (loss) after accrual of dividends
on the Old Preferred Stock (hereinafter defined) for the 52 weeks
ended November 2, 1991. Concurrent with the Recapitalization, the
Company (i) converted all of the Old Preferred Stock into Common
Stock, (ii) eliminated all accrued and unpaid dividends associated
with the Old Preferred Stock and (iii) effected a one-for-30 reverse
stock split of the Common Stock outstanding prior to the
Recapitalization. All share and per share amounts 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 Old Preferred Stock which were accrued but
never declared or paid. All of the accrued and unpaid dividends were
eliminated pursuant to the Recapitalization.
13
<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.
14
<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.
15
<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 underperforming 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 the 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.
16
<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 underperforming 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
17
<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 assurance 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, 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.
18
<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 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.
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.
<TABLE>
<CAPTION>
1ST QTR 2ND QTR 3RD QTR 4TH QTR TOTAL
--------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
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.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE #
--------
21 Report of Independent Accountants
22 Consolidated Balance Sheets - February 3, 1996, January 28, 1995
and October 29, 1994.
23 Consolidated Statements of Operations 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.
24 Consolidated Statements of Changes in Stockholders' Equity
(Deficit) 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.
25 Consolidated Statements of 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.
27 Notes to Consolidated Financial Statements.
All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
20
<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 of
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
21
<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.
22
<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.
23
<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.
24
<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
25
<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>
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.
26
<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)
Pre-petition liabilities subject to settlement under reorganization proceedings
include the following (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
------------------ ------------------
<S> <C> <C>
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
------------------ ------------------
------------------ ------------------
</TABLE>
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
27
<PAGE>
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.
<TABLE>
<CAPTION>
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
------------------ ------------------
<S> <C> <C>
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
------------------ ------------------
------------------ ------------------
</TABLE>
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.
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.
28
<PAGE>
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.
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 quanities
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. 29
<PAGE>
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.
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.
30
<PAGE>
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.
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.
31
<PAGE>
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment comprise the following (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28, OCTOBER 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
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
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
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.
Operating lease rental expense is summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL JANUARY FISCAL FISCAL
1995 QUARTER 1994 1993
-------- --------- -------- --------
<S> <C> <C> <C> <C>
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
-------- --------- -------- -------
-------- --------- -------- -------
</TABLE>
The Company had capital lease contingent rental expense of approximately $0.1
million and received sublease rentals of approximately $0.4 million during
each of 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.
32
<PAGE>
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):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
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
--------
--------
</TABLE>
In addition, the Company guarantees an operating lease, expiring February 1998
with one option to renew the lease for a term of three years, of a third party
which operates a distribution center for the Company. At 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 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. 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%.
33
<PAGE>
The Company paid Foothill $80,000 upon the closing of the DIP Facility in
February 1995 and the additional closing fees totalling $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 convenants 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 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 underperforming 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 underperforming 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):
<TABLE>
<CAPTION>
STORE CLOSURE COSTS
-------------------------------------------
FISCAL JANUARY FISCAL
1995 QUARTER 1994
------------ ------------ ----------
<S> <C> <C> <C>
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
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
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 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.
34
<PAGE>
The income tax benefit from operations is comprised of the following (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1993
------------- ---------------
<S> <C> <C>
Current ($400)
Deferred ($3,000)
------------- ---------------
($400) ($3,000)
------------- ---------------
------------- ---------------
</TABLE>
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.
The differences between the Company's effective income tax rate and the Federal
statutory rate for 1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1993
------------- ---------------
<S> <C> <C>
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%)
------------- ---------------
------------- ---------------
</TABLE>
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):
35
<PAGE>
<TABLE>
<CAPTION>
FISCAL 1993
-------------
<S> <C>
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)
-------------
-------------
</TABLE>
In connection with the Recapitalization, the Company issued Common Stock with an
approximate fair market value of $44.0 million and $75.0 million principal
amount of debt in exchange for $138.6 million of debt. In general, when the
fair market value of stock and the issue price of new debt is less than the
adjusted issue price of debt retired, taxable income must be recognized.
However, since the tax basis of the Company's liabilities exceeded the fair
market value of its assets immediately prior to the Recapitalization, the
company did not recognize taxable income in connection with the Recapitalization
to the extent that it was insolvent for tax purposes immediately prior to the
Recapitalization.
As a result of the Recapitalization, the Company's ability to utilize its
Federal tax net operating loss carryforward of $14.7 million and its alternative
minimum tax net operating loss carryforward of $2.8 million at October 31, 1992,
which expire beginning in 2005, may be significantly limited under Internal
Revenue Code section 382 in future years. The Federal tax net operating loss
carryforward and the alternative minimum tax net operating loss carryforward at
October 31, 1992 are shown net of a $9.5 million and $6.4 million, respectively,
reduction associated with the Company's agreement with the Internal Revenue
Service ("IRS") discussed below.
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.
36
<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.
37
<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 currently $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:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
-----------
<S> <C>
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
-----------
-----------
</TABLE>
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
38
<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.
39
<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%
- -------------
Amounts charged to expense under the Retirement Plan were as follows (dollars in
thousands):
</TABLE>
<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.
40
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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
Carolyn Morris 41 Senior Vice President, 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.
Ms. Morris joined the Company in March 1995 as Senior Vice President and General
Merchandise Manager. Prior to joining the Company, Ms. Morris was Vice
President, Divisional Merchandise Manager for May Merchandising Corporation from
1993 to 1995. She also served as Vice President, Divisional Merchandise Manager
with Robinsons-May in California from 1983 to 1993.
In February 1995, Earle J. Spokane ceased to be employed by the Company.
Effective May 2, Wallace D. Holznagel resigned from the Company as Executive
Vice President. See discussion regarding the severance arrangements applicable
to Messrs. Holznagel and Spokane in "Item 11 - Executive Compensation -
Employment Agreements."
All directors and executive officers are elected for a term of one year and
serve until their successors are duly elected and qualified.
41
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation paid
during Fiscal 1995, Fiscal 1994 and Fiscal 1993, to (i) the Company's Chief
Executive Officer, (ii) the Company's four other most highly compensated
executive officers as of the end of Fiscal 1995, and (iii) two additional
individuals who would have qualified for inclusion had their employment not been
terminated (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Long Term All Other
Compensation Compensation
Annual Compensation Awards ($)
------------------------------------------------
Securities Supple-
Name and Fiscal Underlying TRIP mental Group
Principal Position Year Salary Bonus ($) Options/SARs Plan (1) Plan (2) Plan Total
($) (3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alan R. Schlesinger, 1995 434,921 100,000 3,600 3,600
Director, Chairman of the 1994 58,270 125,000
Board, President and
Chief Executive Officer
Loren R. Rothschild, 1995 239,999 ------ 2,790 2,790
Director and Vice 1994 6,462 125,000
Chairman of the Board
Peter Aaron, 1995 205,833 30,000 1,500 1,747 3,247
Executive Vice President 1994 183,836 8,160 1,890 42 1,650 3,582
1993 183,836 18,160(4) 2,020 --- 1,671 3,691
Carolyn Morris, 1995 191,512 35,000 425 425
Senior Vice President,
General Merchandise
Manager
Debbie A. Brownfield, 1995 121,249 30,000 967 530 1,497
Senior Vice President,
Chief Financial Officer
and Secretary
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(5) --- --- 1,579 1,579
Officer (6)
Wallace D. Holznagel, 1995 202,053 1,500 --- 3,194 4,694
Executive Vice President 1994 188,664 20,000 950 283 1,758 2,991
(6) 1993 188,664 30,000(4) 1,900 --- 1,770 3,670
</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) Consists of Company contributions to a grantor trust under the Company's
Supplemental (TRIP) Benefit Plan, effective January 1, 1991.
(3) Consists of premiums paid by the Company pursuant to the Lamonts Apparel
Group Life and Long-Term Disability Plan, effective July 7, 1977.
(4) Includes a bonus of $20,000 and $8,160 respectively pursuant to each of
Messrs. Holznagel and Aaron's employment agreements, and a one-time bonus
of $10,000 for each of Messrs. Holznagel and Aaron based upon the efforts
of such executive officers in connection with the Recapitalization.
(5) Mr. Spokane was granted 25,000 options upon joining the Company on June 1,
1993.
(6) In May 1995, Mr. Holznagel resigned from his position as Executive Vice
President of the Company. Mr. Spokane ceased to be employed by the Company
in February 1995. See discussion regarding the severance arrangements
applicable to Messrs. Spokane and Holznagel described in "Employment
Agreements" below.
42
<PAGE>
OPTION GRANTS DURING FISCAL 1995
There were no options granted to Named Executive Officers during Fiscal 1995.
OPTION VALUES AT 1995 FISCAL YEAR END
The following table provides information related to the number and value of
options held by the Named Executive Officers at the end of Fiscal 1995. None of
the Named Executive Officers exercised any options during Fiscal 1995.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1995 AND FISCAL YEAR END OPTION/SAR
VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at at Fiscal Year End ($)
Fiscal Year End (#) (1)
---------------------------------
Name Exercisable / Unexercisable Exercisable / Unexercisable
- ------------------------ --------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Peter Aaron 20,782 / 6,286 $4,988 / $1,509
Debbie Brownfield 4,637 1,346 $1,113 / $ 323
- --------------------
</TABLE>
(1) Consists of 1992 Options granted to the Named Executive Officers under the
1992 Option Plan.
PENSION PLAN
Under the provisions of the Lamonts Apparel, Inc. Employees Retirement Trust
(the "Lamonts Pension Plan"), which cover substantially all employees, and the
Supplemental Executive Retirement Plan (the "SERP") which covers certain highly
compensated employees, monthly retirement benefits for Named Executive Officers
hired prior to January 1, 1990 are computed at the rate of one percent (1%) of a
participant's highest "average monthly compensation" not in excess of one-
twelfth (1/12) of the Social Security Covered Compensation, multiplied by the
participant's years of service, plus 1.65% of the participant's highest average
monthly compensation in excess of one-twelfth (1/12) of the Social Security
Covered Compensation, multiplied by the participant's years of service, less the
amount, if any, payable under an annuity purchased upon the termination of the
Pay 'n Save Employees Retirement Trust (terminated on December 31, 1985) (the
"PNS Trust"). Monthly retirement benefits for those Named Executive Officers
hired on January 1, 1990 or thereafter are computed at the rate of 0.5% of a
participant's highest "average monthly compensation" not in excess of one-
twelfth (1/12) of the Social Security Covered Compensation, multiplied by the
participant's years of service, plus 1.0% of the participant's highest average
monthly compensation in excess of one-twelfth (1/12) of the Social Security
Covered Compensation, multiplied by the participant's years of service.
