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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-15542
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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)
12413 Willows Road N.E., Kirkland, WA 98034
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(425) 814-5700
(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 16, 1997, was approximately $0.3
million (based on the closing quote of such stock on such date).
As of April 16, 1997, there were 17,900,053 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
Exhibit Index on Page 50
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
ANNUAL REPORT ON FORM 10-K
FOR THE 52 WEEKS ENDED FEBRUARY 1, 1997
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, Bugle Boy, Jockey, Alfred Dunner, Koret, OshKosh and Health-
Tex. Lamonts operates thirty-eight stores in five states and has approximately
1,500 employees. The Company's stores average approximately 47,000 square feet
and are generally located in top quality shopping centers and high traffic
malls.
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 an understanding regarding the material economic
terms of a proposed consensual plan of reorganization designed to enable the
Company to emerge from Chapter 11. On August 23, 1996, that plan was filed with
the Court, along with the proposed disclosure statement relating to the plan.
On October 23, 1996, an amended plan of reorganization ("the Plan") and an
amended disclosure statement (the "Disclosure Statement") were filed with the
Court. The Disclosure Statement was approved by the Court on October 24, 1996,
and the Plan and Disclosure Statement were transmitted to all impaired creditors
and equity security holders along with ballots for the purpose of soliciting
acceptances of the Plan. A hearing to consider confirmation of the Plan (the
"Confirmation Hearing") commenced on January 6, 1997, and the Court determined
that the requisite majorities of each class of the Company's impaired creditors
and equity security holders voted in favor of acceptance of the Plan and that
all requirements for confirmation of the Plan had been satisfied, except as
requested by Lamonts and the Committees, the Confirmation Hearing was continued
to April 14, 1997, to consider certain "Deferred Confirmation Requirements". At
the request of Lamonts and the Committees, the Court has again deferred final
confirmation of the Plan in order to afford Lamonts additional time in which to
investigate recapitalization opportunities. The Plan provides that the
Company's current equity holders will be substantially diluted. The
confirmation and effectiveness of the Plan, the implementation of the Company's
proposed business plan and the Company's proposed equity distribution are each
subject to numerous uncertainties set forth in detail in the Plan and Disclosure
Statement, and the Plan is subject to modifications and / or withdrawal.
Accordingly, the value of the Company's common stock remains highly speculative.
The Company's principal office is located at 12413 Willows Road N.E., Kirkland,
Washington 98034, and its telephone number is (425) 814-5700.
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
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decor line, replaced its shoe licensee and reduced operating expenses. The
Company has also refocused its merchandising strategy on casual apparel and
expects to continue to build its merchandise categories in the Men's,
Children's, Misses and Special Sizes areas and to promote nationally recognized
brands. In addition, the Company has continued with merchandising strategies
designed to: (i) improve the quality of merchandise offered while maintaining
price points geared to the Company's customer base and (ii) reduce cash
operating expenses. The Company also has initiated a policy to markdown and
clear out any unsold merchandise within its respective season. As a result of
such strategies, the age and quality of inventory have improved significantly.
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.
Lamonts has licensed its family shoe department to Shoe Corporation of
America. Sales of the licensee approximated 6% of the Company's Fiscal 1996
(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, newspapers, 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. In addition, the Company's membership in
Frederick Atkins, Inc. ("Atkins"), a merchandising consultant, provides it with
industry research and the ability to use Atkins' private label import program.
Imports are financed 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 1,200 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
guaranteed by the Company. See "Item 2 - Properties".
STORE OPERATIONS. The Company's store management team consists of an executive
vice president, four regional directors and 34 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
associates, approximately two-thirds of whom are part-time.
EMPLOYEES. The Company has approximately 1,500 employees, approximately two-
thirds of whom are part-time. Approximately 340 employees working in Seattle,
Washington stores are represented by the United Food and Commercial Workers
Union pursuant to a contract that expires June 11, 1997. Negotiations for a new
contract will begin in May 1997. Approximately 32 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 21 employees working in the Kirkland
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
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from its competitors by positioning itself as a focused specialty retailer with
emphasis on casual wear and high quality branded products, as well as "Northwest
Outfitters", its private label. 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).
TRADEMARKS. The Company currently owns various registered trademarks.
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. The Company's charge card base encompasses approximately 415,000
accounts. Future growth and intensification of the proprietary charge card
base is an important element in the Company's marketing strategy because the
Company believes that Lamonts charge card holders shop more regularly and
purchase more merchandise than customers who pay 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 Alliance Data
Systems (which purchased the charge accounts from National City Bank of
Columbus), 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 (the "Agreement"), Alliance Data Systems owns the
receivables generated from purchases made by customers using the Lamonts charge
card. The Agreement provides that the Company will be charged a discount fee of
1.95% of Net Sales, as that term is defined in the Agreement.
Additionally, the Agreement provides for a supplemental discount fee equal to
one-tenth of one percent (0.1%) of Net Sales for each one million dollar
increment that Net Sales for a subject year are less than $48.0 million (the
"Minimum Level") up to a maximum fee of 3% of the Net Sales for the subject
year. In the event of store closures, the Agreement provides that the Minimum
Level may be decreased. Additionally, as of March 1, 1997 the Company is no
longer responsible for any net bad debt expense. The Agreement may be
terminated by either party after June 22, 1999, upon 180 days prior written
notice. The Company paid National City Bank and Alliance Data Systems $0.1
million for bad debt expense and $0.9 million in fees during Fiscal 1996.
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 the fiscal year
ended October 31, 1992 ("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
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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 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 1, 1997, 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 outstanding 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. As of
April 16, 1997, the Company has not exercised its option to require the holders
of the 10-1/4% Notes to exchange their notes.
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. As a
result of the filing, the Company is currently in default under all of its
funded debt agreements (other than the FNBB Facility as defined below). As a
result, all unpaid principal of, and accrued prepetition interest on, such debt
(other than the FNBB Facility) became immediately due and payable. The payment
of such debt and accrued but unpaid interest is prohibited during the pendency
of the Company's Chapter 11 case. Since the date of filing, the Company has not
accrued interest on its funded debt agreements other than the Old DIP Facility
(as defined below) and the FNBB Facility. 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, the Company continues to
review all of its obligations under its executory contracts. As of March 31,
1997, the Company has rejected 14 real property leases and certain executory
contracts and assumed 5 leases (with certain conditions and limitations).
DEBTOR-IN-POSSESSION FINANCING
The Company is currently receiving debtor-in-possession financing from The
First National Bank of Boston ("FNBB") pursuant to a loan and security
agreement ("FNBB Facility") dated June 4, 1996, between the Company and FNBB.
The FNBB Facility replaced the debtor-in-possession financing (the "Old DIP
Facility") from Foothill Capital Group ("Foothill"), after a hearing by the
Court and the entry of an order approving such financing. Under the terms of
the FNBB Facility, the Company is able to borrow up to $32 million in
revolving loans (including $3 million of letters of credit), subject to
borrowing base limitations based upon, among other things, the value of
inventory and certain real property. The FNBB Facility will expire on the
effective date of the Company's Plan of Reorganization or June 30, 1997,
whichever is sooner. The Bank has informed the Company that the agreement
will be extended to February 28, 1998 and is currently in the process of
documenting the amendments, however, there can be no assurances that documents
relating to such amendments will be completed prior to June 30, 1997. In
Addition, subject to FNBB's approval of the Plan of Reorganization and other
specified
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conditions, the FNBB Facility will continue for a two year period following the
effective date of the Plan of Reorganization.
Borrowings under the FNBB Facility, together with cash flow from operations, may
be used by the Company to finance general working capital requirements,
including purchases of inventory and other expenditures permitted under the FNBB
Facility. The FNBB Facility is secured by inventory and substantially all other
assets and is an allowed administrative expense claim with super priority over
other administrative expenses in the Chapter 11 case. The FNBB Facility imposes
limitations on the Company with respect to, among other things, (i)
consolidations, mergers, and sales of assets, (ii) capital expenditures in
excess of specified levels and (iii) the prepayment of certain indebtedness.
Additionally, the Company must comply with certain operating and financial
covenants (as described therein).
CHANGE IN FISCAL YEAR
On March 9, 1995, the Company elected to change its fiscal year end from the
Saturday closest to October 31 to the Saturday closest to January 31 in order to
enhance comparability of the Company's results of operations with other apparel
retailers. Accordingly, the accompanying information includes the 52 weeks
ended February 1, 1997 ("Fiscal 1996"), 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") and the 52 weeks ended October 29, 1994
("Fiscal 1994").
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 38 stores in the following locations:
Alaska (7) Washington (23) Utah (1)
- -------------------- ------------------- -------------
- - Anchorage: 3 stores - Seattle: 6 stores - Logan
- - Fairbanks - Bellevue/Eastside: 4 stores
- - Juneau - Spokane: 2 stores
- - Soldotna - Tacoma: 2 stores - Oregon (2)
- - Wasilla - Aberdeen -------------
- Marysville
Idaho (5) - Moses Lake - Astoria
- -------------------- - Olympia - Corvallis
- Port Angeles
- - Coeur d'Alene - Silverdale
- - Idaho Falls - Tri-Cities
- - Lewiston - Wenatchee
- - Moscow - Yakima
- - Pocatello
Of the 38 stores, 13 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 are currently located in leased
facilities, except one which is an owned building, subject to an operating
ground lease. The leases for these facilities have terms up to 30 years, with
an average remaining term of 7 years, not including additional option periods.
The Company leases its principal office in Kirkland, Washington. The lease,
which commenced May 1996, is for approximately 30,000 square feet and expires
May, 2006.
The Company's stores range in size, for the total building, from 20,700 to
80,000 square feet, with a typical store averaging approximately 47,000 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.
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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 owned the
building subject to a ground lease and was attempting to market the building for
sale. A purchaser was not located and ownership of the building reverted to the
owner of the underlying land. The book value of the building was fully
reserved in the Financial Statements as of February 3, 1996 and the building was
written off as of February 1, 1997. (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.
In October 1996, the Company received permission from the Court to close four
additional underperforming stores located in Twin Falls, Idaho; Spokane,
Washington; Hillsboro, Oregon and Missoula, Montana. The Company conducted
going out of business sales at these stores through December 1996.
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; and (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
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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.
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 since been extended to August 18, 1997. The Company and the Committees
have reached an understanding regarding the material economic terms of a
proposed consensual plan of reorganization designed to enable the Company to
emerge from Chapter 11. On August 23, 1996, that plan was filed with the
Court, along with the proposed disclosure statement relating to the plan. On
October 23, 1996, the Plan and Disclosure Statement were filed with the
Court. The Disclosure Statement was approved by the Court on October 24,
1996, and the Plan and Disclosure Statement were transmitted to all impaired
creditors and equity security holders along with ballots for the purpose of
soliciting acceptances of the Plan. The Confirmation Hearing commenced on
January 6, 1997, and the Court determined that the requisite majorities of
each class of the Company's impaired creditors and equity security holders
voted in favor of acceptance of the Plan and that all requirements for
confirmation of the Plan had been satisfied, except as requested by Lamonts
and the Committees, the Confirmation Hearing was continued to April 14, 1997,
to consider certain "Deferred Confirmation Requirements". At the request of
Lamonts and the Committees, the Court has again deferred final confirmation
of the Plan in order to afford Lamonts additional time in which to
investigate recapitalization opportunities.
The Plan provides that the Company's current equity holders will be
substantially diluted. The confirmation and effectiveness of the Plan, the
implementation of the Company's proposed business plan and the Company's
proposed equity distribution are each subject to numerous uncertainties set
forth in detail in the Plan and Disclosure Statement, and the Plan is subject to
modifications and / or withdrawal. Accordingly, the value of the Company's
common stock remains highly speculative.
8
<PAGE>
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 has settled such claims with these two former officers for
a total of $4,000 in priority claims and $141,717 in unsecured claims.
OTHER LEGAL PROCEEDINGS
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
The Plan and Disclosure Statement were transmitted to all impaired creditors
and equity security holders of the Company along with ballots for the purpose
of soliciting acceptances of the Plan. The Court found at the Confirmation
Hearing that the Plan was accepted by the holders of general unsecured claims
totaling approximately 99.3% in dollar amount and 95.7% in number of such
claims held by creditors that timely voted to accept or reject the Plan, and
that the Plan was accepted by the holders of equity security interests
totaling approximately 97.7% in amount of shares held by equity security
holders that timely voted to accept or reject the Plan. See "Item 1 -
Business - General Background and Chapter 11 Reorganization".
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 Chapter 11 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.
Fiscal 1995: High Low
- ------------------------- -------------- ----------
Quarter ended April 29 1/2 1/8
Quarter ended July 29 7/16 1/8
Quarter ended October 28 1/4 1/16
Quarter ended February 3 1/4 1/16
Fiscal 1996: High Low
- ------------------------- --------------- ---------
Quarter ended May 4 1/4 1/8
Quarter ended August 3 7/16 1/8
Quarter ended November 2 1/4 1/8
Quarter ended February 1 7/16 1/16
The closing bid price of the Company's Common Stock on March 31, 1997 was $1/16.
At March 31, 1997, there were 156 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
FNBB Facility. In addition, the Bankruptcy Code prohibits the Company's payment
of cash dividends during the pendency of the Company's Chapter 11 case.
10
<PAGE>
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 on March 9, 1995.
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.
<TABLE>
<CAPTION>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED QUARTER ENDED
FEB 1, 1997 FEB 3, 1996 JAN 28, 1995 JAN 28, 1995
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
- ----------------------------------------
Revenues (1) $203,602 $199,548 $231,199 $71,014
Cost of merchandise sold 130,480 131,677 175,330 60,587
-------- ---------- ---------- ---------
Gross profit 73,122 67,871 55,869 10,427
-------- ---------- ---------- ---------
Operating and administrative expenses 67,173 71,372 87,807 22,400
Depreciation and amortization 7,999 9,232 11,355 2,666
Impairment of long-lived assets 4,170 - - -
Store closure costs - - 7,200 -
-------- ---------- ---------- ---------
Operating costs 79,342 80,604 106,362 25,066
-------- ---------- ---------- ---------
Loss from continuing operations before
other income/(expense), reorganization expenses
and income tax benefit (6,220) (12,733) (50,493) (14,639)
Other income (expense):
Interest expense
- Cash (5,053) (5,098) (6,698) (1,356)
- Non-cash (2) - - (5,160) (1,670)
Other income (expense) 12 196 27 29
-------- ---------- ---------- ---------
Loss from continuing operations before
reorganization expenses and income tax
benefit (11,261) (17,635) (62,324) (17,636)
Reorganization expenses 6,037 7,240 7,499 7,499
-------- ---------- ---------- ---------
Loss from continuing operations before income
tax benefit (17,298) (24,875) (69,823) (25,135)
Income tax benefit - - (400) -
-------- ---------- ---------- ---------
Net loss ($17,298) ($24,875) ($69,423) ($25,135)
-------- ---------- ---------- ---------
-------- ---------- ---------- ---------
NET LOSS PER COMMON SHARE
Net loss per common share ($0.97) ($1.39) ($4.13) ($1.41)
-------- ---------- ---------- ---------
-------- ---------- ---------- ---------
Weighted average number of shares 17,899,906 17,893,675 16,820,257 17,883,135
BALANCE SHEET DATA (at end of period)
- ----------------------------------------
Working capital ($3,357) ($2,248) $16,025 $16,025
Total assets 93,272 102,361 120,269 120,269
Liabilities subject to settlement under
reorganization proceedings 102,858 104,845 108,333 108,333
Long term debt and obligations under capital
leases, net of current maturities 2,846 - - -
Stockholders' deficit (59,553) (42,556) (17,509) (17,509)
</TABLE>
11
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
OCT 29, 1994 OCT 30, 1993 OCT 31, 1992
----------------- ---------------- ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
- ----------------------------------------
Revenues $237,922 $251,015 $258,096
Cost of merchandise sold 163,697 157,098 156,940
-------- -------- ---------
Gross profit 74,225 93,917 101,156
-------- -------- ---------
Operating and administrative expenses 88,520 84,176 83,798
Depreciation and amortization 11,441 11,164 13,290
Store Closure Costs 7,200 - -
-------- -------- ---------
Operating costs 107,161 95,340 97,088
-------- -------- ---------
Earnings (loss) from continuing
operations before other income/(expense),
income tax provision/(benefit), and
extraordinary item (32,936) (1,423) 4,068
Other income (expense):
Interest expense
- Cash (8,130) (12,477) (9,936)
- Non-cash (2) (3,490) - (13,417)
Other income (expense) (369) 29 417
-------- -------- ---------
Loss from continuing operations before
income tax provision/(benefit) and
extraordinary item (44,925) (13,871) (18,868)
Income tax provision/(benefit) (400) (3,000) 710
-------- -------- ---------
Loss from continuing operations
before extraordinary item (44,525) (10,871) (19,578)
Gain from discontinued
operations, net of income taxes - - 283
Extraordinary item - gain on
extinguishment of debt (3) - - 23,572
-------- -------- ---------
Net earnings (loss) ($44,525) ($10,871) $4,277
-------- -------- ---------
-------- -------- ---------
NET EARNINGS (LOSS) PER COMMON SHARE
- ----------------------------------------
Loss from continuing operations
before extraordinary item ($3.05) ($1.22) ($82.84)
Gain from discontinued
operations, net of income taxes - - 1.20
Extraordinary item - gain on
extinguishment of debt - - 99.74
-------- -------- ---------
Net earnings (loss) per common share ($3.05) ($1.22) $18.10
-------- -------- ---------
-------- -------- ---------
Weighted average number of shares 14,583,038 8,917,624 236,339
BALANCE SHEET DATA (at end of period)
- ----------------------------------------
Working capital $9,938 $43,060 $52,327
Total assets 152,589 183,709 195,339
Long term debt and obligations under
capital leases, net of current maturities 80,642 93,130 94,615
Stockholders' equity 7,560 36,208 46,773
-------------------------------
</TABLE>
(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.
12
<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 of the Company 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.
The information contained herein, including, without limitation, statements
containing the words "believes", "anticipates", "expects" and words of a similar
import, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance, or achievements of the Company,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, (i) national and local general
economic and market conditions, (ii) demographic changes, (iii) liability and
other claims asserted against the Company, (iv) competition, (v) the loss of
significant customers or suppliers, (vi) fluctuations in operating results,
(vii) changes in business strategy or development plans, (viii) business
disruptions, (ix) the ability to attract and retain qualified personnel, (x)
ownership of Common Stock, (xi) volatility of stock price and (xii) the
confirmation of the Plan and the terms thereof. The Company disclaims any
obligations to update any such factors or to announce publicly the result of any
revisions to any of the forward-looking statements contained or incorporated by
reference herein to reflect untrue events or developments.
FINANCIAL CONDITION
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. As a result, during the period from the second half of
Fiscal 1992 through the second half of Fiscal 1994, the Company completed, among
other things, the Recapitalization and the Infusion. See "Item 1-Business-
Reorganization. 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
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 an understanding regarding the material economic
terms of a proposed consensual plan of reorganization designed to enable the
Company to emerge from Chapter 11. On August 23, 1996, that plan was filed
with the Court, along with the proposed disclosure statement relating to the
plan. On October 23, 1996, the Plan and Disclosure Statement were filed
with the Court. The Disclosure Statement was approved by the Court on
October 24, 1996, and the Plan and Disclosure Statement were transmitted to all
impaired creditors and equity security holders along with ballots for the
purpose of soliciting acceptances of the Plan. The Confirmation Hearing
commenced on January 6, 1997, and the Court determined that the requisite
majorities of each class of the Company's impaired creditors and equity
security holders voted in favor of acceptance of the Plan and that all
requirements for confirmation of the Plan had been satisfied, except as
requested by Lamonts and the Committees, the Confirmation Hearing was
continued to April 14, 1997, to consider certain "Deferred Confirmation
Requirements". At the request of Lamonts and the Committees, the Court has
again deferred final confirmation of the Plan in order to afford Lamonts
additional time in which to investigate recapitalization opportunities.
The Plan provides that the Company's current equity holders will be
substantially diluted. The confirmation and effectiveness of the Plan, the
implementation of the Company's proposed business plan and the Company's
proposed equity distribution are each subject to numerous uncertainties set
forth in detail in the Plan and Disclosure Statement, and the Plan is subject to
modifications and / or withdrawal.
13
<PAGE>
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 19 stores, eleven of which with
the approval of the Court. Six were closed in January 1995, one was closed in
March 1996, and four additional stores were closed in December 1996. Of the 19
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 1996 COMPARED TO FISCAL 1995
REVENUES. Revenues of $204 million for Fiscal 1996 increased 2.0% on a total
store basis from $199 million for Fiscal 1995. Management believes that revenues
have increased due to increased levels of inventory and overall improvement in
the quality of the merchandise offered in the stores compared to the prior year.
Comparable store revenues, for the 38 stores, of $185.0 million for Fiscal 1996
increased 4.6% from $176.9 million for Fiscal 1995 (after deducting the 53rd
week of sales in Fiscal 1995). Comparable store revenues are defined as
revenues generated at stores open for at least twelve months in each of the
periods.
GROSS PROFIT. Gross profit as a percentage of revenues of 36.0% for Fiscal 1996
increased 1.5% from 34.5% for Fiscal 1995 (excluding the effect of non-cash
charges of $0.2 million in Fiscal 1996 and $0.9 million in Fiscal 1996). 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 continued efforts to improve the quality of
merchandise offered while maintaining price points geared to the Company's
customer base. The Company has also implemented policies to mark-down and clear
out any unsold merchandise within its respective season.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses of
$67.1 million, or 33.0% of revenues for Fiscal 1996, decreased 5.9% from $71.3
million, or 35.8% of revenues, for Fiscal 1995. On a comparable store basis,
operating and administrative expenses of $62.0 million have decreased 3.9% from
$64.5 million for Fiscal 1995. This improvement is primarily attributable to
reductions in payroll and corporate administration, offset slightly by increases
in rent and advertising.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $8.0
million for Fiscal 1996 decreased 13.4% from $9.2 million for Fiscal 1995. The
decrease is primarily attributable to the closure of a store in early 1996 and
the sale-leaseback of an additional store. The increase in depreciation and
amortization associated with newly acquired assets was offset by reductions due
to assets becoming fully depreciated or amortized.
IMPAIRMENT OF LONG-LIVED ASSETS. A noncash charge of $4.2 million for the
impairment of long-lived assets was recognized during Fiscal 1996 due to the
application of Statement No. 121. See "Item 8 - Financial Statements and
Supplementary Data - Note 4". The charge consists of a noncash write-off of
the excess of cost over net assets acquired, leasehold interest and leasehold
improvements determined to be impaired under the application of Statement No.
121.
REORGANIZATION EXPENSES. Since the Chapter 11 filing, the Company has
recognized $20.8 million in reorganization expenses (approximately $13.2
million of non-cash charges), of which $6.0 million was incurred during
Fiscal 1996 and $7.2 million during Fiscal 1995. These expenses relate
primarily to professional fees 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 inventory losses realized in the
inventory liquidation process.
INTEREST EXPENSE. Interest expense of $5.1 million in Fiscal 1996 remained
unchanged from Fiscal 1995.
14
<PAGE>
NET LOSS. The net loss of $17.3 million for Fiscal 1996 decreased $7.5
million, a 30% improvement over the net loss of $24.8 million for Fiscal
1995. The reduction in net loss is primarily a result of (i) a $5.2 million
improvement in gross margin which includes non-cash charges for LIFO as
discussed above, (ii) a $1.2 million decrease in costs related to
reorganization expenses, excluding the costs associated with the closing of
stores in Fiscal 1996 compared to Fiscal 1995, (iii) lower operating and
administrative expenses of $4.2 million in Fiscal 1996 as discussed above,
and (iv) a $1.2 million decline in depreciation and amortization expense
during Fiscal 1996, offset by a $4.2 million non-cash charge for the
impairment of long-lived assets.
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)..
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.
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
15
<PAGE>
reduction in interest expense in Fiscal 1995 due to the Company's Chapter 11
filing and (v) a $2.1 million decline in depreciation and amortization expense
during Fiscal 1995. Although the Company has realized a significant reduction
in operating and other expenses due to downsizing, these savings have been
partially offset by a decline in sales also attributable to a reduced number of
operating stores.
QUARTER ENDED JANUARY 28, 1995 COMPARED TO QUARTER ENDED JANUARY 29, 1994
REVENUES. Revenues of $71.0 million for the January Quarter include the
Christmas holiday season and are not indicative of an annualized trend.
Revenues decreased 8.6% on a total store basis from $77.7 million for the
quarter ended January 29, 1994. Store closures contributed $2.4 million to the
total revenue decline. Comparable store revenues decreased 6.4% for the January
Quarter as compared to the same period in the prior year. Management believes
that revenues have been adversely affected, in part, by (i) a weak retail
environment for apparel, (ii) the adverse publicity associated with the
Company's Chapter 11 filing and (iii) the interruption in the receipt of
merchandise due to a reduction in available credit immediately following the
filing.
GROSS PROFIT. Gross profit, as a percentage of revenues, decreased
approximately 17.3% for the January Quarter, to 20.2% as compared to 37.5% for
the comparable prior year period (excluding the effects of non-cash charges of
$3.9 million during the January Quarter and $0.3 million during the comparable
prior year period). The decrease in gross profit, excluding non-cash items, is
primarily attributable to the significant markdowns taken during the January
Quarter in order to sell aged and slow-moving merchandise from the Company's
inventory. Non-cash charges, primarily resulting from the Company's use of the
LIFO method for valuing inventories, increased during the January Quarter due to
the $2.9 million liquidation of a step-up layer included in inventory.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses of
$22.4 million for the January Quarter were $0.7 million lower than the $23.1
million incurred for the comparable prior year period. The closure of nine
stores subsequent to January 29, 1994 resulted in a decrease of $1.8 million in
operating and administrative expenses offset, in part, by a slight increase in
comparable store operating and administrative expenses. As a percentage of
revenues, operating and administrative expenses increased to 31.5% for the
January Quarter compared to the 29.7% for the same period of the prior year due
to lower revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $2.7
million for the January Quarter remained relatively unchanged from $2.8 million
recorded for comparable prior year period. Increased depreciation and
amortization associated with newly acquired assets offset reductions associated
with assets retired as a result of store closures and assets becoming fully
depreciated or amortized.
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.
LIQUIDITY AND CAPITAL RESOURCES
16
<PAGE>
The Company used $2.1 million of cash for operating activities for Fiscal 1996.
The Company's primary cash requirement is the procurement of inventory which is
currently funded through borrowings under the FNBB Facility, trade credit and
cash generated from operations. Like other apparel retailers, the Company is
highly dependent upon its ability to obtain trade credit, which is generally
extended by its vendors and a small number of factoring institutions that
continually monitor the Company's credit lines. If the Company continues to
obtain the trade credit terms it is currently receiving, the Company believes
that borrowings under the FNBB Facility and cash generated from operations will
provide the cash necessary to fund the Company's immediate cash requirements.
The Company received $3.9 million of cash from investing activities in Fiscal
1996. The Company received $4.5 million which represents the net sales proceeds
received from the sale-leaseback of the Company's Alderwood store during Fiscal
1996, which is offset by $0.7 million in capital expenditures.
The Company received $2.0 million from financing activities, primarily the
result of additional borrowings under the Company's working capital facility.
DIP FINANCING
On February 17, 1995, the Company received approval from the Court for the Old
DIP Facility with Foothill. The Old DIP Facility provided for a borrowing
capacity of up to $32.0 million in revolving loans, including up to $15.0
million of letters of credit, subject to borrowing base limitations based upon,
among other things, the value of inventory and certain real property. On June
4, 1996, the Company entered into the FNBB Facility with FNBB replacing the Old
DIP Facility, after a hearing by the Court and the entering of an order
approving such financing. Although Foothill had taken no action to declare the
Company in default as of the date on which the Old DIP Facility was terminated,
the Company was in violation of the net worth maintenance covenant in the Old
DIP Facility at the time of termination.
Pursuant to the FNBB Facility, the Company is able to borrow up to $32
million in revolving loans (including $3 million of letters of credit),
subject to borrowing base limitations based upon, among other things, the
value of inventory and certain real property. The FNBB Facility will expire
on the effective date of the Company's Plan of Reorganization or June 30,
1997, whichever is sooner. The Bank has informed the Company that the
agreement will be extended to February 28, 1998 and is currently in the
process of documenting the amendments, however, there can be no assurances
that documents relating to such amendments will be completed prior to
June 30, 1997. Effective November 8, 1996, the FNBB Facility was amended to
increase the Company's borrowing limit from $32 million to $35 million to
accommodate seasonal requirements for the Company's holiday season purchases.
The borrowing limit reverted to $32 million on December 15, 1996. In
addition, during the period beginning on December 15, 1996 and ending on
January 31, 1997, the Company was required to maintain the aggregate amount
of outstanding borrowings under the FNBB Facility at no more than $21.5
million for a period of 30 consecutive days. Subject to FNBB's approval of
the Plan of reorganization and other specified conditions, the FNBB Facility
will continue for a two year period following the effective date of the plan
of reorganization.
The FNBB Facility provides that for Base Rate loans interest will accrue at the
rate of 1.5% per annum in excess of the Base Rate (as defined therein), payable
monthly in arrears. For Eurodollar loans, the interest rate will be the
Eurodollar Rate (as defined therein) plus 2.75% (adjusted as provided therein).
The FNBB Facility also provides that in the event of a default in the payment of
any amount due thereunder, the interest rate on such borrowings shall be the
greater of (i) 3.0% per annum in excess of the Base Rate and (ii) the applicable
rate on the loan, payable on demand. The interest rates for both Base Rate loans
and Eurodollar loans are subject to adjustment upon the effective date of a plan
of reorganization and the satisfaction of certain other conditions described in
the FNBB Facility based on financial ratios of the Company specified in the FNBB
Facility. At February 1, 1997, the Base Rate was 8.25% and the Eurodollar Rate
was 5.5%.
The Company has expensed fees of $474,000 for the FNBB Facility as of February
1, 1997. Fees payable under the FNBB Facility consist primarily of monthly
payments equal to 0.5% (adjusted as provided therein) of the average unused
borrowing capacity and monthly payments equal to 0.125% of the borrowing
capacity. There will be an additional fee after the effective date of the Plan
of reorganization and the satisfaction of certain conditions described in the
FNBB Facility payable in the amount of $560,000 of which $336,000 shall be
payable on the date the conditions are satisfied and $224,000 shall be payable
on December 31, 1997 (or, if earlier, the time of termination of the
commitments).
Borrowings under the FNBB Facility, together with cash flow from operations, may
be used by the Company to finance general working capital requirements,
including purchases of inventory and expenditures permitted under the FNBB
Facility. The FNBB Facility is secured by inventory and substantially all other
assets and is an allowed administrative expense claim with super priority over
other administrative expenses in the Chapter 11 case. The FNBB Facility
17
<PAGE>
imposes limitations on the Company with respect to, among other things, (i)
consolidations, mergers, and sales of assets, (ii) capital expenditures in
excess of specified levels and (iii) the prepayment of certain indebtedness.
Additionally, the Company must comply with certain operating and financial
covenants (as described therein). Although the Company failed to comply with
certain covenants related to inventory levels for the months ending July 6, 1996
and August 3, 1996, the Company requested and received a waiver relating to such
breaches.
As of April 16, 1997, the Company had $25.4 million of borrowings outstanding
under the FNBB Facility with additional borrowing availability thereunder of
$2.4 million.
The Company's primary cash requirement is the procurement of inventory which is
currently funded through (i) borrowings under the FNBB Facility (ii) trade
credit and (iii) cash generated from operations. Like other apparel retailers,
the Company is highly dependent upon its ability to obtain trade credit, which
is generally extended by its vendors and a small number of factoring
institutions that continually monitor the Company's credit lines. If the
Company continues to obtain the trade credit terms it is currently receiving,
the Company believes that borrowings under the FNBB Facility and cash generated
from operations will provide the cash necessary to fund the Company's immediate
cash requirements. The adequacy of the Company's long-term capital resources
and liquidity will depend on whether and when the Plan is confirmed, as well as
other factors, including the Company's ability to obtain an extension of the
FNBB Facility.