"Average monthly compensation" means the average monthly compensation during the
five consecutive calendar years during the last 10 calendar years in which the
participant's compensation was the highest. Social Security Covered
Compensation is a 35 year average of the taxable wage base. The normal form of
benefit is a straight life annuity for single participants and a joint and
survivor annuity for a married participant commencing on the participant's Early
or Normal Retirement Date (as defined therein).
The estimated annual benefits payable under the Lamonts Pension Plan and the
SERP upon retirement at normal retirement age for Mr. Aaron and Ms. Brownfield
are $31,848, and $21,976, respectively, based on years of credited service
through the end of Fiscal 1995. In addition, Mr. Aaron's estimated annual
benefit payable under the PNS Trust upon retirement at normal retirement age is
$450. As of February 3, 1996, Mr. Aaron had twelve years of credited service.
Ms. Brownfield's estimated annual benefit payable under the PNS Trust upon
retirement at normal retirement age is $643. As of February 3, 1996, Ms.
Brownfield had twenty-three years of credited service. Messrs. Schlesinger and
Rothschild and Ms. Morris have not yet earned retirement benefits.
COMPENSATION OF DIRECTORS
During Fiscal 1995, the Company did not pay any compensation to any person as a
director of the Company.
43
<PAGE>
EMPLOYMENT AGREEMENTS
On October 16, 1994, Mr. Schlesinger entered into an employment agreement with
the Company that has a term that runs 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 Company's Chapter 11 case, the
Company and Mr. Schlesinger entered into a new employment agreement approved by
the Court.
Mr. Schlesinger's new 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
new 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 a plan of reorganization of $400,000. In addition, upon the effective
date of a plan of reorganization, Mr. Schlesinger shall be entitled to receive
stock options to purchase 6-8% of the fully diluted number of shares of Common
Stock to be outstanding immediately following such effective date based upon the
final terms of the plan of reorganization.
Mr. Schlesinger's new employment agreement provides that if the Company
terminates Mr. Schlesinger's employment without "cause", Mr. Schlesinger shall
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 new
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.
On December 28, 1994, Mr. Rothschild entered into an employment agreement with
the Company that has a term that runs 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 Company's Chapter 11 case, the Company and Mr. Rothschild
entered into a new employment agreement approved by the Court.
Mr. Rothschild's new 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 new employment agreement, upon the effective date
of the Plan, Mr. Rothschild will receive $187,000. In addition, upon the
effective date of a plan of reorganization, Mr. Rothschild shall be entitled to
receive a number of stock options equal to 25% of the number of options issued
to the Company's Chief Executive Officer in a plan of reorganization, which
options shall be fully vested upon issuance. Mr. Rothschild's new employment
agreement provides that 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.
In connection with the Recapitalization, Mr. 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 such
executive's accomplishments during the prior year. Pursuant to Mr. Aaron's
employment agreement, Mr. Aaron will receive 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 such executive's
employment without "cause" or if the executive terminates employment for "good
reason," such executive 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 the executive would have received had such termination not occurred
and to continue to participate in all benefit plans and receive all other
benefits to which the executive 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.
In connection with the Recapitalization, Mr. 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
44
<PAGE>
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 stock options held by Mr.
Holznagel were canceled.
In June 1993, Mr. 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, 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The determination of Fiscal 1995 executive compensation was made by the members
of the Board of Directors. Messrs. Schlesinger and Rothschild are executive
officers of the Company. See "Employment Agreements."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
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 such directors,
officers, employees or agents, against liabilities and expenses incurred in any
such action, suit or proceeding. Article XI of the Company's Restated
Certificate of Incorporation provides that the Company shall indemnify its
officers and directors to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware.
All current directors and executive officers of the Company have entered 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. The indemnification is in addition to the indemnification
provided in the Company's Restated Certificate of Incorporation. In neither
case will indemnification be provided if prohibited under applicable law.
45
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 1, 1996 information known to the
management of the Company concerning the beneficial ownership of 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 Common Stock, (ii) each director
and executive officer of the Company and (iii) all directors and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding
Shares Owned Shares
(1) -------------
------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Peter Aaron (2) 22,067 *
Debbie A. Brownfield (3) 6,737 *
Loren R. Rothschild -- --
Alan R. Schlesinger -- --
Carolyn Morris -- --
All directors and executive
officers as group (5 persons) (4) 28,804 *
5% STOCKHOLDERS
Apollo Retail Partners, L.P. (5) 6,887,133 38.5%
c/o Apollo Advisors, L.P.
2 Manhattanville Road
Purchase, New York 10577
Executive Life Insurance Company 898,406 5.0%
of New York
c/o First Boston Asset Management
12 E. 49th Street - 30th Floor
New York, New York 10017
FMR Corp. 2,878,424 14.7%
Fidelity Management & Research Company (6) *
82 Devonshire Street
Boston, Massachusetts 02109
Merrill Lynch Phoenix Fund, Inc. 1,190,420 6.7%
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Morgens Waterfall Vintiadis & Co., Inc. (7) 3,082,906 17.2%
610 Fifth Avenue, 7th Floor
New York, New York 10020
- --------------------
</TABLE>
* Percentage equal to less than 1%
(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 Common Stock listed opposite his 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 Common Stock,
have the right to vote in concert with respect to the election of
directors. See "Item 13 - Certain Relationships and Related Transactions."
(2) Includes 1,047 shares of Common Stock issuable upon exercise of warrants
that have an exercise price of $5.01 per share and 20,782 shares subject to
immediately exercisable, non-qualified stock options that have an exercise
price of $.01 per share.
46
<PAGE>
(3) Includes 4,637 shares of Common Stock subject to immediately exercisable,
non-qualified stock options that have an exercise price of $.01 per share.
(4) Includes 1,047 shares of Common Stock issuable upon the exercise of
warrants that have an exercise price of $5.01 per share and 25,419 shares
of Common Stock subject to immediately exercisable, non-qualified 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) 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 13D Filed by FMR Corp. on
March 12, 1996, FMR Corp. beneficially owns (i) through Fidelity, as
investment advisor to the Fidelity Funds, 2,722,012 shares of Common
Stock (approximately 13.91%), including 1,586,860 shares of Common Stock
subject to immediately exercisable 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 Common Stock (approximately .80%), including
105,904 shares of Common Stock subject to immediately exercisable
warrants that have an exercise price of $1.00 per share.
(7) Morgens Waterfall Vintiadis & Company, Inc. ("Morgens") renders
discretionary investment advisory services to (i) Morgens Waterfall
Vintiadis N.V. which holds 95,450 shares of Common Stock, (ii) the Bond
Fund of the Common Fund for Nonprofit Organizations which holds 211,362
shares of Common Stock and (iii) Betje Partners, which holds 102,264 shares
of Common Stock. Messrs. Morgens and Waterfall are the general partners of
(i) Morgens Waterfall Income Partners which holds 98,260 shares of Common
Stock and (ii) Phoenix Partners which holds 287,089 shares of 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 Common Stock, (ii) Restart
Partners II, L.P., which holds 1,022,800 shares of Common Stock and (iii)
Restart Partners III, L.P., which holds 642,095 shares of Common Stock.
47
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Item 11 - Executive Compensation" for information regarding certain
contracts with executive officers of the Company.
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 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) ARP may designate six persons
to the Board of Directors and (ii) a majority of certain former holders of the
Company's 13-1/2% Senior Subordinated Notes due February 15, 1995, 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
rights thereunder.
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
may exercise up to two demand registrations with respect to such Securities.
The Company will pay all expenses (other than underwriting discounts and
commissions) in connection with all such registrations. The agreements also
provide for certain piggyback registration rights. The Common Stock held by ARP
and Morgens is covered by the equity registration rights agreement pursuant to
its terms.
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. As a result of the Company's Chapter 11 filing, during
Fiscal 1995 the Company paid ELICNY no cash interest on the 10-1/4% Notes.
In connection with the Infusion, (the Fidelity Funds and the Accounts), 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 for all periods
presented. During Fiscal 1994, the Company paid the Fidelity Funds and the
Accounts $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 and the
Accounts in additional securities of the Company as interest paid in kind.
As a result of the Company's Chapter 11 case, during Fiscal 1995 the Company
paid no interest to the Fidelity Funds or the Accounts on the 10-1/4% Notes.
In addition to the above, see "Item 1 - Business-Reorganization-Background" for
a discussion of certain arrangements with the holders of the 10-1/4% Notes.
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.
48
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report
1. FINANCIAL STATEMENTS OF LAMONTS APPAREL, INC. - Reference is made to
the Index to Consolidated Financial Statements on page 20.
2. FINANCIAL STATEMENT SCHEDULES - All schedules have been omitted as
they are either not required or not applicable or because the
information required to be presented is included in the financial
statements and related notes.
3. EXHIBITS. The exhibits listed below will be furnished to any security
holder upon written request for such exhibit, and payment of any
reasonable expenses incurred by Lamonts Apparel, Inc., to the
Corporate Secretary, 3650 131st Avenue SE, Bellevue, Washington 98006.