On October 11, 1996, the Company retained an investment banking firm, with
the approval of the Court, to explore opportunities to raise additional
capital.
OTHER
The Company has never declared or paid cash dividends on its Common Stock, or
any other equity security, and does not anticipate paying cash dividends on the
Common Stock or any other equity security in the foreseeable future. Any future
determination as to the payment of dividends will depend upon certain debt
instrument limitations, future earnings, results of operations, capital
requirements and the financial condition of the Company. The ability of the
Company to pay dividends is restricted under the terms of the FNBB Facility. In
addition, the Bankruptcy Code prohibits the Company's payment of cash dividends
during the pendency of the Company's Chapter 11.
18
<PAGE>
SEASONALITY
The Company's sales are seasonal, with the Christmas Season being its strongest
quarter. The table below sets forth the effect of seasonality on the Company's
business for Fiscal 1996 and Fiscal 1995.
<TABLE>
<CAPTION>
1ST QTR 2ND QTR 3RD QTR 4TH QTR TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
FISCAL 1996
Revenues $37,922 $49,657 $50,705 $65,318 $203,602
% Contribution 18.6% 24.4% 24.9% 32.1%
FISCAL 1995
Revenues $36,682 $47,711 $49,802 $65,353 $199,548
% Contribution 18.4% 23.9% 24.9% 32.8%
</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.
YEAR 2000
The Company is currently evaluating the significance of the year 2000 on the
existing computer systems. It is not known at this time whether existing
systems will be modified or new systems will be purchased.
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 1, 1997, February 3, 1996,
and January 28, 1995.
23 Consolidated Statements of Operations for the 52 weeks ended
February 1, 1997, 53 weeks ended February 3, 1996, Quarter ended
January 28, 1995, and the 52 weeks ended October 29, 1994.
24 Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the 52 weeks ended February 1, 1997, 53 weeks ended
February 3, 1996, Quarter ended January 28, 1995, and the 52
weeks ended October 29, 1994.
25 Consolidated Statements of Cash Flows for the 52 weeks ended
February 1, 1997, 53 weeks ended February 3, 1996, Quarter ended
January 28, 1995, and the 52 weeks ended October 29, 1994.
27 Notes to Consolidated Financial Statements.
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 1, 1997, February 3, 1996, and
January 28, 1995 and the related consolidated statements of operations, changes
in stockholders' deficit and cash flows for the 52 weeks ended February
1, 1997, 53 weeks ended February 3, 1996, Quarter ended January 28, 1995 and the
52 weeks ended October 29, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 1, 1997, February 3, 1996,
and January 28, 1995 and the results of its operations and its cash flows for
the 52 weeks ended February 1, 1997, 53 weeks ended February 3, 1996, Quarter
ended January 28, 1995 and the 52 weeks ended October 29, 1994, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has suffered
recurring losses from operations. As discussed in Note 1 of the notes to the
consolidated financial statements, on January 6, 1995, the Company filed a
voluntary petition for relief under Chapter 11 of Title 11 of the United States
Code. Further, as more fully described in Note 1, claims substantially in
excess of amounts reflected as liabilities in the consolidated financial
statements have been asserted against the Company as a result of the
reorganization proceedings. The validity of these claims, as well as the amount
and manner of payment of all valid claims, will ultimately be determined by the
Bankruptcy Court. As a result of the reorganization proceedings, the Company
may sell or otherwise realize assets and liquidate or settle liabilities for
amounts other than those reflected in the consolidated financial statements.
Further, the confirmation of a Plan or Reorganization could materially change
the amounts currently recorded in the consolidated financial statements. These
matters raise substantial doubt about the Company's 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 consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
COOPERS & LYBRAND L.L.P.
/s/ COOPERS & LYBRAND L.L.P.
Seattle, Washington
March 28, 1997
21
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
Current Assets:
Cash $2,066 $1,581 $7,972
Receivables, net 1,595 2,458 3,050
Inventories 37,559 30,401 28,399
Prepaid expenses and other 1,528 2,076 5,517
Restricted cash and deposits 714 1,058 532
-------- -------- --------
Total current assets 43,462 37,574 45,470
Property and equipment 30,653 42,083 51,924
Leasehold interests 3,477 4,570 5,058
Excess of cost over net assets acquired 11,591 13,278 13,639
Deferred financing costs 1,989 2,713 3,436
Restricted cash and deposits 1,142 1,278 256
Other assets 958 865 486
-------- -------- --------
Total assets $93,272 $102,361 $120,269
-------- -------- --------
-------- -------- --------
Liabilities not subject to settlement under reorganization
proceedings:
Current Liabilities:
Borrowings under DIP Facility $23,141 $20,334 $ -
Borrowings under working capital facility - - 15,838
Accounts payable 13,578 8,417 1,754
Accrued payroll and related costs 2,285 2,396 2,913
Accrued taxes 812 821 455
Accrued interest 616 207 336
Accrued store closure costs 1,050 3,254 2,951
Other accrued expenses 5,325 4,393 5,198
Current maturities of obligations under capital
leases 12 - -
-------- -------- --------
Total current liabilities 46,819 39,822 29,445
Obligations under capital leases 2,846 - -
Other 302 250 -
-------- -------- --------
Total liabilities not subject to settlement under
reorganization proceedings 49,967 40,072 29,445
-------- -------- --------
Liabilities subject to settlement under reorganization
proceedings:
Related party 67,600 67,576 67,576
Other 35,258 37,269 40,757
-------- -------- --------
102,858 104,845 108,333
-------- -------- --------
Commitments and contingencies
Stockholders' deficit
Common stock, $.01 par value; 40,000,000 shares
authorized; 17,900,053, 17,899,549, and
17,887,775 shares issued and outstanding,
respectively 179 179 179
Additional paid-in-capital 62,972 62,921 62,843
Minimum pension liability adjustment - (250) -
Accumulated deficit (122,704) (105,406) (80,531)
-------- -------- --------
Total stockholders' deficit (59,553) (42,556) (17,509)
-------- -------- --------
Total liabilities and stockholders' deficit $93,272 $102,361 $120,269
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
22
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS QUARTER 52 WEEKS
ENDED ENDED ENDED ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28, OCTOBER 29,
1997 1996 1995 1994
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Revenues $203,602 $199,548 $71,014 $237,922
Cost of merchandise sold 130,480 131,677 60,587 163,697
---------- ---------- -------- ----------
Gross profit 73,122 67,871 10,427 74,225
---------- ---------- -------- ----------
Operating and administrative expenses 67,173 71,372 22,400 88,520
Depreciation and amortization 7,999 9,232 2,666 11,441
Impairment of long-lived assets 4,170 - - -
Store closure costs - - - 7,200
---------- ---------- -------- ----------
Operating costs 79,342 80,604 25,066 107,161
---------- ---------- -------- ----------
Loss from operations before other income
(expense), reorganization expenses
and income tax benefit (6,220) (12,733) (14,639) (32,936)
Other income (expense):
Interest expense:
Cash (contractual interest of $13.7
million, $13.8 million and $3.6
million during 1996, 1995 and
January Quarter, respectively) (5,053) (5,098) (1,356) (8,130)
Non-cash - - (1,670) (3,490)
Other income (expense) 12 196 29 (369)
---------- ---------- -------- ----------
Loss from operations before
reorganization expenses and
income tax benefit (11,261) (17,635) (17,636) (44,925)
Reorganization expenses 6,037 7,240 7,499 -
---------- ---------- -------- ----------
Loss before income tax benefit (17,298) (24,875) (25,135) (44,925)
Income tax benefit - - - (400)
---------- ---------- -------- ----------
Net loss ($17,298) ($24,875) ($25,135) ($44,525)
---------- ---------- -------- ----------
---------- ---------- -------- ----------
Net loss per common share ($0.97) ($1.39) ($1.41) ($3.05)
---------- ---------- -------- ----------
---------- ---------- -------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
23
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (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 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 - 179 62,921 (250) (105,406)
Net loss for the 52 weeks
ended February 1, 1997 - - - - (17,298)
Compensation expense related
to stock option plan - - 51 - -
Minimum pension liability
adjustment - - - 250 -
-------- -------- -------- -------- ---------
Balance, February 1, 1997 $ - $179 $62,972 $ - ($122,704)
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
24
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED QUARTER ENDED 52 WEEKS ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28 OCTOBER 29,
1997 1996 1995 1994
--------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ($17,298) ($24,875) ($25,135) ($44,525)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities before
reorganization items:
Depreciation and amortization 7,999 9,232 2,666 11,441
Impairment of long-lived assets 4,170 - - -
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)
Stock option expense 51 78 66 636
Net realizable value adjustment to inventory - 500 - 10,000
Decrease (increase) in long term restricted
cash and deposits 137 (1,022) - -
Other (562) (1,425) (950) 473
Net change in current assets and liabilities (2,621) 4,895 31,186 7,342
Reorganization expenses 6,037 7,240 7,499 -
------- ------- ------- -------
Net cash provided (used) by operating
activities before reorganization expenses (2,087) (5,377) 17,002 (5,414)
Operating cash flows used by reorganization
expenses:
Payment for professional fees or other
expenses related to the Chapter 11
proceedings (3,241) (2,475) (1,872) -
------- ------- ------- -------
Net cash provided (used) by operating
activities (5,328) (7,852) 15,130 (5,414)
------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures (699) (1,343) (694) (3,889)
Proceeds from sale of assets 4,459 - - -
Other 90 (448) (3) 228
------- ------- ------- -------
Net cash provided (used) by investing
activities 3,850 (1,791) (697) (3,661)
------- ------- ------- -------
Cash flows from financing activities:
Pre-petition borrowings under working capital
facility - - 26,667 194,768
Pre-petition payments under working capital
facility - - (35,422) (183,875)
Post-petition borrowings under working capital
facility 255,174 244,178 - -
Post-petition payments under working capital
facility (252,367) (239,682) - -
Principal payments on obligations under capital
leases (778) (1,183) (373) (1,484)
Payments of financing costs - - - (805)
Proceeds from sale of preferred stock - - - 13,399
Payment of long term debt - - - (13,000)
Other (66) (61) (27) (159)
------- ------- ------- -------
Net cash provided (used) by financing
activities 1,963 3,252 (9,155) 8,844
------- ------- ------- -------
Net increase (decrease) in cash 485 (6,391) 5,278 (231)
Cash, beginning of period 1,581 7,972 2,694 2,925
------- ------- ------- -------
Cash, end of period $2,066 $1,581 $7,972 $2,694
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
25
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED QUARTER ENDED 52 WEEKS ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28, OCTOBER 29,
1997 1996 1995 1994
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Reconciliation of net change in current assets
and liabilities:
(Increase) decrease in accounts receivable $818 $692 ($1,056) $1,144
(Increase) decrease in inventory (excluding
adjustment for net realizable value) (9,388) (2,692) 32,400 9,895
(Increase) decrease in prepaid expenses (111) 2,018 992 (907)
Increase (decrease) in accounts payable 5,161 6,663 (3,245) (1,012)
Increase (decrease) in accrued interest 409 (103) (666) (3,982)
Increase (decrease) in other accrued expenses 490 (1,683) 2,761 2,149
Decrease in other working capital - - - 55
-------- --------- --------- ---------
($2,621) $4,895 $31,186 $7,342
-------- --------- --------- ---------
-------- --------- --------- ---------
Supplemental Cash Flow Information:
Cash interest payments made $4,783 $5,201 $1,401 $12,178
Non-cash transactions:
Capital lease relating to sale - leaseback of
Alderwood store 2,835 - - -
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 the consolidated
financial statements.
26
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
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. 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 Company and representatives of the committees that represent Lamonts'
unsecured trade creditors, bondholders and equityholders (the "Committees") have
reached an understanding regarding the material economic terms of a proposed
consensual plan of reorganization designed to enable the Company to emerge from
Chapter 11. On August 23, 1996, that plan was filed with the Court, along with
the proposed disclosure statement relating to the plan. On October 23, 1996, an
amended plan of reorganization ("the Plan") and an amended disclosure statement
(the "Disclosure Statement") were filed with the Court. The Disclosure
Statement was approved by the Court on October 24, 1996, and the Plan and
Disclosure Statement were transmitted to all impaired creditors and equity
security holders along with ballots for the purpose of soliciting acceptances of
the Plan. A hearing to consider confirmation of the Plan (the "Confirmation
Hearing") commenced on January 6, 1997, and the Court determined that the
requisite majorities of each class of the Company's impaired creditors and
equity security holders voted in favor of acceptance of the Plan and that all
requirements for confirmation of the Plan had been satisfied, except as
requested by Lamonts and the Committees, the Confirmation Hearing was continued
to April 14, 1997, to consider certain "Deferred Confirmation Requirements". At
the request of Lamonts and the Committees, the Court has again deferred final
confirmation of the Plan in order to afford Lamonts additional time in which to
investigate recapitalization opportunities.
The Plan provides that the Company's current equity holders will be
substantially diluted. The confirmation and effectiveness of the Plan, the
implementation of the Company's proposed business plan and the Company's
proposed equity distribution are each subject to numerous uncertainties set
forth in detail in the Plan and Disclosure Statement, and the Plan is subject to
modifications and/or withdrawal. Accordingly, the value of the Company's
common stock remains highly speculative.
On October 11, 1996, the Company retained an investment banking firm, with the
approval of the Court, to explore opportunities to raise additional capital.
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 as 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 and to extend such financing upon the expiration of its
current 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."
27
<PAGE>
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 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 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Accounts payable and accrued liabilities $23,121 $23,511 $23,714
Capital lease obligations 11,216 12,321 15,560
10-1/4% Notes (including pre-petition accrued interest) 67,600 67,576 67,576
13-1/2% Notes (including pre-petition accrued interest) 838 838 838
Notes payable 83 599 645
------------- ------------ ------------
$102,858 $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, the Company
continues to review all of its obligations under its executory contracts. As of
March 31, 1997, the Company has rejected 14 real property leases and certain
executory contracts and assumed 5 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 consolidated financial statements. Further, a plan of
reorganization could materially change the amounts currently recorded in the
consolidated financial statements, including amounts recorded for the excess of
cost over net assets acquired. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
these matters or adjustments that might result should the Company be unable to
continue as a going concern. Generally, if a debtor-in-possession is unable to
emerge from Chapter 11, such debtor-in-possession could be required to liquidate
its assets.
Costs associated with the reorganization of the Company are charged to expense
as incurred. Under the requirements of the Chapter 11 filing, the Company is
required to pay certain expenses of the Committees. The amounts charged to
reorganization expense by the Company are as follows (dollars in thousands):
FISCAL FISCAL JANUARY
1996 1995 QUARTER
------- ------- --------
Write-off of property & equipment,
net of obligations under capital leases $ - $2,362 $1,330
Professional Fees 2,128 2,479 699
Lease Related Costs 1,036 925 3,400
Payroll Related Costs 411 411 728
Other 2,462 1,063 1,342
------ ------ ------
$6,037 $7,240 $7,499
------ ------ ------
------ ------ ------
NOTE 2 - CONSOLIDATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries. All
subsidiaries of the Company are inactive. All significant intercompany
transactions and account balances have been eliminated in consolidation.
28
<PAGE>
NOTE 3 - BACKGROUND
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.
On October 30, 1992, the Company completed a comprehensive recapitalization (the
"Recapitalization"). Prior to the Recapitalization, the Company was named
Lamonts Corporation and was the holding company for Lamonts Apparel, Inc., its
sole operating subsidiary ("Apparel"). Concurrent with the Recapitalization,
Apparel was merged with and into Lamonts Corporation whose name was changed to
Lamonts Apparel, Inc.
Pursuant to the Recapitalization, the Company, among other things, issued 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. The
Recapitalization was reported as a complete reorganization at October 30, 1992.
Purchase accounting was applied in accordance with the provisions of Accounting
Principles Board Opinion No. 16. Accordingly, at October 30, 1992, all assets
and liabilities were re-valued at their estimated current fair market value and
the excess of purchase price over the fair market value of the net assets
acquired was allocated to excess of cost over net assets acquired.
In December 1993, the Company completed a capital infusion and debt reduction
plan (the "Infusion") pursuant to which it received approximately $13.4 million
from the issuance of 4,466,206 shares of its Series A Convertible Preferred
Stock, par value $.01 per share ("Series A Preferred Stock"), which, together
with cash flow from operations was used to repurchase $13.0 million aggregate
principal amount of the 10-1/4% Notes, at par, together with accrued interest
through the repurchase date. Each share of the Series A Preferred Stock
automatically converted into two shares of Common Stock on March 14, 1994,
concurrent with the effective date of an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 15 million to 40 million shares. In connection with this
transaction, the terms of the 10-1/4% Notes that remained outstanding were
amended to, among other things, prospectively reduce the interest rate thereof
from 11-1/2% (the original rate at issuance) to 10-1/4%.
On June 10, 1994, the Company further amended the terms of the 10-1/4% Notes to
(i) modify the minimum net worth covenant to exclude store closure costs and
(ii) provide that interest payments due on the 10-1/4% Notes through November 1,
1995 could be paid, at the Company's option, either in cash, at a rate of 12%
per annum, or in additional 10-1/4% Notes, at a rate of 13% per annum ("PIK
Interest"). In accordance with the amendment, the Company elected to issue
additional 10-1/4% Notes at the PIK Interest rate of 13% for the November 1,
1994 interest payment. Interest continued to accrue on the 10-1/4% Notes until
the date of filing of the Company's Chapter 11 case.
On October 18, 1994, the holders of all outstanding 10-1/4% Notes (i) granted
the Company the option to exchange the outstanding 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.
As of February 1, 1997, the Company has not exercised its option to require the
holders of the 10-1/4% Notes to exchange their notes.
29
<PAGE>
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.
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 consolidated financial statements
include the results of operations of the Company for the 52 week period ended
February 1, 1997 ("Fiscal 1996"), the 53 week period ended February 3, 1996
("Fiscal 1995"), the quarter ended January 28, 1995, ("January Quarter") and the
52 weeks ended October 29, 1994 ("Fiscal 1994").
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 1, 1997, February 3, 1996, and January
28, 1995, exceeded the weighted average cost of inventories by $1.8 million,
$2.1 million and $2.6 million, respectively.
During the January Quarter, reductions in inventory quantities resulted in the
elimination of LIFO inventory layers which were carried at higher costs
(including the Step-up) as compared with the cost of merchandise purchased in
the January Quarter. The effect of these reductions increased cost of
merchandise sold by $3.2 million ($0.18 per share) in the January Quarter.
PRE-OPENING EXPENSES
Certain costs incurred in connection with the opening of new stores and
significant remodeling of existing stores are capitalized and amortized on a
straight-line basis over twelve months commencing the month following the store
opening.
RESTRICTED CASH AND DEPOSITS
Current restricted cash and deposits includes amounts deposited in restricted
operating accounts for the purpose of ensuring payment of employee payroll,
utilities, and certain taxes, including retail sales taxes. 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
and deposits 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 and improvements, 10-40 years;
furniture, fixtures and equipment, 3-10 years; and leasehold improvements
30
<PAGE>
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. During the
first quarter of Fiscal 1996, the Company wrote-off approximately $0.6
million of leasehold interests due to the adoption of Statement No. 121
(defined below). The accumulated amortization of leasehold interests
approximated $1.7 million, $1.4 million and $1.3 million at February 1, 1997,
February 3, 1996 and January 28, 1995, respectively.
EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of cost over the fair market value of net assets acquired pursuant
to the Recapitalizaton is being amortized on a straight-line basis over 40
years. Accumulated amortization approximated $1.4 million, $1.2 million and
$0.8 million at February 1, 1997, February 3, 1996 and January 28, 1995,
respectively.
The Company continually evalutes the recoverability of the carrying amount of
the excess of cost over net assets acquired by assessing whether the recorded
value will be recovered through future expected operating results. During the
first quarter of Fiscal 1996, the Company wrote-off approximately $1.3
million of the excess of cost over net assets acquired due to the adoption of
Statement No. 121 (defined below).
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 $2.8 million, $2.1 million
and $1.4 million at February 1, 1997, February 3, 1996 and January 28, 1995,
respectively.
ADVERTISING COSTS
The Company expenses the production costs of advertising as incurred.
Advertising expense approximated $13.0 million, $12.6 million, $3.8 million and
$15.0 million during Fiscal 1996, Fiscal 1995, the January Quarter and Fiscal
1994, respectively.
CASH EQUIVALENTS
The Company considers all short term investments with original maturities of
three months or less to be cash equivalents.
IMPAIRMENT OF LONG-LIVED ASSETS
In fiscal 1996, the Company adopted 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
31
<PAGE>
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.
Beginning in Fiscal 1996 with the adoption of Statement No. 121, assets are
grouped and evaluated at the lowest level for which there are identifiable
cash flows that are largely independent of the cash flows of other groups of
assets. The Company has identified this lowest level to be principally
individual stores. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the estimated future cash flows expected
to result from the use of the asset If the carrying amount of the asset
exceeds estimated expected undiscounted future cash flows, the Company
measures the amount of the impairment by comparing the carrying amount of the
asset to its fair value. The estimation of fair value is measured by
discounting expected future cash flows at a rate commensurate with the
Company's borrowing rate.
During the first quarter of Fiscal 1996, the Company recognized a non-cash
impairment loss of $4.2 million. Of the total impairment loss, $2.3 million
represents impairment of property and equipment, $1.3 million relates to
excess of cost over net assets acquired and $0.6 million pertains to leasehold
interests. Considerable management judgment is necessary to estimate
discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates.
As a result of the reduced carrying value of the impaired assets,
depreciation and amortization expense for Fiscal 1997 is expected to be
reduced by approximately $0.4 million.
OTHER
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 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 has adopted the disclosure
requirements only in the fiscal year ended February 1, 1997. The Company is
continuing accounting for employee stock compensation awards under Accounting
Principle Board Opinion No. 25 "Accounting for Stock issued to Employees".
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." All
companies are required to comply with the disclosure requirements of the
statement and the Company will adopt the policy in the fiscal year ending
January 31, 1998.
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 consolidated 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 17,899,906, 17,893,675,
17,883,135 and 14,583,038 for Fiscal 1996, Fiscal 1995, the January Quarter and
Fiscal 1994, respectively.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following (dollars in thousands):
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
Land $ -- $1,412 $1,412
Buildings under capital leases 17,605 15,073 18,018
Buildings and improvements 2,193 7,594 7,594
Leasehold improvements 15,012 17,953 19,498
Furniture, fixtures, and equipment 16,699 16,608 17,781
Deferred software costs 6,650 6,484 5,897
----------- ----------- -----------
58,159 65,124 70,200
Less accumulated depreciation and
amortization (27,506) (23,041) (18,276)
----------- ----------- -----------
$30,653 $42,083 $51,924
----------- ----------- -----------
----------- ----------- -----------
During the first quarter of Fiscal 1996, the Company wrote-off approximately
$2.3 million of property and equipment due to the adoption of Statement
No. 121.
Accumulated amortization for buildings under capital leases approximated $5.8
million, $4.6 million and $4.1 million at February 1, 1997, February 3, 1996 and
January 28, 1995, respectively.
32
<PAGE>
In March 1996 the Company closed a store in Eugene, Oregon. The Company owned
the building subject to a ground lease. The building reverted to the owner of
the land. The net book value of the building and improvements totaled $2.2
million at February 3, 1996. (See Note 9.)
In December 1996, the Company closed four stores located at Spokane, WA; Twin
Falls, ID; Missoula, MT; and Hillsboro, OR. The net book value of furniture,
fixtures and equipment associated with the stores totaled $0.4 million as of
February 1, 1997, and has been included in the store closure reserve,
(See Note 9).
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 approximately $5.0 million were applied against the Company's
Old DIP Facility (defined below) borrowings. The Company concurrently
entered into a 20 year lease agreement with the purchaser.
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):
FISCAL FISCAL JANUARY FISCAL
1996 1995 QUARTER 1994
----------- --------- ---------- --------
Minimum rentals $7,095 $7,300 $2,265 $9,258
Contingent rentals 660 496 217 670
Sublease rentals (959) (803) (214) (710)
----------- --------- ---------- --------
$6,796 $6,993 $2,268 $9,218
----------- --------- ---------- --------
----------- --------- ---------- --------
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 1996, Fiscal 1995 and Fiscal 1994,. 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 $2.1
million, $2.0 million, $0.6 million and $2.7 million during Fiscal 1996, Fiscal
1995, the January Quarter and Fiscal 1994, respectively.
In September 1995, in connection with the Company's Chapter 11 case, the Company
negotiated a rental concession with one of its landlords in the Alaska market.
The lease agreement was amended to reduce monthly payments from September 1995
through August 2001. The concession has been reflected in the tables below.
Future minimum rental payments as of February 1, 1997 under capital and
operating leases, excluding amounts related to contracts which have been
rejected by the Company in connection with the Company's Chapter 11 filing, are
summarized as follows (dollars in thousands):
CAPITAL OPERATING
LEASES LEASES
---------- -----------
For the fiscal years ending:
1997 $2,852 $6,132
1998 2,859 6,092
1999 2,859 5,861
2000 2,726 5,101
2001 2,577 4,743
Thereafter 14,956 25,607
---------- -----------
33
<PAGE>
Total minimum rental payments 28,829 $53,536
-----------
-----------
Less estimated executory costs
(primarily taxes and insurance) (103)
Less amounts representing interest (14,652)
----------
Present value of obligations $14,074
----------
----------
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 1, 1997,
annual future minimum rentals of the operating lease relating to the
distribution center are approximately $0.3 million per year.
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"). 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.
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement with Foothill (the "Old DIP Facility"). The Old DIP
Facility provided for a borrowing capacity of up to $32.0 million in revolving
loans, including up to $15.0 million of letters of credit, subject to borrowing
base limitations based upon, among other things, the value of inventory and
certain real property. Effective October 17, 1995, the Old 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.
The Old DIP Facility provided that interest would accrue at the rate of 3% per
annum in excess of the reference rate, payable monthly in arrears. The Old DIP
Facility also provided that in the event of a default in the payment of any
amount due thereunder, the interest rate on such defaulted amount would be 4.5%
per annum in excess of the reference rate, payable on demand. At February 3,
1996, the reference rate was 8.25%.
The Company paid Foothill $80,000 upon the closing of the Old DIP Facility in
February 1995 and the additional closing fees totaling $240,000, all of which
had been paid as of March 31, 1996. Fees payable under the Old DIP Facility
consisted primarily of monthly payments equal to 1/2% of the average unused
borrowing capacity and quarterly payments equal to 1/4% of the borrowing
capacity for each quarterly renewal period.
On June 4, 1996, the Company entered into a loan and security agreement (the
"FNBB Facility") with The First National Bank of Boston ("FNBB") replacing the
Old DIP Facility, after a hearing by the Court and the entering of an order
approving such financing. Although Foothill had taken no action to declare the
Company in default as of the date on which the Old DIP Facility was terminated,
the Company was in violation of the net worth maintenance covenant in the Old
DIP Facility at the time of termination.
Pursuant to the FNBB Facility, the Company is able to borrow up to $32
million in revolving loans (including $3 million of letters of credit),
subject to borrowing base limitations based upon, among other things, the
value of inventory and certain real property. The FNBB Facility will expire
on the effective date of the Company's Plan of Reorganization or June 30,
1997, whichever is sooner. The Bank has informed the Company that the
agreement will be extended to February 28, 1998 and is currently in the
process of documenting the amendments, however, there can be no assurances
that documents relating to such amendments will be completed prior to
June 30, 1997. Effective November 8, 1996, the FNBB Facility was amended to
increase the Company's borrowing limit from $32 million to $35 million to
accommodate seasonal requirements for the Company's holiday season purchases.
The borrowing limit reverted to $32 million on December 15, 1996. In
addition, during the period beginning on December 15, 1996 and ending on
January 31, 1997, the Company was required to maintain the aggregate amount
of outstanding borrowings under the FNBB Facility at no more than $21.5
million for a period of 30
34
<PAGE>
consecutive days. Subject to FNBB's approval of the plan of reorganization and
other specified conditions, the FNBB Facility will continue for a two year
period following the effective date of the plan of reorganization. At February
1, 1997, the Company had $23.1 million of borrowings and no outstanding letters
of credit under the FNBB Facility, with additional borrowing capacity of $1.9
million.
The FNBB Facility provides that for Base Rate loans interest will accrue at the
rate of 1.5% per annum in excess of the Base Rate (as defined therein), payable
monthly in arrears. For Eurodollar loans, the interest rate will be the
Eurodollar Rate (as defined therein) plus 2.75% (adjusted as provided therein).
The FNBB Facility also provides that in the event of a default in the payment of
any amount due thereunder, the interest rate on such borrowings shall be the
greater of (i) 3.0% per annum in excess of the Base Rate and (ii) the applicable
rate on the loan, payable on demand. The interest rates for both Base Rate loans
and Eurodollar loans are subject to adjustment upon the effective date of a plan
of reorganization and the satisfaction of certain other conditions described in
the FNBB Facility based on financial ratios of the Company specified in the FNBB
Facility. At February 1, 1997, the Base Rate was 8.25% and the Eurodollar Rate
was 5.5%.
The Company has expensed fees of $474,000 for the FNBB Facility as of February
1, 1997. Fees payable under the FNBB Facility consist primarily of monthly
payments equal to 0.5% (adjusted as provided therein) of the average unused
borrowing capacity and monthly payments equal to 0.125% of the borrowing
capacity. There will be an additional fee after the effective date of the plan
of reorganization and the satisfaction of certain conditions described in the
FNBB Facility payable in the amount of $560,000 of which $336,000 shall be
payable on the date the conditions are satisfied and $224,000 shall be payable
on December 31, 1997 (or, if earlier, the time of termination of the
commitments).
Borrowings under the FNBB Facility, together with cash flow from operations, may
be used by the Company to finance general working capital requirements,
including purchases of inventory and expenditures permitted under the FNBB
Facility. The FNBB Facility is secured by inventory and substantially all other
assets and is an allowed administrative expense claim with super priority over
other administrative expenses in the Chapter 11 case. The FNBB Facility imposes
limitations on the Company with respect to, among other things, (i)
consolidations, mergers, and sales of assets, (ii) capital expenditures in
excess of specified levels and (iii) the prepayment of certain indebtedness.
Additionally, the Company must comply with certain operating and financial
covenants (as described therein). Although the Company failed to comply with
certain covenants related to inventory levels for the months ending July 6, 1996
and August 3, 1996, the Company requested and received a waiver relating to such
breaches.
As a result of the Company's Chapter 11 filing, the Company is currently in
default on all its funded debt agreements (other than the FNBB Facility).
The Company has not accrued interest upon such indebtedness (other than the
FNBB Facility) since the date of filing. The 13-1/2% Notes were due
February 15, 1995.
35
<PAGE>
NOTE 9 - STORE CLOSURE COSTS
In July 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. 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
January 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 a going out of business sale at this store through March 1996.
The Company owned the building in Eugene subject to a ground lease and attempted
to market the building. A purchaser was not located and ownership of the
building reverted to the owner of the underlying land. The write off of the net
book value of the building and leasehold improvements was included in the $3.0
million charge to reorganization expense recorded in Fiscal 1995 in connection
with the closure of the Eugene store. In October 1996, the Company received
approval by the Court to close four additional underperforming stores, located
in Spokane, WA; Twin Falls, ID; Missoula, MT; and Hillsboro, OR. The Company
conducted going out of business sales at these stores through December 1996.