Exhibit
Number Description of Document
------- -----------------------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant. (6)
3.2 Amended and Restated By-laws of the Registrant.(10)
4.1 Specimen Stock Certificate. (5)
4.2 Indenture (the "Indenture"), dated October 30, 1992 between
the Registrant and First Trust National Association, as
Trustee (the "Trustee"), relating to the Registrant's 10-
1/4% Senior Subordinated Notes due 1999 (the "Notes"). (4)
4.3 First Supplemental Indenture to the Indenture dated
October 30, 1992. (5)
4.4 Second Supplemental Indenture to the Indenture dated
December 1, 1993. (7)
4.5 Third Supplemental Indenture to the Indenture dated June 10,
1994. (8)
4.6 Fourth Supplemental Indenture to the Indenture dated October
18, 1994.(10)
4.7 Indenture (the "13-1/2% Indenture") dated as of January 31,
1986 (including the form of 13-1/2% Senior Subordinated
Guaranteed Note), among the Registrant, Texstyrene Plastics,
Inc. ("TPI") and Bankers Trust Company, as Trustee (the "13-
1/2% Trustee") relating to the Registrants 13-1/2% Senior
Subordinated Guaranteed Notes due February 15, 1995.(1)
4.8 First Supplemental Indenture to the 13-1/2% Indenture dated
December 30, 1986, among the Registrant, TPI and the 13-1/2%
Trustee. (3)
4.9 Second Supplemental Indenture to the 13-1/2% Indenture dated
October 4, 1988, among the Registrant, TPI and the 13-1/2%
Trustee. (2)
4.10 Third Supplemental Indenture to the 13-1/2% Indenture dated
October 29, 1992, among the Registrant, TPI and the 13-1/2%
Trustee. (4)
4.11 Warrant Agreement dated September 21, 1992 between the
Registrant and Society National Bank, as Warrant Agent. (4)
4.12 Warrant Agreement dated June 10, 1994 between the Registrant
and the other parties thereto (including the form of Warrant
attached thereto as Exhibit A). (8)
4.13 Exchange Agreement, dated October 18, 1994, between the
Registrant and the holders of the Notes.(10)
49
<PAGE>
4.14 Extension Agreement dated March 27, 1995, between Lamonts
Apparel, Inc. and the holders of the Company's 10-1/4%
Subordinated Notes due 1999.(11)
10.1 Consulting Agreement dated October 30, 1992, between the
Registrant and The Thompson Company. (4)(14)
10.2 Form of Nonstatutory Stock Option Agreement dated
September 14, 1992, between the Registrant and each of
Leonard M. Snyder, Frank E. Kulp, Andrew A. Giordano, Peter
Aaron and Wallace D. Holznagel. (4)(14)
10.3 Form of Nonstatutory Stock Option Agreement dated
September 14, 1992, between the Registrant and each officer
of the Registrant other than its executive officers. (4)(14)
10.4 Form of Option Exchange Agreement dated September 14, 1992,
between the Registrant and each officer of the Registrant.
(4)(14)
10.5 Lamonts Apparel, Inc. 1992 Incentive and Nonstatutory Stock
Option Plan. (4)(14)
10.6 Employment Agreement dated October 16, 1994, between the
Registrant and Alan Schlesinger.(10)(14)
10.7 Modification to Employment Agreement dated January 5, 1995
between the Registrant and Alan Schlesinger.(10)(14)
10.8 Employment Agreement dated April 18, 1995, between the
Registrant and Alan Schlesinger.(11)(14)
10.9 Employment Agreement dated December 28, 1994, between the
Registrant and Loren Rothschild.(10)(14)
10.10 Employment Agreement dated April 18, 1995, between the
Registrant and Loren Rothschild.(11)(14)
10.11 Executive Employment Agreement dated October 30, 1992,
between the Registrant and Leonard M. Snyder. (4)(14)
10.12 Resignation Agreement dated November 14, 1994, between the
Registrant and Leonard M. Snyder.(10)(14)
10.13 Executive Employment Agreement dated October 30, 1992,
between the Registrant and Frank E. Kulp. (4)(14)
10.14 Resignation Agreement dated November 14, 1994, between the
Registrant and Frank E. Kulp.(10)(14)
10.15 Executive Employment Agreement dated June 17, 1993, between
the Registrant and Earle J. Spokane. (6)(14)
10.16 Waiver and Settlement Agreement, dated February 27, 1995
between Earle J. Spokane and Lamonts Apparel, Inc.(11)(14)
10.17 Executive Employment Agreement dated October 30, 1992,
between the Registrant and Peter Aaron. (4)(14)
10.18 Executive Employment Agreement dated October 30, 1992,
between the Registrant and Wallace D. Holznagel. (4)(14)
10.19 Resignation Agreement dated May 2, 1995 between the
Registrant and Wallace D. Holznagel.(12)(14)
50
<PAGE>
<TABLE>
<S> <C>
10.20 Loan and Security Agreement (the "Foothill Agreement") dated
January 13, 1994, between the Registrant and Foothill
Capital Corporation ("Foothill"). (7)
10.21 Amendment Number One to the Foothill Agreement dated June
27, 1994. (9)
10.22 Letter Agreement dated October 13, 1994, between the
Registrant and Foothill.(10)
10.23 Depository Account Agreement dated January 21, 1994, among
the Registrant, Foothill and Seafirst National Bank. (7)
10.24 Loan and Security Agreement dated January 12, 1995 between
the Registrant, as debtor-in-possession, and Foothill.(10)
10.25 Loan and Security Agreement by and between Lamonts Apparel,
Inc., Debtor-in-Possession and Foothill Capital Corporation,
dated February 17, 1995.(11)
10.26 Amendment Number One to Loan and Security Agreement, dated
March 6, 1995, between Foothill Capital Corporation and
Lamonts Apparel, Inc.(11)
10.27 Amendment Number Two to Loan and Security Agreement dated
October 17, 1995 between Foothill Capital Corporation and
Lamonts Apparel, Inc.(13)
10.28 Amendment Number Three to Loan and Security Agreement dated
November 28, 1995 between Foothill Capital Corporation and
Lamonts Apparel, Inc.(13)
10.29 Equity Registration Rights Agreement dated October 30, 1992
among the Company and the parties listed on the signature
pages thereto.(4)
10.30 Debt Registration Rights Agreement dated October 30, 1992
among the Company and the holders listed on the signature
pages thereto.(4)
10.31 Stockholders Voting Agreement dated October 30, 1992 among
the Company and the holders of Common Stock of the Company
listed on the signature pages thereto.(4)
10.32 Form of Indemnification Agreement dated October 30, 1992,
between the Registrant and each director and officer of the
Registrant.(4)
10.33 Credit Card Plan Agreement dated June 20, 1988, as amended
September 30, 1992, between the Registrant and National City
Bank, Columbus (formerly BancOhio National Bank) (the
"Credit Card Plan Agreement").(5)
10.34 Amendment No. 2 dated March 30, 1994 to the Credit Card Plan
Agreement.(8)
10.35 Letter Agreement dated November 2, 1994 to the Credit Card
Plan Agreement.(10)
10.36 Computer Services Agreement dated November 1, 1991, between
the Registrant and Infotech Corporation.(5)
10.37 Computer Services Agreement dated February 1, 1996, between
the Registrant and Infotech Corporation. *
10.38 License Agreement dated May 25, 1995 between the Registrant
and Shoe Corporation of America, Inc.(12)
21 Subsidiaries of the Registrant. (6)
23 Consent of Coopers & Lybrand LLP.*
27.1 Financial Data Schedule.*
</TABLE>
- ---------
51
<PAGE>
* Filed herewith
<TABLE>
<S> <C>
(1) Incorporated by reference from Registration Statement Nos. 33-2292 and
33-2292-01 of the Registrant and TPI, respectively, as filed with the
Commission on December 19, 1985, and as amended on January 3, 1986,
January 29, 1986, February 6, 1986 and February 11, 1986.
(2) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on November 10, 1988.
(3) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with the Commission on March 31, 1989.
(4) Incorporated by reference from Current Report on Form 8-K of the
Registrant as filed with the Commission on November 13, 1992.
(5) Incorporated by reference from Registration Statement No. 33-56038 of the
Registrant, initially filed with the Commission on December 22, 1992.
(6) Incorporated by reference from Registration Statement No. 33-68720 of the
Registrant, initially filed with the Commission on September 14, 1993.
(7) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with the Commission on January 28, 1994.
(8) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on June 14, 1994.
(9) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on September 13, 1994.
(10) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with the Commission on January 27, 1995.
(11) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on April 21, 1995.
(12) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on June 12, 1995.
(13) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on December 12, 1995.
(14) Management contract or other compensatory plan, contract or arrangement
between the Registrant and any director or named executive officer of the
Registrant.
</TABLE>
(b) Reports filed on Form 8-K
None
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LAMONTS APPAREL, INC.
By: /s/ DEBBIE BROWNFIELD
---------------------
DEBBIE BROWNFIELD
Senior Vice President and Chief Financial Officer
Date: May 2, 1996
53
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Alan R. Schlesinger Chairman of the Board, Chief
- ----------------------- Executive Officer, President and
Alan R. Schlesinger Director (Principal Executive Officer) May 2, 1996
/s/ Loren R. Rothschild Vice Chairman of the Board, Chief
- ----------------------- Administrative Officer and Director May 2, 1996
Loren R. Rothschild
/s/ Debbie Brownfield Senior Vice President and Chief May 2, 1996
- --------------------- Financial Officer (Principal
Debbie Brownfield Financial and Accounting Officer)
54
<PAGE>
InfoTech Corporation COMPUTER SERVICES AGREEMENT
1511 Sixth Avenue, Seattle, WA 98101 Agreement No. 98013101
- --------------------------------------------------------------------------------
EXHIBIT 10.37
Client Name and Address: LAMONTS APPAREL INC.
3650 - 131 AVENUE SE, SUITE 400
BELLEVUE, WA 98006
Effective Date: FEBRUARY 1, 1996
Expiration Date: JANUARY 31, 1998
Term of Agreement: TWENTY-FOUR (24) MONTHS
Client Representative: PETER AARON, EXECUTIVE VICE PRESIDENT
-------------------------------------------------------------
DOCUMENTS INCORPORATED IN AGREEMENT
SCHEDULE PAGE
SCHEDULE A - DESCRIPTION OF SERVICE . . . . . . . . . 3
SCHEDULE B - SERVICE CHARGES. . . . . . . . . . . . . 9
SCHEDULE C - PERFORMANCE OBJECTIVES . . . . . . . . . 12
SCHEDULE D - GLOSSARY OF TERMS. . . . . . . . . . . . 15
SCHEDULE E - CLIENT SUBLEASED EQUIPMENT . . . . . . . 17
SCHEDULE F - CLIENT EQUIPMENT AND SOFTWARE. . . . . . 18
TERMS AND CONDITIONS. . . . . . . . . . . . . . . . . 19
-------------------------------------------------------------
InfoTech Corporation (the "Provider") agrees to furnish, and Lamonts Apparel,
Inc. (the "Client") agrees to accept, the services described in the above
Schedules, for the period indicated above for the fees stated in Schedule "B,"
all such Schedules being incorporated herein by this reference. This Agreement,
which supersedes and replaces the Agreement dated May 25, 1991, and Amendment
dated February 3, 1992, is agreed to by both parties and is expressly
conditioned upon the Terms and Conditions and Schedules set forth in this
Agreement.
This Agreement must be accepted by the bankruptcy court before it becomes
effective.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LAMONTS APPAREL, INC. INFOTECH CORPORATION
Name:................................. Name:..................................
Signature:...........................Signature:.................................
- --------------------------------------------------------------------------------
Page 1
<PAGE>
- --------------------------------------------------------------------------------
Title:..............................
Title:......................................
Date:................................
Date:........................................
- --------------------------------------------------------------------------------
Page 2
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE A - DESCRIPTION OF SERVICE
SCOPE
This agreement covers the processing on, and use of, the Provider's hardware and
software, and the Client's hardware and software so as to assist the Client in
managing its business. All of the products and services listed below are
components of Provider's shared environment. The "Base Service Offerings"
included in this Schedule "A" are being provided to the extent requested by the
Client and agreed to by Provider.
- --------------------------------------------------------------------------------
SERVICE AVAILABILITY HOURS (PACIFIC TIME ZONE)
IBM Central System 0000-2400 Monday through Saturday
0000-1800 Sunday
Operations Support 0000-2400 Monday through Sunday
Help Desk 0000-2400 Monday through Sunday
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHIFT DEFINITIONS
Off Shift 0000-0759 Monday
Prime Shift 0800-1700 Monday through Friday
Off Shift 1701-0759 Monday through Friday
Off Shift 1701 Friday through 1759 Sunday
Preventive Maintenance 1800-2400 Sunday
- --------------------------------------------------------------------------------
BASE PRODUCT OFFERING - SOFTWARE
IBM MVS/ESA - JES2, 4.4.2, operating system supporting the following system
software:
- Assembler H 2.1
- Basic Telecommunication Access Method/System Product (BTAM/SP) 1.1.0
- CA-JARS 6.0
- CA-JARS/DSA 5.1
- CA-Optimizer (for OS/VS COBOL) 5.1
- CICS Application File Control Facility (CAFC) 3.2.02
- CSP/AD 3.3
- CSP/AE 3.3
- COBOL II 1.4.0
- Corporate Tie 2.1.D
- Customer Information Control System (CICS) 2.1.2
- Data Facility/Data Set Services (DF/DSS) 2.5
- Data Facility/Hierarchical Storage Manager (DF/HSM) 2.6
- --------------------------------------------------------------------------------
Page 3
<PAGE>
- --------------------------------------------------------------------------------
- Data Facility Product (DFP) 3.3.1
- DB2 3.1.0
- Emulation Program (EP) 1.6.1
- Easytrieve Plus (with DB2 interface) 6.1D
- Express Delivery 4.2.0
- EZ/IQ (with DB2 interface) 3.0C
- FastDASD 4.4
- IDMS 10.2.2
- Interactive System Productivity Feature/Dialog Manager (ISPF/DM) 3.5
- Interactive System Productivity Feature/Program Development Facility
(ISPF/PDF) 3.5
- Intertest 4.3
- JCLCheck 6.2
- JES328X 1.0
- Jobtrac 3.2
- Netview/DM 1.2
- Netview/XA 1.3
- Network Control Program (NCP) 4.3.1
- Netview/XA 1.3
- ODE II 4.1
- OMEGAMON/CICS V551
- OMEGAMON/DB2 V270
- OMEGAMON/MVS V750
- OS/VS COBOL 0.2.4
- Panvalet 14.02A
- PC File Transfer 1.1.0
- Peregrine Network Management System (PNMS) 4.6
- Query Management Facility (QMF) 3.2.0
- Resource Access Control Facility (RACF) 1.9.0
- Resource Measurement Facility (RMF) 4.2.2
- SAR 6.5.3
- SAR/PC 1.5
- SDF/CICS 5.0
- Service Level Reporter (SLR) 3.3
- Spool Display and Search Facility (SDSF) 1.3.3
- StopX37 3.5.5
- SyncSort 3.5
- System Support Program (SSP) 3.6
- Tape Library Management System (TLMS) 5.3
- Time Sharing Option Extended (TSO/E) 2.4.0
- Virtual Telecommunication Access Method (VTAM) 3.3.0
BASE PRODUCT OFFERINGS - HARDWARE
- IBM 3090-300J
- --------------------------------------------------------------------------------
Page 4
<PAGE>
- --------------------------------------------------------------------------------
- IBM 3990/3390 DASD
- IBM 3480 cartridge tape
- IBM 3420 open reel tape
- IBM 3745 telecommunications controller
THE PROVIDER MAY, WITH THE PRIOR APPROVAL OF THE CLIENT, WHICH APPROVAL
SHALL NOT BE UNREASONABLY WITHHELD, SUBSTITUTE EQUIVALENT PRODUCTS,
WHETHER FROM IBM OR A THIRD PARTY, FOR ANY OF THE PRODUCTS SPECIFIED ABOVE.
BASE SERVICE OFFERINGS
SUPPORT OF CLIENT'S APPLICATION SOFTWARE
- Advisory support for performance analysis and resource consumption
- Management reporting of systems performance
PRODUCTION SERVICES
- Operation of IBM central system in support of Client's processing
requirements
- Monitor system and notify Client of any problems due to hardware or
software failure
- Network management: trouble-shooting and problem resolution
- Manage and maintain data center support software such as automated
report distribution and scheduling systems for Client's use
- Manage tape library; provide offsite storage for critical files
- Provide support and training in the use of production control systems
software for Client
- Provide a Help Desk for single point of contact between Client and
Provider
- Manage and maintain change control and problem management systems
- Advisory support for disaster recovery, including recovery job
scheduling assistance
- Production control for IBM mainframe, RS/6000, and Tandem processing
- Store network management
- Operational support for the Tandem (technical support for Tandem
remains with Client and its contractors)
- Printer operation for Xerox 4050
TECHNICAL SERVICES
- Telecommunication (data) support, including network design,
installation, and problem resolution
- System software installation and support for all base product
offerings
- General technical support for Client's staff including training and
consulting on the use of system software, help in the design and
coding of applications and resolution of related problems, and
specialized coding in Assembler language
- Capacity planning and performance analysis/tuning
- --------------------------------------------------------------------------------
Page 5
<PAGE>
- --------------------------------------------------------------------------------
- Customization of system software to meet Client's requirements
including setting system parameters and coding necessary user exits
- Disaster recovery support
- Technical support for the RS/6000
- Technical support for TIC
- DB2 support, which includes 7 x 24 coverage and up to 10 hours of work
per month plus 40 additional hours of work per year. Support
exceeding these parameters will be charged at the rate of $75.00/hour.
CLIENT SERVICES
- Coordinate Client/Provider activities
- Provide forum for discussion of Client issues
- Assist Client in obtaining systems training and support
DISASTER RECOVERY
- Included in the base costs of this agreement are the capacity
requirements and associated resources to provide operational disaster
backup of the central IBM base operating system.
- In the event of a disaster, CPU capacity up to 50% of Client's CPU
capacity requirement also exists. Additionally, disk storage capacity
of 30 gigabytes is assigned to Client.
- Capacity requirements beyond that noted above for Client's data files,
programs, and related activities as well as support of Client-specific
application testing, production, and related hardware, software, and
network activities may be made available to, and contracted separately
by, the Client at an additional fee.
- Battery backup (UPS) is available at the Provider's primary data
center. Capacity is sufficient to provide a minimum of 15 minutes of
ongoing processing in the event of power failure.
- Provider will pay current Weyerhaeuser disaster recovery fees for
Tandem and RS/6000 and maintain the service levels previously agreed
to in the letter of October 22, 1993, from Ken Shefveland to Tim
Travaille, and the letter of July 29, 1994, from Ken Shefveland to
Beckie Jacobs.