During Fiscal 1996, $3.1 million was charged to reorganization expense in
connection with the closure of these stores. Store closure costs for Fiscal
1996, Fiscal 1995, the January Quarter and Fiscal 1994 are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
STORE CLOSURE COSTS
-------------------------------------------------------
FISCAL FISCAL JANUARY FISCAL
1996 1995 QUARTER 1994
-------- -------- -------- --------
<S> <C> <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 1,866 450 400 1,748
Estimated operating losses through the dates
of closure - - - 1,357
Lease Termination Costs 1,036 - - -
Other 186 238 470 1,123
-------- -------- -------- --------
$3,088 $3,050 $2,200 $7,200
-------- -------- -------- --------
-------- -------- -------- --------
Amounts charged to reserve $5,292 $3,247 $2,806 $3,843
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Revenues associated with the closed stores totaled $13.9 million,
$16.1 million, $12.5 million and $47.1 million in Fiscal 1996, Fiscal 1995,
the January Quarter and Fiscal 1994, respectively. Operating income (losses),
excluding the allocation of corporate expenses, interest and reorganization
expenses, incurred from these stores were $1.4 million, ($0.9) million,
($2.5) million and ($5.4) million in Fiscal 1996, Fiscal 1995 the January
Quarter and Fiscal 1994, respectively.
NOTE 10 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under
FAS 109, deferred tax assets and liabilities are recognized on temporary
differences between the financial statement and tax bases of assets and
liabilities using applicable enacted tax rates.
The income tax benefit from operations is comprised of the following (dollars in
thousands):
FISCAL 1994
-------------
Current ($400)
Deferred
-------------
($400)
-------------
-------------
36
<PAGE>
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 is summarized as follows:
FISCAL 1994
-------------
Expected benefit (34.0%)
Effect of current year
net operating loss 34.0%
Adjustment to tax
provision (0.9%)
Other
-------------
(0.9%)
-------------
-------------
Significant components of the Company's deferred income tax assets and
liabilities are as follows (dollars in thousands):
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
Deferred income tax assets:
Net operating loss carryovers $34,366 $30,835 $24,192
Accrued payroll and related costs 954 948 1,074
Leasehold interests 2,667 2,652 2,630
Store closure expenses 5,209 3,821 2,856
Other 2,418 1,883 1,623
Valuation allowance (44,448) (38,707) (30,395)
----------- ----------- -----------
Total deferred income tax assets 1,166 1,432 1,980
----------- ----------- -----------
Deferred income tax liabilities:
Inventory (228) (454) (644)
Property and equipment (938) (978) (1,336)
----------- ----------- -----------
Total deferred income tax liabilities (1,166) (1,432) (1,980)
----------- ----------- -----------
Net deferred income taxes $0 $0 $0
----------- ----------- -----------
----------- ----------- -----------
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 1, 1997, the Company had $101.0 million and $90.9 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
37
<PAGE>
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 FNBB Facility approximates market
value as the interest rate is variable.
LETTERS OF CREDIT
At February 1, 1997, the Company had no outstanding trade or stand-by
letters of credit.
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.
NOTE 12 - COMMITMENTS, CONTINGENCIES AND OTHER
The Company is involved in various matters of litigation arising in the
ordinary course of business. In the opinion of management, the ultimate
outcome of all such matters should not have a material adverse effect on the
financial position of the Company, but, if decided adversely to the Company,
could have a material effect upon the Company's anticipated plan of
reorganization or operating results during the period in which the litigation
is resolved.
CREDIT CARD PLAN AGREEMENT
The Company's proprietary charge card, administered and owned by Alliance Data
Systems (which purchased the charge accounts from National City Bank of
Columbus), 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 (the "Agreement"), Alliance Data Systems owns the
receivables generated from purchases made by customers using the Lamonts charge
card. The Agreement provides that the Company will be charged a discount fee of
1.95% of Net Sales, as that term is defined in the Agreement.
Additionally, the Agreement provides for a supplemental discount fee equal to
one-tenth of one percent (0.1%) of Net Sales for each one million dollar
increment that Net Sales for a subzject year are less than $48.0 million (the
"Minimum Level") up to a maximum fee of 3% of the Net Sales for the subject
year. In the event of store closures, the Agreement provides that the Minimum
Level may be decreased. Additionally, as of March 1, 1997 the Company is no
longer responsible for any net bad debt expense. The Agreement may be
terminated by either party after June 22, 1999, upon 180 days prior written
notice. At February 3, 1996 and January 28, 1995 the Company had $0.3 million
reserved for bad debts arising from this program. At February 1, 1997, there
was no reserve for bad debts arising from this program. Bad debt expense for
Fiscal 1996, Fiscal 1995, the January Quarter and Fiscal 1994 was approximately
$0.1 million, $0.9 million, $0.2 million and $0.8 million, respectively.
38
<PAGE>
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.
WARRANTS
On September 21, 1992, the Company distributed as a dividend to the holders of
Common Stock of record as of September 1, 1992, 1992 Warrants to purchase an
aggregate of 1,017,478 shares of Common Stock. The exercise price of the 1992
Warrants is $5.51 per share which shall increase on each September 28 by an
amount equal to 10% of the exercise price immediately prior to such increase.
As of February 1, 1997 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 1, 1997, 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 adjusted 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:
39
<PAGE>
NUMBER OF
OPTIONS
---------
Balance, October 29, 1994 592,672
Granted 0
Exercised (12,545)
Canceled (205,387)
-----------
Balance, January 28, 1995 374,740
Granted 0
Exercised (11,774)
Canceled (43,902)
-----------
Balance, February 3, 1996 319,064
Granted 0
Exercised (504)
Canceled (43,109)
-----------
Balance, February 1, 1997 275,451
-----------
-----------
At February 1, 1997 options to purchase 275,451 shares at an exercise price of
$.01 per share were issued and outstanding of which, 266,041 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, $0.1 million, and $0.6
million was charged to compensation expense during Fiscal 1996, Fiscal 1995, the
January Quarter and Fiscal 1994, respectively.
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. Pursuant to the Plan, the Company's obligations under the
Voting Agreement will be rejected upon the effective date of the Plan.
A former director of the Company is an affiliate of Morgens Waterfall Vintiadis
& Co. Inc. ("Morgens Waterfall"). Pursuant to the Recapitalization, certain
affiliates of Morgens Waterfall received an aggregate of approximately 16.7%
(1,482,906 shares) of 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
Foothill 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, the Company paid ELICNY $0.8 million of
cash interest on the 10-1/4% Notes. 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.
40
<PAGE>
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 Lamonts Apparel, Inc.
Supplemental Executive Retirement Plan was rejected in Fiscal 1996. 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.
41
<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 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Actuarial present value of accumulated benefit obligations,
including vested benefits of $5,345, $5,462 and $4,286 in
Fiscal 1996, Fiscal 1995 and the January Quarter, respectively $5,598 $5,651 $4,583
--------- --------- ---------
--------- --------- ---------
Projected benefit obligation $6,513 $6,639 $5,499
Retirement Plan assets at value, primarily money market
funds and guaranteed investment contracts 6,045 5,143 4,652
--------- --------- ---------
Projected benefit obligation in excess of Retirement Plan assets 468 1,496 847
Unrecognized net loss from past experience different
from that assumed (347) (1,238) (1,162)
--------- --------- ---------
Accrued (prepaid) pension cost 121 258 (315)
Additional liability charge to equity to recognize minimum liability - 250 -
--------- --------- ---------
Total accrued (prepaid) pension cost $121 $508 ($315)
--------- --------- ---------
--------- --------- ---------
Discount rate 7.75% 7.25% 8.5%
Rate of increase in future compensation levels 3.5% 3.5% 4.5%
Expected long term rate of return on assets 9.0% 9.0% 9.0%
</TABLE>
Amounts charged to expense under the Retirement Plan were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL JANUARY FISCAL
1996 1995 QUARTER 1994
------ ------ ------- -------
<S> <C> <C> <C> <C>
Service cost, benefits earned during the period $404 $414 $108 $536
Interest cost on projected benefit obligation 461 483 113 407
Actual return on assets (635) (883) 39 11
Other, including deferred recognition of asset gain/(loss) 213 559 (129) (444)
------ ------ ------- -------
Net pension cost $443 $573 $131 $510
------ ------ ------- -------
------ ------ ------- -------
</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 January 1, 1994 (the "401(k) Plan") provides participants the
opportunity to elect to defer an amount from one percent to 15% 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 $0.14 million, $0.15 million, $0.04
million, and $0.2 million during Fiscal 1996, Fiscal 1995, the January Quarter
and Fiscal 1994, respectively.
42
<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 54 Director, Chairman of the Board, President
and Chief Executive Officer
Loren R. Rothschild 58 Director and Vice Chairman of the Board
Peter Aaron 47 Executive Vice President
Debbie A. Brownfield 42 Senior Vice President, Chief Financial
Officer and Secretary
E.H. Bulen 46 Senior Vice President and General
Merchandise Manager
James Ferree 38 Senior Vice President and General
Merchandise Manager
Mr. Schlesinger joined Lamonts as President and Chief Executive Officer in
November 1994. In December 1994, Mr. Schlesinger was appointed Director and
Chairman of the Board. From 1991 to 1994, Mr. Schlesinger was a Senior Vice
President with The May Company Department Stores.
Mr. Rothschild, a Director of the Company since October 1992, became Vice
Chairman of the Board in December 1994. In addition, Mr. Rothschild has served
as President and Director of Sycamore Hill Capital Group since September 1993.
Prior to that time, he served as Vice Chairman and President of American
Protection Industries Inc. ("API"), a privately held company engaged in direct
marketing of collectibles, home decor products, flowers by wire clearing house,
and real estate and agribusiness, and Vice Chairman of The Franklin Mint from
1985 to June 1992. From 1988 to June 1992, Mr. Rothschild also served as
Chairman and Chief Executive Officer of API's Agribusiness division.
Mr. Aaron joined the Company as Executive Vice President in November 1983 and
was Acting Secretary of the Company from January 1993 through August 1993.
Ms. Brownfield joined the Company as Vice President of Finance, Secretary and
Treasurer in September 1985 and served as Acting Chief Financial Officer of the
Company from January 1993 through August 1993. Ms. Brownfield was named Senior
Vice President and Chief Financial Officer in December 1995.
Mr. Bulen joined Lamonts in November 1995 as Senior Vice President and General
Merchandise Manager. Prior to joining the Company, Mr. Bulen was Vice
President, Retail Stores, with Vans, Inc. from April 1993. He also has an
extensive retail background with May Company, California, where he served in a
variety of merchandising roles from February 1976 to January 1993.
Mr. Ferree joined Lamonts in June 1996 as Senior Vice President and General
Merchandise Manager. Prior to joining the Company, Mr. Ferree was Vice
President and General Merchandise Manager with Sycamore Stores in Indianapolis,
Indiana from August 1994. Prior to Sycamore, Mr. Ferree served as Divisional
Vice President and Merchandise Manager with Famous Barr, a division of May
Department Stores from February 1989.
All directors and executive officers are elected for a term of one year and
serve until their successors are duly elected and qualified.
43
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation paid
during Fiscal 1996, Fiscal 1995 and Fiscal 1994, 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 1996, and (iii) one additional
individual who would have qualified for inclusion had their employment not been
terminated (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------
Other Annual All Other
Compensation Compensation
Name and Principal Position Fiscal Year Salary ($) Bonus ($) ($) (1) ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alan R. Schlesinger, Director, 1996 450,000 100,000 5,100 0
Chairman of the Board, President 1995 450,000 100,000 3,600 0
and Chief Executive Officer 1994(2) 58,270 125,000 0 0
Loren R. Rothschild, 1996 240,000 0 2,790 0
Director and Vice Chairman of the 1995 240,000 0 2,790 0
Board 1994(2) 6,462 125,000 0 0
Peter Aaron, 1996 210,000 30,000 3,118 0
Executive Vice President 1995 205,833 30,000 3,247 0
1994(2) 183,836 8,160 3,540 0
Debbie A. Brownfield, Senior Vice 1996 160,000 30,000 2,016 0
President, Chief Financial Officer 1995 121,249 35,000 1,497 0
and Secretary
E.H. Bulen, 1996 152,000 15,000 661 0
Senior Vice President and General 1995 48,930(3) 0 0 0
Merchandise Manager
Carolyn Morris, 1996 100,256 35,000 255 0
Senior Vice President, General 1995 191,512 35,000 425 104,379(5)
Merchandise Manager (4)
</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, and consists of premiums paid by the Company for
term life insurance pursuant to the Lamonts Apparel Group Life and Long-
Term Disability Plan, effective July 7, 1977.
(2) As of a result the Company's change in its fiscal year (from the Saturday
closest to October 31 to the Saturday closest to January 31) Fiscal Year
1994 compensation for Messrs. Schlesinger and Rothschild include salary and
bonus for the January Quarter. Mr. Aaron's compensation represents the
fiscal year ended October 29, 1994, but does not include the January
Quarter.
(3) Includes $24,430 in consulting fees for the period September 27, 1995 to
November 30, 1995.
(4) Ms. Morris commenced her employment with the Company in March 1995 and
resigned as Senior Vice President and General Merchandise Manager effective
June 1996.
(5) Relocation expenses for Ms. Morris.
OPTION GRANTS DURING FISCAL 1996
There were no options granted to Named Executive Officers during Fiscal 1996.
44
<PAGE>
OPTION VALUES AT 1996 FISCAL YEAR END
The following table provides information related to the number and value of
options held by the Named Executive Officers at the end of Fiscal 1996. None of
the Named Executive Officers exercised any options during Fiscal 1996.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996 AND FISCAL YEAR END OPTION/SAR
VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
Fiscal Year End (#) (1) at Fiscal Year End ($)
--------------------------------- ---------------------------------
Name Exercisable / Unexercisable Exercisable / Unexercisable
- -------------- --------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Peter Aaron 23,925 / 3,143 $2,393 / $314
Debbie Brownfield 5,311 / 672 $531 / $67
</TABLE>
(1) Consists of 1992 Options granted to the Named Executive Officers under
the Company's 1992 Stock Option Plan.
PENSION PLAN
Under the provisions of the Lamonts Apparel, Inc. Employees Retirement Trust
(the "Lamonts Pension Plan"), which covers substantially all 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. 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 upon
retirement at normal retirement age for Mr. Aaron and Ms. Brownfield are
$33,046, and $18,503, respectively, based on years of credited service
through the end of Fiscal 1996. As of February 1, 1997, Mr. Aaron had
fourteen years of credited service. As of February 1, 1997, Ms. Brownfield
had twenty-one years of credited service. Messrs. Schlesinger, Rothschild
and Bulen have not yet earned retirement benefits.
COMPENSATION OF DIRECTORS
During Fiscal 1996, the Company did not pay any compensation to any person as a
director of the Company.
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 which was
approved by the Court.
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<PAGE>
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 which was 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The determination of Fiscal 1996 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
46
<PAGE>
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.
47
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 1997 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:
Number of Percentage of
Shares Owned(1) Outstanding Shares
---------------- ------------------
EXECUTIVE OFFICERS AND DIRECTORS
Peter Aaron (2) 24,894 *
Debbie A. Brownfield (3) 7,411 *
Loren R. Rothschild - -
Alan R. Schlesinger - -
E.H. Bulen - -
James Ferree - -
All directors and executive officers as group 32,305 *
(6 persons) (4)
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
BEA Associates (6) 1,104,351 6.1%
153 East 53rd St.
One Citicorp Center
New York, New York 10022
FMR Corp.
Fidelity Management Trust Company 2,734,938 14.0%
Fidelity Management & Research Company (7)
82 Devonshire Street
Boston, Massachusetts 02109
Morgens Waterfall Vintiadis & Co., Inc. (8) 3,032,906 16.9%
610 Fifth Avenue, 7th Floor
New York, New York 10020
- ---------------------
* 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 731 shares of Common Stock issuable upon exercise of warrants that
have an exercise price of $5.51 per share and 23,925 shares subject to
immediately exercisable, non-qualified stock options that have an exercise
price of $0.01 per share.
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(3) Includes 5,311 shares of Common Stock subject to immediately exercisable,
non-qualified stock options that have an exercise price of $0.01 per share.
(4) Includes 731 shares of Common Stock issuable upon the exercise of warrants
that have an exercise price of $5.51 per share and 29,236 shares of Common
Stock subject to immediately exercisable, non-qualified stock options that
have an exercise price of $0.01 per share.