PRODUCTS AND SERVICES INCLUDED BUT NOT ELSEWHERE CLASSIFIED
- Installation costs for lines between Provider and Client related to
move of headquarters to Kirkland
- Added monthly costs of lines between Provider and Client related to
move of headquarters to Kirkland
- Added early morning courier runs between Provider and Client
- Consulting costs for support of the RS/6000
- Electrical costs for Client equipment housed at Provider's facility
- Costs to upgrade the RS/6000 for remote operation
- Added monthly costs to upgrade DC line (T31-6806) to 56 kb
- --------------------------------------------------------------------------------
Page 6
<PAGE>
- --------------------------------------------------------------------------------
- 56 kb line to RS/6000 and maintenance of equipment
- Telephone line (621-3617) for DC dial backup
- LAN-to-LAN connection between Provider and Client
- Xerox 4050 printer located at Provider's facility will continue to be
run on a communication line and not be channel-attached
EQUIPMENT HOUSED AT PROVIDER
- Tandem
- Xerox 4050
- TIC
- Store Network
PRODUCTS AND SERVICES NOT INCLUDED
- Client will be responsible for the continuation of the existing
courier runs between Client and Provider. Client will arrange and
directly pay for the additional early morning courier run but will be
reimbursed for its costs by Provider. Courier runs to deliver output
from the 4050 will be as follows:
- One additional run with pickup at 7:30 a.m. Tuesday through
Sunday and one run on Monday with pickup prior to 7:30 a.m.
- One existing run with pickup during business hours on
business days.
- These runs will be at regularly scheduled times, and
delivery will be within one hour from time of pickup. The
daytime run will also deliver on-line viewing tapes to
Client.
- Client is responsible for providing support needed to test
and implement network changes in a timely manner.
- All other costs associated with Client-specific hardware and
software, including supplies, maintenance, installation,
related taxes, unique equipment operation (e.g., POS
operation), Client's application backup and related disaster
recovery and capacity costs, or unique disaster recovery
equipment are not included in these base offerings.
- --------------------------------------------------------------------------------
Page 7
<PAGE>
- --------------------------------------------------------------------------------
RESPONSIBILITY MATRIX
RESPONSIBLE PARTY
ACTIVITY PROVIDER CLIENT
Central system including system software X
Central network (3725, local 3X74s, etc.) X
Central telecommunications equipment X
Central system TSO response time X
Central system resource security X
Client online system(s) response time X
Client resource security X
Client database administration X
Client application software X
Client application(s) response time X X
Telecommunications lines X
Client premises telecommunications (data) equipment X
Client premises (remote to Provider) control unit(s) X
Client premises terminal(s) X
Client premises printer(s) X
Client dedicated DASD space management X
Client dedicated DASD performance X
- --------------------------------------------------------------------------------
NOTE: Responsibility as indicated above includes availability, reliability,
installation, maintenance, problem determination and resolution, and disaster
recovery.
SPECIAL CONSIDERATIONS
The Client understands that the hours between 1800 and 2400 Sunday are generally
reserved for preventive maintenance of, and Technical Support testing on, the
Central System. Client understands, however, that time needed for production or
critical testing by Client will not be unreasonably withheld during the
preventive maintenance period. The Client agrees to adhere to those systems
management disciplines as defined in the Provider's problem management, change
control, and standards manuals, and other disciplines as may be defined in the
future by the Provider and agreed to by the Client for the purpose of ensuring
overall systems integrity, reliability, and availability.
SERVICE RATING AND REPORTING
Processing performance in relation to those items that Provider is responsible
for as identified in the above Responsibility Matrix will be included in "The
InfoTech Operating Report," published monthly.
- --------------------------------------------------------------------------------
Page 8
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE B - SERVICE CHARGES
During the Service Availability Hours, the Provider will support the Client with
the base services as defined in SCHEDULE "A" - DESCRIPTION OF SERVICE. During
the month the Provider will collect System Management Facility (SMF) statistics
on Client utilization. The Client will be invoiced monthly for resource
consumption as detailed in the subsections of this schedule.
BASE RESOURCE OFFERING
At the beginning of each month, Provider will invoice Client for the base
monthly charge. The base resource offerings provided include:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MONTHLY BASE RESOURCE UTILIZATION BY YEAR
Resource FY 96 FY 97
-------- ----- -----
<S> <C> <C>
Adjusted CPU hours(1) 500 500
Tape mounts 12,500 12,500
Tape input/output (I/O)(2) 30,000 30,000
Tape cartridges 8,000 8,000
Offsite tape 1,500 1,500
3390-2 DASD volumes 46 46
Telecomm. lines 10 10
Communication ports(3) 21.25 21.25
BASE MONTHLY INVOICE(4) $126,000 $126,000
-------- --------
-------- --------
</TABLE>
(1)3081K CPU equivalent hours. Adjusted hours will be calculated as follows:
Prime shift batch priority = 100%
Off shift batch priority = 70%
On-line/started task priority = 120%
(2)Units of 1,000
(3)Provider's pricing for telecommunications support includes providing the
telephone lines as well as modems, DSU/CSU's, and multiplexers at both ends
of all existing circuits. Does not include long distance charges incurred on
dial-up lines.
(4)All prices in US Dollars
- --------------------------------------------------------------------------------
The monthly invoice will be accompanied by a detailed list of resource
utilization beyond the monthly base. Provider will accumulate actual resource
utilization throughout the year. At the end of the fiscal year, actual
utilization in excess of the annualized base utilization for adjusted CPU hours,
tape mounts, and tape input/output shall be billed according to the Incremental
Resource Charges table. Incremental monthly usage for tape cartridges, offsite
tape, 3390 DASD, telephone lines, and
- --------------------------------------------------------------------------------
Page 9
<PAGE>
- -------------------------------------------------------------------------------
telecommunications ports shall be accumulated and billed with those charges
indicated above.
The base resource fees for FY96 and FY97 are based upon current projections. At
the end of FY96, the average CPU resource utilization for the prior 12 months
will be used to establish the subsequent year's CPU base resource utilization
fee structure. The FY97 CPU base units will be the average monthly CPU usage in
FY96, except that the maximum change in the base units will be limited to 10%.
Thus, the maximum base for FY97 is 550 hours and the minimum is 450 hours. The
monthly base fee will be raised or lowered by $60.00 for every hour the monthly
base CPU usage is raised or lowered.
Utilization above the base charges will be priced as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INCREMENTAL RESOURCE CHARGES
Resource Charges(1)
-------- -------
<S> <C>
Adjusted CPU hours(2) 60.00
Tape mounts 0.45
Tape input/output (I/O)(3) 0.15
Tape cartridges 0.50
Offsite tape 1.50
3390-2 DASD volumes 404.75
Telecomm. lines(4) 125.00
Communication ports(5) 100.00
Impact printer lines(3) 0.25
</TABLE>
(1)All prices in US Dollars
(2)3081K CPU equivalent hours. Adjusted hours will be calculated as follows:
Prime shift batch priority = 100%
Off shift batch priority = 70%
On-line/started task priority = 120%
(3)Units of 1,000
(4)Equipment and telephone lines will be extra and priced as incurred. Tail
circuits will be charged one half the normal rate, at $62.50 per line.
(5)Includes services for line speeds up to 64KBS. Autodial units requiring two
ports will be charged at $125 per month per pair.
- --------------------------------------------------------------------------------
NETWORK SAVINGS
As a result of Provider's network redesign activities on behalf of Client, which
must be preapproved in writing by the Client (such approval not to be
unreasonably withheld), the Client will share any savings with the Provider so
that the Provider receives the first $25,000 in savings during each of the two
years of the Agreement. In addition, Client
- --------------------------------------------------------------------------------
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<PAGE>
- -------------------------------------------------------------------------------
agrees to share 50% of any savings over $25,000 during each of the two years of
the Agreement with Provider.
Any savings due Provider as described above shall appear as a line item on the
most recent invoice and shall be due and payable by Client no later than 30 days
following the close of business of the fiscal year. Savings shall be calculated
as follows:
Savings on telephone company line charges as documented by Client on
January 9, 1996 (NOTE: Client has represented to Provider that there
are no line termination charges and that the costs supplied include
all taxes.)
LESS Implementation costs (equipment and circuit installation), as well as
direct testing costs
LESS Cost of equipment lease and maintenance
The Client will be responsible for reimbursing the Provider for any direct costs
related to this project, pre-approved in writing by the Client Representative or
his duly appointed agent.
In order to achieve the savings noted above, Provider will acquire certain
necessary telecommunications equipment at a price not to exceed $25,000. This
equipment will be leased over a three year period in order to obtain the
targeted savings. Client will reimburse Provider for the lease costs of the
equipment. It is agreed by Client that in the event that Client is not a
customer of Provider for the duration of this lease, that Client will assume the
remaining lease payments and/or reimburse Provider for said payments.
ADDITIONAL COSTS
In addition, any expenses not identified by this document but incurred by the
Provider solely for the benefit of the Client, as the result of the Client's
activities, or as the result of the actions of a Client's vendor will be charged
to the Client at cost plus fifteen percent. However, no such expense will be
charged to the Client without the Client Representative's prior written approval
or that of his duly appointed agent, except in exigent circumstances. Client's
approval will be obtained in all non-emergency cases for additional expenditure,
or the service or product will not be rendered or procured.
Whenever possible, the Provider will work with the Client to plan incremental
costs in advance.
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- --------------------------------------------------------------------------------
SCHEDULE C - PERFORMANCE OBJECTIVES
STATEMENT OF PURPOSE
These objectives provide a goal for the Provider to strive towards, while also
providing the Client with reasonable expectations under normal operating
conditions and circumstances and a method to evaluate the quality of service
received. It is understood that the Provider shall not be responsible for
performance of those items over which it has no reasonable control.
RELIABILITY AND PERFORMANCE OBJECTIVES
Provider will provide the following guarantees and warranties:
- --------------------------------------------------------------------------------
Central system availability: 99.7% of the stated system availability as
indicated under "Service Availability Hours"
in SCHEDULE "A" - DESCRIPTION OF SERVICE,
measured monthly(1)
Online systems availability: 98.5% of the stated system availability as
indicated under "Service Availability Hours"
in SCHEDULE "A" - DESCRIPTION OF SERVICE,
measured monthly(2)
Production CICS response time
(overall average as measured < 2 seconds(3)
monthly)
TSO response time (overall
average as measured monthly, for < 1 second
first period transactions)
Batch queue time < 1.5 minutes(4)
(1)Central system availability will be measured by the ability of the Provider
to provide a basic system as defined in SCHEDULE D - "GLOSSARY OF TERMS."