(5) The sole general partner of Apollo Retail Partners ("ARP") is AIF II, L.P.
("AIF II"); the managing general partner of AIF II is Apollo Advisors, L.P.
("Apollo Advisors"); and the general partner of Apollo Advisors is Apollo
Capital Management, Inc.
(6) According to the Schedule 13G filed by BEA Associates on February 11, 1997,
CS Holding directly owns 80% of the partnership units in BEA Associates.
CS Holding and its direct and indirect subsidiaries, in addition to BEA
Associates, may beneficially own shares of the Company and such shares are
not reported in such Schedule 13G. CS Holding disclaims beneficial
ownership of shares of the Company beneficially owned by its direct and
indirect subsidiaries, including BEA Associates, and BEA Associates
disclaims beneficial ownership of all the shares of Common Stock, which
shares are held in discretionary accounts which BEA Associates manages.
The Company has been informed by Executive Life Insurance Company of New
York ("ELICNY") that these shares are held for the account of ELICNY.
(7) Fidelity Management & Research Company ("Fidelity") is the investment
advisor to various registered investment companies (the "Fidelity Funds")
and is a wholly owned subsidiary of FMR Corp. Fidelity Management Trust
Company ("FMTC") is the trustee or managing agent for various private
investment accounts (the "Accounts") and is a wholly owned subsidiary of
FMR Corp. According to the Schedule 13G Filed by FMR Corp. on February 14,
1997, FMR Corp. beneficially owns (i) through Fidelity, as investment
advisor to the Fidelity Funds, 2,578,526 shares of Common Stock
(approximately 13.16%), 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.
(8) Morgens Waterfall Vintiadis & Company, Inc. ("Morgens") renders
discretionary investment advisory services to (i) Morgens Waterfall
Vintiadis N.V. which holds 95,450 shares of 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 972,800 shares of Common Stock and (iii)
Restart Partners III, L.P., which holds 642,095 shares of Common Stock.
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ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Recapitalization, certain of the Company's post-
Recapitalization stockholders, representing an aggregate of approximately
8,717,000 shares or 98% of the 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. Pursuant to the Plan, the Company's obligations under the
Voting Agreement will be rejected upon the effective date of the Plan.
In connection with the Recapitalization, the parties to the Recapitalization
Agreement (and/or their permitted assignees) entered into an equity
registration rights agreement and a debt registration rights agreement.
Under certain circumstances, the holders of at least 10% of the aggregate
principal amount of the then outstanding Securities (as defined therein)
covered by such agreements 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 Plan, the Company's obligations under the Recapitalization Agreement, the
equity registration rights agreement and the debt registration rights
agreement will be rejected upon the effective date of the Plan.
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 1996 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. As
a result of the Company's Chapter 11 case, during Fiscal 1996 the Company paid
no interest to the Fidelity Funds or the Accounts on 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.
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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, 12413 Willows Road N.E., Kirkland, Washington
98034.
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.(9)
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.(9)
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)
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4.13 Exchange Agreement, dated October 18, 1994, between the Registrant
and the holders of the Notes.(9)
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.(10)
10.1 Consulting Agreement dated October 30, 1992, between the Registrant
and The Thompson Company. (4)(16)
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)(16)
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)(16)
10.4 Form of Option Exchange Agreement dated September 14, 1992, between
the Registrant and each officer of the Registrant. (4)(16)
10.5 Lamonts Apparel, Inc. 1992 Incentive and Nonstatutory Stock Option
Plan. (4)(16)
10.6 Employment Agreement dated October 16, 1994, between the Registrant
and Alan Schlesinger.(9)(16)
10.7 Modification to Employment Agreement dated January 5, 1995 between
the Registrant and Alan Schlesinger.(9)(16)
10.8 Employment Agreement dated April 18, 1995, between the Registrant
and Alan Schlesinger.(10)(16)
10.9 Employment Agreement dated December 28, 1994, between the
Registrant and Loren Rothschild.(9)(16)
10.10 Employment Agreement dated April 18, 1995, between the Registrant
and Loren Rothschild.(10)(16)
10.11 Employment Agreement dated October 30, 1992, between the Registrant
and Peter Aaron.(4)(16)
10.12 Equity Registration Rights Agreement dated October 30, 1992 among
the Company and the parties listed on the signature pages
thereto.(4)
10.13 Debt Registration Rights Agreement dated October 30, 1992 among the
Company and the holders listed on the signature pages thereto.(4)
10.14 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)
10.15 Form of Indemnification Agreement dated October 30, 1992, between
the Registrant and each director and officer of the Registrant.(4)
10.16 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)
10.17 Amendment No. 2 dated March 30, 1994 to the Credit Card Plan
Agreement.(8)
10.18 Letter Agreement dated November 2, 1994 to the Credit Card Plan
Agreement.(9)
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10.19 Amendment dated December 9, 1996 to the Credit Card Plan
Agreement. *
10.20 Computer Services Agreement dated February 1, 1996, between the
Registrant and Infotech Corporation.(12)
10.21 License Agreement dated May 25, 1995 between the Registrant and
Shoe Corporation of America, Inc.(11)
10.22 Loan and Security Agreement dated June 4, 1996 Between First
National Bank of Boston and Lamonts Apparel, Inc.(13)
10.23 Waiver dated August 3, 1996 between First National Bank of Boston
and Lamonts Apparel, Inc.(14)
10.24 First Amendment dated November 8, 1996 to Loan and Security
Agreement dated June 4, 1996 between First National Bank of Boston
and Lamonts Apparel, Inc.(15)
10.25 Computer Services Agreement dated February 4, 1997, between the
Registrant and Affiliated Computer Services, Inc. *
21 Subsidiaries of the Registrant. (6)
23 Consent of Coopers & Lybrand LLP.*
27.1 Financial Data Schedule. *
99.1 Debtor's Plan of Reorganization Under Chapter 11 of the Bankruptcy
Code. (14)
99.2 Submission of "(Proposed) Disclosure Statement re Debtor's Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code". (14)
99.3 Plan Documentary Supplement.(14)
99.4 Debtor's Amended Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code.(15)
99.5 Amended Disclosure Statement re Debtor's Plan of Reorganization
Under Chapter 11 of the Bankruptcy Code.(15)
99.6 Plan Documentary Supplement to "Debtor's Amended Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code".(15)
- ------
* Filed herewith
(1) Incorporated by reference from Registration Statement Nos. 33-2292
and 33-2292-01 of the Registrant and TPI, respectively, as filed
with the Commission on December 19, 1985, and as amended on
January 3, 1986, January 29, 1986, February 6, 1986 and
February 11, 1986.
(2) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on November 10, 1988.
(3) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with the Commission on March 31, 1989.
(4) Incorporated by reference from Current Report on Form 8-K of the
Registrant as filed with the Commission on November 13, 1992.
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(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 Annual Report on Form 10-K of the
Registrant as filed with the Commission on January 27, 1995.
(10) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on April 21, 1995.
(11) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on June 12, 1995
(12) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with the Commission on May 3, 1996.
(13) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on June 18, 1996.
(14) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on September 16, 1996.
(15) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on December 17, 1996
(16) Management contract or other compensatory plan, contract or
arrangement between the Registrant and any director or named
executive officer of the Registrant.
(b) Reports filed on Form 8-K
1. Form 8-K dated December 20, 1996, Item 5- Other Events, related to
announcing that the requisite majorities of each class of its
impaired creditors and equity security holders voted in favor of
accepting the Registrant's "Debtor's Amended Plan of Reorganization
under Chapter 11 of the Bankruptcy Code," filed on October 23,
1996.
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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, 1997
55
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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, 1997
/s/ Loren R. Rothschild Vice Chairman of the Board, Chief
- ----------------------- Administrative Officer and Director May 2, 1997
Loren R. Rothschild
/s/ Debbie Brownfield Senior Vice President and Chief May 2, 1997
- ----------------------- Financial Officer (Principal
Debbie Brownfield Financial and Accounting Officer)
56
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EXHIBIT 10.19
AMENDMENT TO CREDIT CARD PLAN AGREEMENT
THIS amendment to Credit Card Plan Agreement ("Amendment") is made as of
the 9th day of December, 1996, by and between Lamonts Apparel, Inc., the debtor
and debtor-in-possession in Bankruptcy Case No. 95-00100 in the U. S. Bankruptcy
Court for the Western District of Washington at Seattle, ("Company"), and
National City Bank of Columbus, a national baking association, formerly known as
BancOhio National Bank (the "Bank").
PRELIMINARY STATEMENT
On or about June 20, 1988, Lamonts Apparel, Inc., a Washington corporation
and Bank entered into a Credit Card Plan Agreement, whereby Bank is operating a
consumer credit program in the form of revolving lines of credit for customers
of Company for use of such lines to purchase goods and services from Company
pursuant to credit cards issued to such customers. The Credit Card Plan
Agreement has been previously amended pursuant to amendments dated September 30,
1992, August 23, 1993, March 30, 1994, and letter agreement dated November 2,
1994, which are collectively referred to herein as the "Agreement". The parties
now wish to make further amendments to the Agreement, all as set forth in this
Amendment.
Now, therefore, in Consideration of the mutual promises contained herein
and intending to be legally bound, the parties agree as follows:
1. DEFINITIONS. Except as otherwise specifically set forth herein, all
terms in this Amendment shall have the same meaning ascribed to them in the
Agreement, and the definitions of all such terms are incorporated herein by
reference.
2. SECTION 3.6(d). Section 3.6(d) is deleted in its entirety and the
following Section 3.6 (d) is substituted in lieu thereof:
(d) Subject to applicable law and terms and conditions set forth in
the Credit Card Agreement, Bank may charge each customer interest
on the unpaid balance of their Account at an annual percentage
rate ("APR") equal to the prime rate (as hereinafter defined)
plus thirteen and eight tenths percent (13.8%). "Prime Rate"
shall mean the Prime Rate of interest of general application as
set forth in the "Money Rates" section (or such future section as
shall replace it) of THE WALL STREET JOURNAL (Eastern edition) on
the date of this Agreement and from time to time hereafter.
1. Company will be charged a discount fee equal to one and
95/100ths percent (1.95%) of Net Sales under the Plan. In
the event that the Prime Rate increases during the term of
this Agreement, Bank shall have the right to increase the
APR by the amount of such increase in the Prime Rate,
subject to applicable law and the terms and conditions set
forth in the Credit Card Agreement; provided, however, that
at Company's option, Company may reduce the increased APR
otherwise proposed to be charged to the customer by
increasing the discount fee paid by Company to Bank in the
following manner ("Company Buydown"). Company shall
increase the discount fee paid to Bank by five tenths (0.5)
of a basis point for every one (1) basis point reduction in
the APR from the formula set forth above.
<PAGE>
2. Company may reverse any Company Buydown and thereby allow a
corresponding increase in the APR by decreasing the discount
fee paid by Company to Bank in the following manner:
Company shall decrease the discount fee paid to Bank by five
tenths (0.5) of a basis point for every one (1) basis point
increase in the APR.
3. Bank shall charge the discount fee by directly debiting the
Company Deposit Account for the proper amount based on the
aggregate total of all Net Sales as shown in the Transaction
Records delivered to Bank. If there are insufficient funds
in the Company Deposit Account at such time for Bank to
debit the appropriate discount fee, Company shall
nevertheless pay the proper amount to Bank in immediately
available funds.
3. SECTION 3.11. Section 3.11 is hereby amended by adding the following
Section 3.11(d) to the end thereof:
(d) This Section 3.11 shall remain in effect through the end of
February, 1996, and shall be deemed to have no longer been in
effect as of March 1, 1996. As a result, (i) Company shall not
be responsible to Bank for any Losses occurring on or after March
1, 1996, and Bank shall not be responsible to Company for any
Losses that are recovered after that date and (ii) in the event
that either party has made a payment or payments to the other
party with respect to Losses or recoveries of Losses occurring on
or after March 1, 1996, the party having received such funds
shall return those funds to the paying party promptly after the
date this Section 3.11(d) is effected.
4. SECTION 8.1. The parties confirm that Section 8.1 of the Plan
Agreement is as follows:
The agreement shall continue for an indefinite period of time unless
otherwise provided for in the Agreement, except that after June 22,
1999, either party may terminate the Agreement upon 180 days written
notice.
5. The parties represent and warrant that the execution, delivery and
performance by the parties of this Amendment are within their power and
authority and have been duly authorized by all necessary corporate action; will
not violate or conflict with any applicable law or breach or result in a default
under any material agreement or instrument binding upon the parties to perform
under this Agreement; and this Amendment and the Plan Agreement are the legal,
valid and binding obligation of the parties enforceable against the parties in
accordance with their terms.
6. The amendment set forth herein are limited precisely as written and
shall not be deemed to be a consent with respect to or any waiver of any other
term or condition of the Agreement, or any of the instruments or documents
referred therein except as may be expressly provided herein, or prejudice any
rights which the Company or Bank may not have or may have in the future under or
in connection with the Agreement, or any of the instruments or documents
referred therein, except as may be expressly provided herein. Excepting as
expressly provided herein, the terms and provisions of the Agreement shall
remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
executed and delivered by the respective duly authorized officers or
representatives as of the date above written.
LAMONTS APPAREL, INC.
By /s/Loren R. Rothschild
---------------------------
Loren R. Rothschild
Its Vice Chairman
---------------
National City Bank of Columbus
(formerly known as BancOhio National Bank)
By /s/David H. Kratoville
-------------------------
Its Vice President
------------------------
<PAGE>
EXHIBIT 10.25
MASTER AGREEMENT FOR
DATA PROCESSING AND RELATED SERVICES
This MASTER AGREEMENT FOR DATA PROCESSING AND RELATED SERVICES (the
"Agreement") is made and entered into by and between AFFILIATED COMPUTER
SERVICES, INC., a Delaware corporation ("ACS"), and LAMONTS APPAREL, INC., a
Delaware corporation ("Customer").
WHEREAS, Customer has agreed to engage ACS, and ACS has agreed to be
engaged, to provide certain data processing and related information technology
services to Customer in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and of other good and valuable consideration, and intending to be bound hereby,
ACS and Customer agree as follows:
ARTICLE I
GENERAL PROVISIONS
1.1 DEFINITIONS: The following terms shall have the meanings set forth
below where used herein and identified with initial capital letters:
ACS: As defined in the preamble to this Agreement.
ACS ACCOUNT MANAGER: As defined in Section 5.1 of this Agreement.
ACS FACILITY: The ACS data processing facility located in Pittsburgh,
Pennsylvania, or such alternate location which may be hereafter
designated by ACS.
ACS SOFTWARE: The Software which may be listed on SCHEDULE "E" of a
Services Addendum under the heading of "Software to be Provided by
ACS," including both Software proprietary to ACS and Third Party
Software provided by ACS pursuant to this Agreement, and any other
Software provided by ACS under this Agreement and used by ACS to
provide the Services.
ADDITIONAL SERVICES: As defined in Section 2.3 of this Agreement.
AGREEMENT: This Agreement between Customer and ACS and all Schedules
hereto, and all Services Addenda.
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 1
<PAGE>
BUSINESS DAY: Shall be each Monday through Friday, except when any such
day is one of the following holidays: New Year's Day, Memorial Day,
4th of July, Labor Day, Thanksgiving Day, Christmas Eve and Christmas
Day.
CHANGE: As defined in Section 2.2 of this Agreement.
CHANGE ORDER: As defined in Section 2.2 of this Agreement.
CUSTOMER: As defined in the preamble to this Agreement.
CUSTOMER ACCOUNT MANAGER: As defined in Section 3.5 of this Agreement.
CURRENT Facilities: The Current Primary Facility, Current Remote Facilities
and Current Foreign Facilities, if any.
CURRENT Foreign Facilities: As may be defined in a Services Addendum.
CUSTOMER HARDWARE: The hardware to be acquired by ACS from Customer as may
be listed on SCHEDULE "G" to a Services Addendum.
CURRENT Primary Facility: The computer processing facility where
Customer's data processing services are currently performed located at
1511 6TH Avenue, Seattle, Washington 98101.