(2)Online system availability will be measured by the ability of the Provider to
provide online services to the limit of its responsibilities, i.e., the
remote communications equipment. See definition of online systems
availability in SCHEDULE D - "GLOSSARY OF TERMS."
(3)CICS transactions which use such extensive resources that they intrinsically
cannot achieve the service levels specified will be excluded from calculation
of the performance of the Provider.
(4)Wait times for job class N, which is designed for the submission of batch
jobs during the day to be run later at night, will be excluded. Wait times
will also be excluded for jobs submitted with TYPRUN=HOLD or the submission
of multiple jobs with the same name.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 12
<PAGE>
- --------------------------------------------------------------------------------
Scheduled downtime for hardware, software, or telecommunications (network)
changes or maintenance will not be included in the reliability statistics
identified above.
It is mutually agreed that there are certain times that are more critical than
others. A partial loss of function that has little material impact on the
Client will not be counted against the Provider's performance if the Provider
delays corrective action for the solution of the problem until a time when the
impact of the action on the users of the system is minimized, provided however,
that Provider consults with and notifies Client prior to any such delay. If
Client approval of such delay(s) is requested, such approval shall not be
unreasonably withheld. Furthermore, any increase in downtime due to actions
taken to minimize impact to users will not be counted as part of the
interruption.
It is understood that there will be errors in system software out of the control
of the Provider. Such a system software error will not be counted against the
availability service levels unless it substantially impacts the ability of users
to perform their jobs.
PENALTIES
Failure to perform as indicated will result in the imposition of the following
penalties:
a. For each interruption to central system availability which has a
duration in minutes as set forth below, the associated penalty shall
be imposed:
Duration of Interruption Penalty
------------------------ -------
481 - 1,440 $ 5,000
1,441 - 2,880 $10,000
b. All interruptions with a duration of less than 481 minutes in a
particular calendar month shall be added together at the end of such
month, and if the cumulative number of minutes fits within one of the
categories set forth in a. above, the penalty associated with that
category shall be imposed.
c. In no case will the penalty for any set of multiple interruptions be
greater than the penalty which would have been incurred if there had
been a single interruption starting at the beginning of the first
interruption and ending with the end of the last interruption.
d. Penalties imposed under a. and b. above shall be applied against
amounts due on the most recent invoice(s) or applied against future
charges, as applicable.
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<PAGE>
- --------------------------------------------------------------------------------
CLIENT'S RESPONSIBILITY IN MEETING PERFORMANCE OBJECTIVES
As the Provider is guaranteeing response times over which the Client can have
substantial impact, the Client agrees to:
1. Allow Provider the opportunity to participate in the design and testing of
Client's online applications to make sure that their resource requirements
are understood and that efficient design and programming practices are
followed.
2. Make such changes in its applications as Provider recommends to bring them
into accordance with generally accepted principles of efficient online
coding.
3. Make, or allow Provider to make, such changes in DASD file allocation and
placement as are necessary to provide acceptable DASD performance.
4. Work with Provider in good faith to do whatever is necessary to bring
performance of online applications to acceptable levels.
5. Give Provider sufficient advance notice of requirements for additional
capacity so the Provider can acquire the necessary resources.
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<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE D - GLOSSARY OF TERMS
AVAILABILITY: The time period(s) during which the Provider commits to provide a
particular service.
CENTRAL SYSTEM AVAILABILITY: The central system is available when MVS and its
critical components are up and operational so that any user system with all
its specific components operational can be run. Failures that impact the
ability of specific systems to operate will be counted against the
availability of those specific systems.
CPU: Central Processing Unit; the hardware that controls all computer
operations, consisting of three sections: memory, arithmetic/logic, and
control.
CPU EQUIVALENT HOUR: All CPU hours in this contract refer to a CPU hour on an
IBM 3081K with the performance improvement feature. As the Provider
upgrades to a different computer, the number of hours provided in the base
and the incremental per hour charge will be adjusted to account for the
different speeds of the processors. For example, each processor in a 3090-
400E is 1.789 times as powerful as each processor in the Provider's current
CPU. If a 3090-400E was placed in service by Provider for Client's use,
the Base Service Units for CPU hours would be adjusted to 223.59 hours
(400/1.789). The incremental cost would be adjusted to $107.34 per hour
($60 x 1.789). The ratio of the power of the processors on each CPU will
be calculated using the internal SRM constant specifying the service units
per second of execution time as supplied by the manufacturer of the CPU.
DASD: Direct Access Storage Device; magnetic storage device (disk drive).
ONLINE SYSTEMS AVAILABILITY: Online systems are available when all components
of the online systems under the control of the Provider are up and
available to the end user. This includes the online software itself (such
as CICS, TSO, and NDM), necessary database systems (such as IDMS and DB2),
application data files, and communications facilities. Loss of
availability will be counted only during those hours that the system or
application was scheduled to be available. In the case of file transfer
type facilities such as trickle transmit or NDM, loss of availability will
be counted from the time the data normally would have been available and
used at the destination. Loss of availability due to failures in
components out of the control of the Provider or due to actions of the
Client or the failure of the Client to take necessary actions in a timely
manner will not be counted in determining the Provider's service level.
In the event of a partial failure, such as that of communications
facilities or a single system or application, only that portion of the
downtime that corresponds to the proportion of users who lose access to the
system will be counted against
- --------------------------------------------------------------------------------
Page 15
<PAGE>
- --------------------------------------------------------------------------------
provided reliability. For example, if 10% of Client's users are down for
two hours, then 10% of two hours, or 12 minutes, will be counted against
scheduled uptime.
It will be the responsibility of the Client to supply the Provider the
respective percentages for the failure of any component. The percentages
for each component may reflect the importance of the component to the
Client as well as the actual number of users impacted. There will be two
lists, one for software components and one for communications facilities.
It will also be the responsibility of the Client to supply the Provider
with the scheduled hours of availability for all its online applications
and file transmissions.
Recognizing that short interruptions by the Provider can cause longer
delays for the Client, an allowance of four (4) hours will be made for the
recovery of Client systems from failures of the Provider. That is, the
loss of availability as calculated above will be limited to the actual time
of any interruption caused by the Provider plus four hours for Client
recovery.
RELIABILITY: The percentage of total committed time (availability) that a
computer component is operative, or a service delivered on time.
TAIL CIRCUIT: A communication circuit that does not terminate on Provider's
premises for which Provider is responsible for troubleshooting and service
restoration. Examples are circuits connected to remote concentrators
and/or multiplexors.
VOLUME: A data carrier that is mounted and demounted as a unit, for example, a
reel of magnetic tape or a disk pack.
- --------------------------------------------------------------------------------
Page 16
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE E - CLIENT SUBLEASED EQUIPMENT
The following is a list of hardware, software, or occupancy expenditures and
leases made on the Client's behalf as of the date of this Agreement. The Client
will maintain the financial liabilities represented by this list.
HARDWARE
Product/Device Serial No. Monthly Cost Lessor Expire Penalty
- --------------------------------------------------------------------------------
Not applicable
SOFTWARE
Product/Device Serial No. Monthly Cost Lessor Expire Penalty
- --------------------------------------------------------------------------------
Not applicable
- --------------------------------------------------------------------------------
Page 17
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE F - CLIENT EQUIPMENT AND SOFTWARE
The following is a list of computer hardware, software, and ancillary items that
are owned or leased by Client but housed in the Provider's facility.
CENTRAL SYSTEM HARDWARE
Manufacturer Model Serial No. Owner Location
- ---------------------------------------------------------------
Client-specific software information to be supplied by Client at a later date.
TELECOMMUNICATIONS
Manufacturer Model Serial No. Owner Location
- ---------------------------------------------------------------
Client-specific software information to be supplied by Client at a later date.
SOFTWARE
Manufacturer Description Owner System Location
- --------------------------------------------------------------------
Client-specific software information to be supplied by Client at a later date.
- --------------------------------------------------------------------------------
Page 18
<PAGE>
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS
1.0 TERM OF AGREEMENT: After signature and acceptance by both parties, this
Agreement shall become effective on the effective date stated on Page 1,
and shall continue in effect until the expiration date stated on Page 1,
unless earlier terminated under provisions hereof.
2.0 NOTICES: Any notice required to be given pursuant to this Agreement must
be transmitted in writing by certified or registered US mail, postage
prepaid, return receipt requested, addressed as shown on Page 1.
3.0 PRICE AND PAYMENT TERMS: Provider shall provide a monthly invoice to the
Client for all base service offerings to be rendered to Client during the
current month, in accordance with SCHEDULE "B" - SERVICE CHARGES of this
Agreement. Monthly invoices are due and payable upon receipt by Client.
Monthly invoices shall be subject to an interest rate of eighteen percent
(18%) per annum or the maximum interest permitted by law, whichever is less
if unpaid within thirty (30) days of receipt.
Provider shall provide an annual invoice to the Client for all services
above the base offering level performed during the preceding year in
accordance with SCHEDULE "B" - SERVICE CHARGES of this Agreement. Annual
invoices are due and payable within fifteen (15) days of receipt by Client.
Annual invoices shall be subject to an interest rate of eighteen percent
(18%) per annum or the maximum interest permitted by law, whichever is less
if unpaid within fifteen (15) days of receipt.
3.1 TAXES: Client shall, in addition to the other amounts payable under this
Agreement, pay all taxes, federal, state or otherwise, however designated,
which are levied or imposed by reason of any use, license or purchase of
Client-specific software or hardware under this Agreement or the provision
of services by Provider, including but not limited to such items actually
paid or required to be collected or paid by Provider.
4.0 WARRANTY: Except as otherwise specifically provided in this Agreement,
Provider's sole warranty under this Agreement with respect to supplying or
providing any of the data processing resources or services contemplated
hereunder shall be limited to the rerunning of any inaccurate reports or
the correction of any inaccurate data or information provided that such
inaccuracies were caused substantially as a result of the Provider's
failure to satisfy the requirements of this Agreement. The Client will
submit written notice of such inaccuracies to the Provider within ten (10)
days of delivery of such report or the providing of such inaccurate data or
information. If, after repeated efforts to correct such inaccuracies, the
Provider elects not to correct the inaccuracies, or the Client chooses not
to correct such inaccuracies; notwithstanding other obligations or
requirements under this Agreement, then the Client shall be entitled to
recover its actual damages up to a maximum amount that is equal to the
monthly fee paid by the Client to the Provider for the calendar month
immediately preceding the calendar month in which the notice of inaccuracy
or failure was given to the Provider. The Client acknowledges that unless
otherwise agreed to in writing by the Client and the Provider, the various
performance objectives in this Agreement are indeed targets that the
Provider is striving to meet and as such, Client shall not be entitled to
terminate this Agreement or to recover any damages caused by the Provider's
failure to meet the stated performance objectives except as specifically
provided for in this Agreement or in circumstances that threaten the
ongoing business of the Client. The Client acknowledges and agrees that
the foregoing constitute the exclusive remedies available to it for any
claim made by it under this Agreement.
5.0 LIMITATION OF LIABILITY: THE CLIENT AGREES THAT THE FOREGOING WARRANTY IS
IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS OR ADEQUACY
FOR ANY PARTICULAR PURPOSE OR USE, QUALITY, PRODUCTIVENESS OR CAPACITY.
Neither party (including such party's agents and/or affiliates) shall be
liable to the other party or to any other person claiming through or under
such party, including without limitation any customer of such party, for
any claim, loss, liability, obligation or expense of any nature whatsoever
or for any lost profits or damages of any kind, including but not limited
to the loss of data or other electronic information, including but not
limited to the hardware, programs, documentation, data files, output,
services, or other matters produced or provided hereunder, howsoever
caused. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY
OTHER PERSON FOR LOSS OF BUSINESS, LOST PROFITS OR SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
- --------------------------------------------------------------------------------
Page 19
<PAGE>
- --------------------------------------------------------------------------------
5.1 PATENT AND COPYRIGHT INDEMNIFICATION: Client, at its own expense, shall
indemnify and hold harmless Provider and its subsidiaries and affiliates
under its control and their directors, officers, employees and agents and
defend any action brought against Provider with respect to any claim,
demand, cause of action, debt or liability, including attorneys' fees and
expenses, to the extent that it is based upon a claim that any licensed
software used within the scope of this Agreement by Client infringes,
violates or relates to any patents, copyrights, licenses or other property
rights, provided that Client is notified of such claim. In all events,
Provider shall have the right to participate in the defense of any such
suit or proceeding through counsel of its own choosing.
Provider, at its own expense, shall indemnify and hold harmless Client and
its subsidiaries and affiliates under its control and their directors,
officers, employees and agents and defend any action, debt or liability,
including attorneys' fees and expenses, to the extent that it is based upon
a claim that any licensed software used within the scope of this Agreement
by Provider which is provided by Provider as part of the base offerings
infringes, violates or relates to any patents, copyrights, licenses or
other property rights, provided that Provider is notified of such claim.
In all events, Client shall have the right to participate in the defense of
any such suit or proceeding through counsel of its own choosing.
In circumstances where the use of software or a system by the Provider for
the Client will infringe upon a patent or copyright, Provider reserves the
right to elect to: substitute an alternative product of equivalent
capability, take action to recover the software or system, or refund to the
Client for fair market value of the use of said software; however, such
refund shall not exceed the proportion of the amount paid by Client for use
of said software.
6.0 FORCE MAJEURE: Provider shall not be liable for and is excused from any
failure to deliver or perform or delay in delivery or performance due to
any causes where Provider is hindered or prevented from complying because
of labor disturbances (including strikes or lockouts), war, acts of God,
fires, storms, accidents, government regulations, or any other cause
whatsoever, reasonably beyond Provider's control. If Provider is unable to
perform Provider's obligations under this agreement due to Force Majeure,
Provider shall waive payment until service has been restored.
7.0 DEFAULT: In the event that Client shall become thirty (30) days in arrears
in payment for the goods and services rendered in accordance with the terms
hereof, or breaches any other part of this Agreement, Provider may at its
sole discretion, elect to cancel this Agreement, provided however, that
cancellation shall not be made without written notice given to Client
Representative by Provider at least fifteen (15) days before the day set
for cancellation of this Agreement, such fifteen (15) day notice being
given to permit payment of all sums in arrears. Provider may also pursue
any other remedies available at law or in equity. Neither party's failure
to exercise any of its rights shall constitute a waiver of any past,
present or future right or remedy, and all of its rights and remedies shall
be cumulative.
In the event that Client is unable to execute the activities or
requirements of the Client described in PRODUCTS and SERVICES or the
obligations of Client set forth in this Agreement(1) and such failure
substantially interferes with Provider's performance hereunder, Client
shall be in default of this Agreement and Provider may elect to terminate
this Agreement and receive payment for services as provided in Section 9.0
herein.
In the event that Provider's level of service as defined in SCHEDULE "C" -
PERFORMANCE OBJECTIVES falls five percent (5%) below the objectives set in
any category for a period of three (3) consecutive months, and where
failure to substantially perform at, or near the established objectives, is
not directly or indirectly caused by or allowed to be caused by an activity
or requirement of the Client, the Provider shall be determined to be
performing at a substandard level, and where this deviation from the
performance objective is of such significance as to threaten or cause the
Client business substantial damage, Client may at its sole discretion,
elect to cancel this Agreement, provided however, that cancellation shall
not be made without written notice given to Provider by Client at least
sixty (60) days before the day set for cancellation of this Agreement, such
additional sixty (60) day notice being given to permit Provider a final
opportunity to correct substandard performance or otherwise amend the
contract.
Notwithstanding anything to the contrary herein, if Provider is in material
default under this Agreement, Client shall have the right to withhold
payment until the default is cured. Provider shall have the right to
require Client to deposit said amounts into an interest bearing escrow or
third party account mutually acceptable to the parties.
- -----------------------------------------
(1)inter alia, Sections 11.0, 12,0, and 13.0
- --------------------------------------------------------------------------------
Page 20
<PAGE>
- -------------------------------------------------------------------------------
8.0 ASSIGNMENT OR TRANSFER: The Client shall not assign its rights or
obligations under this Agreement, voluntarily or involuntarily, by
operation of law or otherwise, without the prior written consent of
Provider, which consent shall not be unreasonably withheld.
Furthermore, organizational or name changes of the Provider or Client will
not in any manner change the terms and commitments of this Agreement. The
Client cannot assign this Agreement without Provider's prior written
consent, except for an assignment to a person or entity that controls the
Client or is controlled by the Client or which acquires substantially all
of the business and assets of the Client; however, no such assignment shall
relieve Client of any of its obligations hereunder or require Provider to
provide services to any person or entity other than Client solely for its
business. For this purpose, control shall mean fifty percent (50%) or more
of the common stock or other securities or interests entitled to exercise
the voting control over the Client.
9.0 TERMINATION: The parties hereto understand that the Provider will be
committing to leases or purchases of equipment, purchases or licenses of
software and other commitments of resources for the entire term of this
Agreement. Hence, the parties agree that Client will furnish Provider at
minimum every six (6) months with copies of adequate financial information
evidencing its ability to meet its obligations hereunder. Additionally, if
this Agreement is terminated by Client prior to the end of the Agreement
and Provider is not in default as defined in section 7.0, the parties have
agreed that a reasonable estimate of the damages that will be incurred by
the Provider as a result of such termination can be calculated in the
following manner: multiply the current minimum monthly payment under
SCHEDULE "B" - SERVICE CHARGE by the lesser of (i) 15 months or (ii) the
remaining months of the Agreement Period. The Client agrees to pay such
amount to the Provider within thirty (30) days of such termination.
10.0 REVISIONS: This Agreement may be modified only in written form, signed by
both parties as identified on Page 1. The Client Representative or any
other authorized corporate officer of the Client has the authority to bind
the Client with respect to all agreements, consents, or other matters
requiring action on behalf of the Client.
11.0 TRANSPORTATION OF DATA: Data submitted by the Client to the Provider for
processing, and output produced by the Provider, shall be transported at
the Client's risk and expense to and from the Provider's offices. In the
event that the Client fails to deliver input data to the Provider at the
time scheduled, the Provider may extend, as necessary, the time for the
completion of processing such data. The Client further agrees that
completion of the processing may be extended because of holidays taken by
Client. In any event, the Provider does not warrant or represent that
shipment, transmission, or availability dates will be met, but will use its
reasonable efforts to do so.
12.0 STORAGE: The Client shall assume the risks and Provider shall not be
responsible for any damages, liability or expense incurred in conjunction
with any delay in delivery of supplies, magnetic media, or any other input
data furnished by the Client unless Provider has agreed in writing to
assume such responsibility. No more than a normal forty-five (45) day
supply of Client-specific forms may be stored at Provider's site.
13.0 SUPPLIES: All special supplies required for processing that are Client
specific shall be furnished solely at the Client's expense.
14.0 ADDITIONAL EXPENSES: The Client will be charged directly for time and
material expenses at the Provider's normal rates for work that is performed
by the Provider that is outside the scope of the services contemplated for
the base fees.
All additional charges outside of those specified in the contract that are
to be the responsibility of the Client will be agreed to in advance and in
writing by the Client and before the service or product is rendered, or
acquired by the Provider, except in circumstances that are of an exigent
nature.