CURRENT REMOTE FACILITIES: As may be defined in a Services Addendum.
CUSTOMER SOFTWARE: The Software which may be listed on SCHEDULE "E" of a
Services Addendum under the heading of "Software to be Provided by
Customer", including both Software proprietary to Customer and Third
Party Software provided by Customer pursuant to this Agreement.
CUTOVER DATE: As defined in the Services Addenda, or such other date to
which ACS and Customer may hereafter agree in writing.
DISASTER RECOVERY PLAN: As defined in Section 5.2 of this Agreement.
EFFECTIVE DATE: The date of this Agreement, which shall be the latter of
the dates set forth below the signatures of the parties hereto.
EMPLOYEES: As defined in Section 5.3 of this Agreement.
FEES: As defined in Section 6.1 of this Agreement.
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 2
<PAGE>
FULL-TIME BASIS: A twenty-four (24) hours per day, seven (7) days per
week, fifty-two (52) weeks per year basis, subject to the provisions
of Section 9.4 of this Agreement.
INDEX: As defined in Section 6.5 of this Agreement.
INFORMATION: As defined in Section 10.1 of this Agreement.
INITIAL TERM: As defined in Section 7.1 of this Agreement.
MINIMUM PERFORMANCE STANDARDS: As described in SCHEDULE "B" to a Services
Addendum.
OWNERSHIP: Such ownership as confers upon the person having it good and
marketable title to and control over the thing or right owned, free
and clear of any and all encumbrances.
PERFORMANCE STANDARDS: As described in SCHEDULE "B" to a Services
Addendum.
RENEWAL TERM: As defined in Section 7.2 of this Agreement.
SCHEDULES: All Schedules identified in any Services Addendum, which
Schedules are incorporated herein by this reference and made a part
hereof and may include the following:
SCHEDULE "A" Statement of Work
SCHEDULE "B" Performance Standards
SCHEDULE "C" Fees
SCHEDULE "D" Customer Responsibilities
SCHEDULE "E" Software Programs and Licenses
SCHEDULE "F" Disaster Recovery Plan
SCHEDULE "G" Equipment
SCHEDULE "H" Employees and Employee Benefits
SCHEDULE "I" Additional Services Request Form
SCHEDULE "J" Customer's Third Party Vendor Agreements To
Be Assigned to ACS
SCHEDULE "K" Customer's Batch Processing Cycles
SERVICES: The services described in SCHEDULE "A" of any Services Addendum,
any Changes thereto, any Additional Services which may be agreed to
pursuant to Section 2.3, and any Services which may be agreed to
pursuant to Sections 2.9 and 2.11 of this Agreement.
SERVICES ADDENDUM: Each addendum to be attached to and incorporated into
this Agreement as mutually agreed by ACS and Customer from time to
time, and collectively referred to as the Services Addenda.
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 3
<PAGE>
SOFTWARE: The (i) computer programs, including, without limitation,
software, firmware, application programs, operating systems, files and
utilities; (ii) supporting documentation for such computer programs,
including, without limitation, input and output formats, program
listings, narrative descriptions, operating instructions and
procedures, user and training documentation and special forms; and
(iii) the tangible media upon which such programs are recorded,
including, without limitation, chips, tapes, disks and diskettes.
SOFTWARE LICENSORS: Licensors for the Third Party Software pursuant to the
Third Party Software Licenses.
STATEMENT OF WORK: As described in SCHEDULE "A" to any Services Addendum.
TERM: The period of time commencing upon the Effective Date and continuing
for the Initial Term and any Renewal Term.
TERMINATION CHARGES: As defined in Section 8.7 of this Agreement.
THIRD PARTY SOFTWARE: The Software developed and/or owned by the Software
Licensors as listed on SCHEDULE "E" to a Services Addendum.
THIRD PARTY SOFTWARE LICENSES: The Software licenses applicable to the
Third Party Software between each Software Licensor and ACS or
Customer, as applicable.
TRANSITION PERIOD: The period of time commencing upon the date of each
Services Addendum and continuing until the Cutover Date, as described
in Section 4.1 of this Agreement.
TRANSITION PLAN: The plan for transition of the operational control of
computing and related services performed by Customer at the Customer
Facility to ACS as described in each Services Addendum and in Section
4.1 of this Agreement.
1.2 OTHER DEFINITIONS AND MEANINGS: INTERPRETATION: There are additional
defined terms in the Schedules to this Agreement which shall have the meanings
set forth therein. For purposes of this Agreement, the term "parties" means
(except where the context otherwise requires) ACS and Customer; the term
"person" includes any natural person, firm, association, partnership,
corporation, or other entity other than the parties; and the words "hereof",
"herein", "hereby" and other words of similar import refer to this Agreement as
a whole. All dollar amounts referred to herein are in United States Dollars.
ARTICLE II
SERVICES
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 4
<PAGE>
2.1 SERVICES. Commencing on the date of a Services Addendum and
continuing during the Term thereof, ACS will perform, provide, manage and
administer the Services in accordance with the terms set forth in this Agreement
and the applicable Services Addendum.
2.2 CHANGES. If Customer desires any change ("Change") to the Statement
of Work, Customer shall so notify ACS in writing. Within a reasonable period of
time after receipt of such notice, ACS shall submit to Customer for Customer's
approval ACS' proposed change order ("Change Order") to authorize the Change.
The Change Order shall state whether the Change causes a change in the
applicable Fees, or with the time and manner of performance required by ACS for
any aspect of the Services under the Statement of Work. All requests for
Changes submitted hereunder shall be subject to mutual agreement by the parties
to a Change Order or to an amendment to this Agreement or a Services Addendum,
as applicable, executed by both parties with respect thereto.
2.3 ADDITIONAL SERVICES. If Customer desires that ACS provide certain
services not included within the Services, Customer shall so notify ACS in
writing. Within a reasonable period of time after receipt of such notice, ACS
shall submit to Customer for Customer's approval the terms and conditions on
which ACS will agree to provide such Services. Subject to and upon reaching
mutual written agreement as to the terms and conditions on which such services
will be provided, ACS will provide such services (the "Additional Services").
In that regard, Customer shall use a form to request such Additional Services in
substantially the form of SCHEDULE "I" attached to any Services Addendum.
2.4 ACCESS. For the purposes of ACS' performance of the Services
hereunder, ACS and ACS' employees, contractors or agents who are performing the
Services shall have reasonable access to the Customer Facilities or portions
thereof as reasonably necessary for the performance of any Services.
2.5 EXCLUSIVE RIGHTS. During the Term, ACS shall be the sole and
exclusive provider of the Services and Customer shall not obtain the Services
from any other third party or provide such Services on its own behalf, either
directly or indirectly through an affiliate.
2.6 CONTROL OF RESOURCES. During the Term of this Agreement, except as
otherwise provided in this Agreement or mutually agreed to by Customer and ACS,
ACS shall have the exclusive right to manage all ACS resources used in providing
the Services as ACS deems appropriate, including, without limitation, the right
to relocate and substitute computer equipment, personnel and other resources,
and to change computer configurations and procedures. If any such relocation,
substitution or change will substantially and materially affect Customer, then
ACS shall provide Customer with prior written notice thereof. Upon receipt of
such notice, if such change shall upon implementation result in a material
increase in the Fees or materially affects Customer's systems, Customer shall
have the right to approve same; provided, that if such change involves
implementation of a more current version of Software and if, upon such
implementation the version
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 5
<PAGE>
currently in use will no longer be supported by the Software Licensor, then
Customer's approval shall not be required. Notwithstanding anything to the
contrary herein, in the event that any such relocation or substitution of
equipment, Software or resources is necessary to accommodate a client of ACS
other than Customer, and such change affects Customer, then ACS agrees that
Customer's Fees will not be affected by such change. If ACS has not received
written notice of disapproval by Customer within ten (10) days after receipt by
Customer of such notice thereof from ACS, then Customer shall be deemed to have
approved such change.
2.7 PROVISION OF SOFTWARE.
(a) Customer will provide to ACS the Customer Software.
Customer will obtain all consents necessary to permit Customer to grant the
right provided in the preceding sentence and will provide evidence of such
consents to ACS at its request. Customer will make all payments necessary to
obtain such consents, and ACS will cooperate with Customer in obtaining such
consents. Unless expressly provided otherwise in either SCHEDULE "A" or
SCHEDULE "E" of a Services Addendum, Customer will be responsible for
maintaining the Customer Software and for any license or maintenance fees
related to providing Customer Software for use by ACS under this Agreement. ACS
will comply with the terms of the Customer Software Licenses, and unless ACS is
paying maintenance or license fees related thereto pursuant to the provisions of
this Agreement, may use such Software provided under this Agreement only for
purposes of this Agreement. In addition, ACS will provide the ACS Software in
connection with its provision of Services under this Agreement. All Software
provided or used by the parties pursuant to this Agreement, including all
modifications, updates and enhancements thereto, shall remain the exclusive
property of the party providing such Software, unless expressly provided
otherwise in SCHEDULE "E" of any Services Addendum. ACS and Customer each
acknowledge that the Software provided by the other party includes proprietary
information of the other party and agrees to keep such Software confidential at
all times. Upon the expiration or termination of this Agreement, except for
Software which has been transferred or assigned pursuant to SCHEDULE "E" of any
Services Addendum, each party will return all copies of all items relating to
the other party's Software which are in the returning party's possession and
will certify to the other party in writing that the returning party has retained
no material relating to the other party's Software.
(b) Customer represents and warrants to ACS as follows with
respect to the Third Party Software provided by Customer under this Agreement:
(i) as of the date of the applicable Services Addendum, Customer is in
compliance with the terms and conditions of the Customer Software Licenses and
no default or breach exists with respect thereto, (ii) such Software Licenses
are in full force and effect as of the date of the applicable Services Addendum,
and (iii) Customer has provided complete and accurate copies of the Customer
Software Licenses to ACS. Within thirty (30) days following the date of the
applicable Services Addendum, ACS will commence to contact the Software
Licensors with Customer's cooperation in order to confirm the representations
and warranties by Customer as set forth above in this subsection 2.7(b) and will
notify Customer of any Customer Software Licenses with respect to which Customer
is considered to be in
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 6
<PAGE>
noncompliance. Notwithstanding the above, ACS will not contact any Software
Licensors without first notifying Customer.
(c) Customer will continue the Customer Software Licenses in
full force and effect during the term of the applicable Services Addendum unless
otherwise agreed by the parties, and except as expressly provided otherwise in
any Services Addendum, Customer shall ensure that ACS is and continues to be
designated as Customer's authorized processor under the Customer Software
Licenses. In the event of any breach or alleged breach on the part of Customer
under the Customer Software Licenses, Customer will promptly take reasonable
actions to bring such Customer Software Licenses into compliance with the terms
and conditions set forth in said Software Licenses, at Customer's sole cost and
expense. If Customer is unable to resolve the problem with a Customer Software
License or if Customer is unable to obtain the Software Licensor's consent to
ACS' access to any of the Customer Third Party Software under this Agreement,
the parties will in good faith negotiate and agree on the provision of other
available Software that is capable of performing the same or substantially the
same functions in a reasonably acceptable manner, such substitute Software to be
provided at Customer's sole cost and expense. Any substitute Software, upon
acquisition of the rights thereto by Customer, will become an item of Customer
Software to be provided by Customer under this Agreement, and the applicable
Services Addendum will be deemed amended accordingly.
2.8 OTHER OBLIGATIONS. ACS assumes no obligations or liabilities of
Customer except as expressly provided in this Agreement.
2.9 MASTER AGREEMENT. In entering into this Agreement it is the intention
of ACS and Customer that this Agreement shall serve as a "master agreement"
under which various services may be provided from time to time pursuant to
separate Services Addenda to be attached to and incorporated by reference into
this Agreement as mutually agreed by ACS and Customer. Unless otherwise
expressly provided in any particular Services Addendum, the terms of this
Agreement shall apply fully with respect to the services, responsibilities and
obligations set forth in each Services Addendum.
2.10 PERFORMANCE STANDARDS. During the Term of this Agreement the Services
shall be provided by ACS in material compliance with the standards set forth in
SCHEDULE "B" to any Services Addendum. Customer's rights in the event of ACS'
failure to substantially comply with such standards shall be those rights
expressly set forth in SCHEDULE "B" to any Services Addendum.
ARTICLE III
CUSTOMER RESPONSIBILITIES
3.1 CUSTOMER RESPONSIBILITIES. During the Term of this Agreement,
Customer shall retain all responsibilities related to its data processing
requirements which are not expressly assumed by
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 7
<PAGE>
ACS pursuant to this Agreement, including the responsibilities set forth in this
Article III and in SCHEDULE "D" to each Services Addendum.
3.2 DATA ENTRY. Customer shall be responsible for inputting all data for
processing by ACS and verifying the accuracy of all data so entered. ACS shall
not be responsible for errors in the Services, including data entry, programs,
data files, or output provided to or maintained for Customer, resulting from
errors in Customer's input data or from Customer's failure to comply with ACS'
operating instructions which may be provided pursuant to Section 3.3 hereof.
3.3 OPERATING INSTRUCTIONS. Customer will comply with all reasonable
operating instructions provided from time to time by ACS in writing in advance
to Customer for purposes of assuring proper and efficient delivery of the
Services, which instructions must comply with instructions or protocols provided
by third party vendors and standard known Customer procedures.
3.4 COOPERATION. Both parties will cooperate with each other by making
promptly available, as reasonably requested by one party, such management
decisions, personnel, information, data, approvals and acceptances to the other
as may be required to enable the requesting party to properly perform its
obligations under this Agreement.
3.5 CUSTOMER'S DESIGNATED PERSONNEL. As soon as practicable after the
Effective Date, Customer shall appoint an employee of Customer as the principal
Customer interface with ACS and as the person who shall have the responsibility
for the overall supervision and conduct of the agreements and responsibilities
of Customer under this Agreement, including approval of changes (the "Customer
Account Manager").
In that regard, Customer shall be responsible for making available Customer's
personnel and providing support to ACS as follows:
(a) Customer shall immediately assign and designate in
writing the types and levels of staff personnel with the authority to act on
behalf of Customer with respect to this Agreement and the Services to be
provided hereunder, including the Customer Account Manager. The designated
staff will be responsible for providing data, decisions and approval to the ACS
Account Manager.
(b) Customer shall staff projects with personnel as ACS and
Customer reasonably determine are necessary to provide planning, implementation
and other assistance, as required.
(c) Customer shall take reasonable steps so that Customer
personnel cooperate with ACS to enable ACS to perform and provide the Services.
Customer shall notify its personnel of the existence of this Agreement and shall
instruct its personnel in their responsibilities in cooperating with ACS.
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 8
<PAGE>
3.6 FACILITIES AND EQUIPMENT. Customer shall be responsible for providing
ACS' personnel, at Customer's expense, a safe and adequate place to work at the
Customer Facilities as required for ACS to provide the Services, and with
incidental office equipment and telephones.
ARTICLE IV
TRANSITION PERIOD
4.1 TRANSITION PLAN. ACS and Customer shall use commercially reasonable
best efforts to agree during the Transition Period to the terms of the
Transition Plan. ACS shall be responsible for providing the Services to
Customer during the Transition Period as and to the extent set forth in the
Transition Plan and in any Services Addendum. ACS shall be responsible for
planning the measures necessary to facilitate the transfer of Customer's
computing activities to ACS as necessary to support provision of the Services to
Customer on and subsequent to the Cutover Date. Customer shall provide, at
Customer's expense, Customer's personnel to assist ACS in such transition
activities as reasonably necessary to ensure an orderly transition.
4.2 ON-SITE REPRESENTATIVES. During the Transition Period, Customer will
work with ACS to secure the right for ACS to have a reasonable number of
representatives at the Current Facilities in order to facilitate the transition
as set forth in the Transition Plan and to determine the steps necessary to
implement the Transition Plan. ACS agrees that it will at all times adhere to
the security policies and practices of Customer's current data processing
provider. The parties also agree that ACS will be excused from any Performance
Standards that are affected as a direct result of Customer's former service
providers' failure to cooperate with any reasonable requests of ACS.