15.0 OWNERSHIP OF DATA: Should services be terminated between the Provider and
the Client, the Client following payment of all due but unpaid invoices
shall be entitled to remove from the Provider's premises, at the Client's
expense, any and all equipment, data, applications, documentation, and
procedures that have been identified in writing to Provider as being
proprietary to Client. The Client hereby grants to Provider a security
interest in all assets, including hardware, software, data, storage
devices, disks, and manuals in Provider's possession to secure payment of
any amounts and the performance of all obligations under this Agreement.
This Agreement shall constitute a security agreement under the Uniform
Commercial Code of Washington. Client agrees to cooperate with Provider in
any filing of financial and confirmation statements.
15.1 CONFIDENTIALITY: Client will use reasonable measures to prevent exposure
by anyone over whom Client has the right to exercise control,
- --------------------------------------------------------------------------------
Page 21
<PAGE>
- --------------------------------------------------------------------------------
without the consent of Provider of all programs, documentation, systems,
techniques, and know-how of Provider. The obligations of the parties under
this paragraph shall survive termination of this Agreement.
Provider will use reasonable measures to prevent exposure by anyone over
whom Provider has the right to exercise control, without the consent of
Client of all programs, documentation, systems, techniques, know-how and
business plans where information regarding the specific programs has been
clearly communicated by the Client in writing to the Provider as being of a
confidential nature to the Client.
The parties agree that the Client's data is of a confidential nature to
Client. Any party or their agents divulging information shall pay for all
attorneys' fees of the other in obtaining injunctive relief. This shall be
the exclusive remedy of Client against Provider. The obligations of the
parties under this paragraph shall survive termination of this Agreement.
15.2 ACCESS: Provider shall allow Client reasonable access to all of the
Client's data information or media in the possession of Provider for the
term of this Agreement subject to any reasonable Provider charges for
copying or reformatting data or otherwise providing services not specified
in SCHEDULE "A" - DESCRIPTION OF SERVICE.
Client shall not obtain any proprietary rights in the hardware, programs,
documentation, techniques, or know-how used by the Provider in providing
services hereunder, whether such are developed specifically for performance
of this Agreement or otherwise, except under circumstances where the Client
is the Licensee of the hardware, programs and/or documentation used by the
Provider in providing service to the Client.
16.0 DATA INTEGRITY: The Client is responsible for establishing procedures for
the backup of all data, software, and other information provided to the
Provider, who is responsible for following those procedures. In the event
of a system failure or catastrophe, the Client is responsible for providing
procedures to the Provider for the performance of all of the steps
necessary for the reconstruction of the data, files, and other information
deemed necessary by the Client.
Client is responsible for providing at a reasonable time and a reasonable
format, all input data required by Provider to provide services herein.
Provider shall not be responsible for errors in data entry or other
services, programs, hardware, data files, or output provided to or
maintained for Client hereunder resulting from errors in Client's input
data or from Client's failure to comply with the provisions of this
Agreement.
16.1 DISASTER RECOVERY: The Provider will maintain a backup facility capable of
providing capacity sufficient to load and run its base IBM operating
programs and systems and such other systems as provided for under Disaster
Recovery in SCHEDULE "A" - DESCRIPTION OF SERVICE. Client is responsible
for backup and disaster recovery of all non-base system equipment that is
dedicated to it, or Provider may, for an additional charge, assume the
responsibility. Client understands that when disaster processing
procedures are activated, normal processing objectives for performance,
availability, and reliability are suspended and remain so until thirty (30)
days after normal processing is resumed.
In the event that the Provider's primary IBM system and/or disaster
recovery backup IBM system is unavailable to Client for processing for a
period exceeding forty-eight (48) consecutive hours, Provider will incur a
penalty of $5,000 per hour for each hour the system is unavailable beyond
forty-eight (48) hours. Provider has, and will maintain, in force combined
property damage/business interruption/extra expense insurance (all perils).
17.0 SOFTWARE: The software and operating systems employed by Provider together
with any improvements therein or any extensions thereof and all copies
thereof are proprietary to Provider and its title or license thereto
remains in Provider. All applicable rights to patents, copyrights,
trademarks and trade secrets in the licensed software operating systems are
and shall remain in Provider. Client shall not sell, transfer, publish,
disclose, display or otherwise make available to others any licensed
software operating system or copies thereof. Client agrees to secure and
protect each program, software product and copies thereof in a manner
consistent with Provider's rights herein.
The software and operating systems employed by the Provider and licensed to
the Client together with any improvements therein or any extensions thereof
and all copies thereof are proprietary to the Client and its title or
license thereto remains with the Client, unless agreement to the contrary
has been made by Client with Provider. Provider shall not willfully sell,
transfer, publish, disclose, display, or otherwise make available to others
any licensed software, operating system, or copies thereof, of products
licensed to Client, without the Client's written permission, and shall take
reasonable preventive measures to safeguard the software. In
- --------------------------------------------------------------------------------
Page 22
<PAGE>
- --------------------------------------------------------------------------------
the event that Provider or its agents divulge such information, Provider's
financial responsibility shall be limited to the payment of all attorneys'
fees of the other in obtaining injunctive relief. Client certifies that
all hardware, software, and application programs operated by the Provider
for the exclusive use of Client or Client's affiliates are licensed to
Client and that Client will indemnify, defend, and hold harmless Provider,
its directors, officers, employees, agents, and affiliates for any
liability arising out of these services provided by Provider.
18.0 EMPLOYEE RECRUITMENT: For the period of this Agreement, and the first six
(6) months immediately following the termination of this Agreement or any
extension thereof, neither party shall recruit or offer employment
opportunities, directly or indirectly, to any member of the other party's
staff without the prior written approval of the other party.
19.0 GENERAL: This Agreement and performance hereunder shall be governed by the
laws of the State of Washington.
No action, regardless of form, arising out of this Agreement may be brought
by the either party more than two (2) years after the cause of action has
arisen.
The waiver or failure of either party to exercise in any respect any right
provided for herein shall not be deemed a waiver of any further right
hereunder.
Captions used herein are for convenience only and shall not be deemed a
part of this Agreement nor shall they be used to construe any of the
provisions hereof.
Performance of any obligation required of a party hereunder may be waived
only by a written waiver signed by the other party, which waiver shall be
effective only with respect to the specific obligation described therein.
In the event that any provision hereof is found invalid or unenforceable,
the remainder of this Agreement shall remain valid and enforceable
according to its terms.
This Agreement shall be binding upon and inure to the benefit of each of
the parties hereto and their representatives and permitted assigns.
Nothing contained in this Agreement shall be construed as creating a joint
venture, partnership or employment relationship among the parties hereto
nor shall any party have the right, power or authority to create any
obligation or duty, express or implied, on behalf of any other party.
The execution and delivery of this Agreement shall not be deemed to confer
any rights or remedies upon, nor obligate any of the parties hereto, any
person or entity other than such parties.
Where the context of this Agreement so requires, the masculine gender shall
include the feminine or neuter, and the singular shall include the plural
and the plural the singular.
This Agreement may be executed in one or more counterparts each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
19.1 CONTRACT EXPIRATION: If, upon contract expiration, Client elects to
contract with an outsourcing vendor other than Provider, Provider shall
have the right to match any competitive bid.
19.2 AUDIT: Client will maintain books and records recording compliance with
its obligations under this Agreement. Upon receipt of prior notice, Client
agrees that Provider will have the right at reasonable intervals to enter
upon Client's premises to audit the described books or records.
20.0 ENTIRE AGREEMENT: This Agreement, including the attached schedules and
TERMS AND CONDITIONS, constitutes the entire understanding and contract
between the parties hereto and supersedes any and all prior or
contemporaneous oral or written communications with respect to the subject
matter hereof, all of which communications are merged herein. It is
expressly understood and agreed that no employee, agent or other
representative of the Provider has any authority to bind Provider with
regard to any statement, representation, warranty or other expression
unless said statement, representation, warranty or other expression is
specifically included within the express terms of this Agreement. It is
further expressly understood and agreed that, there being no expectations
to the contrary between the parties hereto, no usage of trade or other
regular practice or method of dealing either within the computer industry
or between the parties hereto shall be used to modify, interpret,
supplement or alter in any manner the express terms of this Agreement or
any part thereof. This Agreement shall not be modified, amended or in any
way altered except by an instrument in writing signed by both of the
parties hereto.
- --------------------------------------------------------------------------------
Page 23
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to incorporation by reference in the Registration Statement of
Lamonts Apparel, Inc. on Form S-8 (File No. 33-68720) of our report, which
contains an explanatory paragraph concerning the substantial doubt which exists
about the Company's ability to continue as a going concern, dated April 16,
1996, on our audits of the consolidated financial statements of Lamonts Apparel,
Inc. as of February 3, 1996, January 28, 1995, and October 29, 1994, and for the
53 weeks ended February 3, 1996, the quarter ended January 28, 1995 and the 52
weeks ended October 29, 1994 and October 30, 1993, which report is included in
this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Seattle, Washington
May 3, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> FEB-03-1996
<CASH> 1,581
<SECURITIES> 0
<RECEIVABLES> 2,458
<ALLOWANCES> 0
<INVENTORY> 30,401
<CURRENT-ASSETS> 37,574
<PP&E> 42,083
<DEPRECIATION> 0
<TOTAL-ASSETS> 102,361
<CURRENT-LIABILITIES> 39,822<F1>
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> (42,735)
<TOTAL-LIABILITY-AND-EQUITY> 102,361
<SALES> 199,548
<TOTAL-REVENUES> 199,548
<CGS> 131,677
<TOTAL-COSTS> 131,677
<OTHER-EXPENSES> 87,844<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,098
<INCOME-PRETAX> (24,875)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24,875)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,875)
<EPS-PRIMARY> (1.39)
<EPS-DILUTED> 0
<FN>
<F1>Includes $3,254 accrual for store closure costs. Excludes Liabilities subject
to settlement under reorganization proceedings.
<F2>Includes operating and Administrative expenses of $71,372, depreciation and
amortization of $9,232 and Reorganization expenses of $7,240.
</FN>
</TABLE>