4.3 DOCUMENTATION AND RECORDS. During the Transition Period, Customer
will work with ACS to secure the right for representatives of ACS to examine,
at the Current Facilities, all source and machine-readable data and associated
manuals, procedures, processes, documentation, descriptions, data files and
other such items in the form existing on the date of each Services Addendum as
required to provide the Services. Customer shall provide to ACS copies of such
materials as required by the Transition Plan, subject to third party vendor
requirements; provided, however, Customer shall retain Ownership of all such
materials provided to ACS.
ARTICLE V
OPERATIONS
5.1 ACS ACCOUNT MANAGER. As soon as practicable after the Effective Date,
ACS shall appoint an employee of ACS as the principal ACS interface with
Customer and as the person who shall have the responsibility for the overall
supervision and conduct of the Services to be performed hereunder (such person
and any replacements or substitutions shall be referred to as the "ACS
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 9
<PAGE>
Account Manager"). ACS may designate at its discretion a substitute or
replacement for the ACS Account Manager, subject to prior approval by Customer,
which shall not be unreasonably withheld. In that regard, ACS shall be
responsible for making available ACS's personnel and providing support to
Customer as follows:
(i) ACS shall immediately assign and designate in writing the
types and levels of staff personnel with the authority to act on behalf of ACS
with respect to this Agreement and the Services to be provided hereunder,
including the ACS Account Manager. The designated staff will be responsible for
providing data, decisions and approval to the Customer Account Manager for the
purpose of allowing ACS to fulfill its obligations under this Agreement.
5.2 ARCHIVAL AND DISASTER RECOVERY. ACS shall develop and maintain, at
ACS's sole cost and expense, (a) a written disaster recovery plan that meets the
requirements set forth in SCHEDULE "F" (the "Disaster Recovery Plan") to a
Services Addendum, and (b) archival and disaster recovery backup copies of
Customer data files in accordance with the retention schedule provided by
Customer to ACS from time to time hereunder, and, at Customer's expense if more
than the minimum retention schedule, in full compliance with all retention,
reporting, or other requirements imposed by federal, state or local regulatory
authorities with jurisdiction over Customer's business. ACS shall promptly
provide to Customer, at Customer's request and expense, additional copies of
Customer's data files. ACS may modify or change the Disaster Recovery Plan at
any time. Any material change or modification in the Disaster Recovery Plan
which materially and adversely impacts Customer must be previously approved in
writing by Customer.
5.3 TRANSITIONED EMPLOYEES. The provisions of SCHEDULE "H" to each
Services Addendum shall apply with respect to the employees of Customer
identified therein, if any (the "Employees").
ARTICLE VI
PAYMENT OF FEES AND EXPENSES
6.1 FEES AND PAYMENT. Customer will pay to ACS the charges and fees for
the Services (the "Fees") in accordance with the provisions of SCHEDULE "C" to
any Services Addendum. Except as otherwise provided in SCHEDULE "C" to any
Services Addendum, ACS shall render invoices for Fees for the Services and
Additional Services, if any, provided during such month. Invoiced amounts shall
be due and payable by Customer within ten (10) days after Customer's receipt
(but in no event before the fifth (5th) day in any calendar month). Any amounts
of Fees or other amounts payable under this Agreement remaining unpaid for more
than thirty (30) days after Customer's receipt of the applicable invoice shall
bear interest at the rate of 1.5% per month (but in no event in excess of the
highest applicable lawful rate of interest). All material or data of Customer
stored by ACS on tape or disk files may be retained by ACS until all Fees and
other sums payable under this Agreement are paid by Customer.
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 10
<PAGE>
6.2 OUT-OF-POCKET EXPENSES. Customer will reimburse ACS, within ten (10)
days of receipt of ACS' invoice (but in no event before the fifth (5th) day in
any calendar month), for out-of-pocket expenses incurred by ACS; provided, any
such expenses are incurred at the written request or with the written approval
of Customer in connection with performance of this Agreement, including travel
and travel-related expenses.
6.3 TAXES. Customer shall be solely responsible for all sales, use and
similar taxes, if any, payable with respect to the Services and shall pay any
such taxes to ACS (or to the appropriate governmental body, as the case may be)
in accordance with the payment schedule described in Section 6.1. Customer
hereby agrees to indemnify and hold ACS harmless from and against the payment of
any and all sales, use or similar taxes, including any penalties or interest
thereon, which accrue or are incurred because of Customer's failure to timely
pay such amount to ACS. In no event will Customer be responsible for ACS'
franchise taxes or for taxes based on the income of ACS, or taxes on real
property.
6.4 DISPUTED CHARGES. All invoiced charges for Fees that are not disputed
within six (6) months from the date of receipt of the invoice, will be assumed
and deemed to be correct and will be paid within the payment terms stipulated in
Section 6.1. Both parties will use their respective best efforts to resolve any
contested amounts within thirty (30) days of the date of Customer's receipt of
the invoice. In the event any dispute arises between ACS and Customer with
respect to the Services or this Agreement, the parties shall promptly undertake
to resolve such dispute. Customer shall not withhold timely payment of any Fees
pending resolution of any such dispute as provided herein and, provided Customer
is in compliance with the provisions of this Section 6.4, ACS shall continue to
provide the Services pending resolution of such dispute, except pursuant to
Section 8.4 or upon any other termination of this Agreement in accordance with
the terms hereof.
6.5 VERIFICATION OF INFORMATION. Customer has furnished to ACS certain
material information (e.g., information related to historical and projected
utilization of computing resources and telecommunications requirements) as may
be described in each Services Addendum relied upon by ACS in the negotiation of
the Fees payable by Customer under this Agreement and other terms of this
Agreement which information has not been independently verified by ACS.
Customer represents that such information is accurate and contains no material
omissions. Should any such information be inaccurate or misleading in any
material respect, the parties will negotiate in good faith to agree upon
adjustments to the terms of this Agreement, which may include adjustments to the
Fees payable under this Agreement.
ARTICLE VII
TERM OF AGREEMENT
7.1 INITIAL TERM. The initial term of this Agreement shall begin on the
Effective Date and shall end on the date which is the latter of the termination
dates provided in each Services Addendum (the "Initial Term") or such earlier
date upon which this Agreement may be terminated in accordance
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with the terms hereof. The term of each particular Services Addendum shall be
for the period set forth in such Services Addendum. If, after the Effective
Date, a Services Addendum is entered into which provides for a term which
extends beyond the initial expiration date of this Agreement, the Term of this
Agreement as it pertains to such Services Addendum and only to such Services
Addendum shall be deemed automatically extended for a term expiring upon the
last day of the term of such Services Addendum.
7.2 RENEWAL TERM. This Agreement and the term hereof, and the term of
each Services Addendum, may be extended for an additional one (1) year period
("Renewal Term") provided that Customer provides written notice to ACS of its
election to renew or not to renew such Services Addendum at least one hundred
eighty (180) days prior to the termination of the term of such Services
Addendum, or any Renewal Term, as applicable. At least one hundred twenty (120)
days prior to any such extension, ACS will notify Customer to what extent, if
any, the Schedule of Fees payable under this Agreement (and any all applicable
Services Addenda) may be modified.
ARTICLE VIII
TERMINATION
8.1 ACS DEFAULT. For purposes of this Agreement, a default shall have
occurred with respect to ACS if ACS materially breaches or fails to perform or
comply with any material term or condition of this Agreement or any Services
Addenda and any and all Schedules thereto.
8.2 CUSTOMER DEFAULT. For purposes of this Agreement, a default shall
have occurred with respect to Customer if:
(a) Customer fails to make a payment required under this
Agreement within fifteen (15) days of the date required by this Agreement; or
(b) Customer materially fails to perform or comply with any
other term or condition of this Agreement.
8.3 DEFAULT BY EITHER PARTY. For purposes of this Agreement, a default
shall have occurred with respect to either party if such party:
(a) suspends or discontinues operations, whether or not in the
normal course of business, or ceases to do business as a going concern (a
corporate consolidation, merger, reorganization or acquisition through which a
party may be succeeded in its business by another entity shall not in and of
itself be deemed to be ceasing to do business, but such event shall be subject
to other provisions of this Agreement); or
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(b) is subject to the entry of a decree or order by a court of
competent jurisdiction for relief in respect to such party under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency, or other similar law, or the appointment of a receiver, liquidator,
assignee, trustee, sequestrator or other similar official for such party or of
any substantial part of the property of such party or the imposition of an order
to wind up or liquidate the affairs of such party and, as to any such matter
which was not the result of a filing by such party, the continuance of any such
decree on order unstayed and in effect for a period of thirty (30) consecutive
days. Notwithstanding the above, ACS expressly excepts from this paragraph the
current proceeding before the U.S. District Court for the Western District of
Washington; or
(c) files a petition for relief under Title 11 of the United
States Code or any other applicable federal or state bankruptcy, insolvency, or
other similar law, or is subject to the filing against such party under Title 11
of the United States Code or any other applicable federal or state bankruptcy,
insolvency or other similar law of an involuntary petition which remains
undismissed for a period of thirty (30) consecutive days, or consents to the
filing of such a petition or the appointment of a receiver, liquidator,
assignee, trustee, sequestrator or similar official for such party of any
assignment for the benefit of creditors, or such party generally not paying its
debts as they become due, or admits in writing of its inability to pay its debts
generally as they become due, or takes corporate action in furtherance of any
such action. Notwithstanding the above, ACS expressly excepts from this
paragraph the current proceeding before the U.S. District Court for the Western
District of Washington.
(d) If (a) this Agreement is rejected and/or terminated in
Customer's current Chapter 11 bankruptcy case (the "Case"), and (b) the Case is
converted to Chapter 7 or the Customer is otherwise liquidated, ACS's
administrative expense claim, if any, shall be limited to: (i) the amounts owed
for actual services provided by ACS to Customer pursuant to this Agreement as of
the date this Agreement is rejected and/or terminated and (ii) any and all
remaining obligations under leases or other Agreements entered into by ACS
directly in connection with providing the Services, plus all remaining
unamortized costs incurred by ACS in connection with this Agreement but in no
event to exceed $10,000 without the written approval of Customer. If the Case
is converted to Chapter 7 or the Debtor is otherwise liquidated, ACS shall have
no administrative expense claim for damages arising from rejection and/or early
termination of this Agreement.
8.4 NOTICE OF DEFAULT. Upon the occurrence of a default as defined in
this Article VIII, the non-defaulting party may issue a written notice of
default to the other party. For any default defined in Section 8.2(a), ACS may
terminate this Agreement for cause after ten (10) days following the notice of
default, unless the default is cured by Customer within such ten (10) day
period, by giving Customer notice of termination (which notice may be provided
in the foregoing notice of default) and, upon giving such notice, ACS may pursue
any other remedy hereunder or otherwise available to it at law or in equity,
subject to any limitations under this Agreement.
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For any default under Section 8.3, the non-defaulting party may terminate this
Agreement upon written notice to the defaulting party, and upon giving such
notice, may pursue any other remedy hereunder or otherwise available to it at
law or in equity, subject to any and all limitations under this Agreement.
For any other default defined in this Article VIII, the non-defaulting party may
terminate this Agreement as it pertains to the applicable Services Addendum for
cause after ninety (90) days following the notice of default, unless the default
is cured by the defaulting party within such ninety (90) day period, by giving
the defaulting party notice of termination and, upon giving such notice, may
pursue any other remedy hereunder or otherwise available to it at law or in
equity, subject to any and all limitations under this Agreement; provided,
however, that for those defaults that cannot reasonably be cured within the
periods referenced in this Section 8.4, the time to cure a default under this
Agreement shall extend (except in the case of Customer's failure to pay an
invoice) from the date on which a notice of default was received if the
defaulting party has promptly commenced to cure such default and is continuing
to use its commercially reasonable best efforts to cure such default.
8.5 TERMINATION ASSISTANCE. In the event of a termination of this
Agreement in accordance with its terms, provided that Customer has paid ACS all
amounts due ACS under this Agreement, ACS shall: (i) cooperate to assist
Customer in effecting an orderly and efficient transition of the Services to
Customer or another vendor chosen by Customer; (ii) disclose to Customer in
writing the equipment, software and third party vendor services required to
perform the Services for Customer; (iii) exercise reasonable efforts as may be
requested by Customer, at Customer's expense, to effect a transfer of license(s)
or assignment of agreement(s) for any dedicated Software or any dedicated third
party services necessary to provide Services to Customer; (iv) promptly return
to Customer, in the format and on the media mutually agreed to by ACS and
Customer and at Customer's expense, all Information of Customer (as defined in
Article X) in ACS' possession; (v) when directed by Customer to do so, render
unrecoverable all Information of Customer in ACS' possession from all ACS
storage media; and (vi) promptly return to Customer all Customer Software and
other Customer property in its possession. ACS shall be paid all applicable
charges for Services rendered through final termination of this Agreement. ACS
will be reimbursed its reasonable out-of-pocket costs incurred on behalf of
Customer in providing termination assistance.
8.6 INFORMATION RETURN. Upon the expiration or termination of this
Agreement, or at an earlier time if any such data is no longer required by ACS
in order to provide the Services under this Agreement, ACS shall, subject to
Customer's payment of the amounts provided in the following sentence, either
destroy or return to Customer, as directed by Customer, all papers, written
materials, properties, data and Information (as defined in Article X) furnished
to ACS by Customer in connection with or as a result of the performance of the
Services under this Agreement. Upon such expiration or termination, and as an
express condition to the obligation of ACS to return such papers, written
materials, properties, data and Information, Customer shall pay ACS the cost of
(a) all media on which such items are delivered, except to the extent Customer
is the owner thereof, and (b) all labor and other expenses incurred by ACS in
connection therewith. Customer's data shall not be
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utilized by ACS for any purpose other than for the rendering of the Services to
Customer under this Agreement.
8.7 TERMINATION FOR CONVENIENCE. After 1 year after the Cutover Date,
Customer may, upon one hundred eighty (180) days written notice to ACS,
terminate this Agreement or any Services Addendum for its convenience, whereupon
ACS shall cease the provision of the Services to Customer in accordance with the
terms of such notice; provided, that, upon any such termination, if the only
Services Addendum which would otherwise then remain in effect is a WAN Services
Addendum to this Agreement, then such WAN Services Addendum shall automatically
terminate simultaneously with the termination of such other Services Addenda
then subject to such termination. Upon termination of its obligations under
this Agreement or any Services Addendum, ACS shall promptly submit to Customer
ACS' invoice for the termination charges, as set forth in SCHEDULE "C" to the
Services Addenda or Services Addendum, as applicable (the "Termination
Charges"), relating thereto, which invoice shall be paid by Customer as provided
in this Agreement. ACS agrees that upon termination of this Agreement or a
Services Addendum by Customer pursuant to this Section 8.7 and payment by
Customer of the Termination Charges and other sums then due and payable pursuant
to this Agreement, the parties shall have no further obligation to the other
with respect to such Services Addendum or this Agreement, as applicable, except
for obligations that are expressly provided to survive termination.
ARTICLE IX
LIMITATION OF LIABILITY
AND ERROR CORRECTION
9.1 LIMITATION OF LIABILITY. Customer agrees that ACS' liability to
Customer for any loss, injury, damage or expense arising directly or indirectly
in connection with this Agreement and the equipment, products or Services
utilized or provided under this Agreement, whether arising by negligence,
intended conduct or otherwise, shall not exceed the amount charged Customer for
the equipment, products or Services giving rise to said loss, injury, damage or
expense. The amount charged shall be the amount set forth on the monthly
invoice for the month in which such loss, injury, damage or expense was
sustained. Notwithstanding the above, ACS agrees that it shall be liable to
Customer for claims in excess of the above stated amount subject to the
following: (i) ACS's total cumulative liability for any and all actions under
this Agreement shall not exceed One Million Dollars ($1,000,000), and (ii) ACS
must actually receive proceeds from ACS' errors and omissions insurance policy
in the amount of such damages.
9.2 INDEMNIFICATION:
(a) INDEMNITY BY CUSTOMER. Customer shall indemnify ACS from, and
protect, defend and hold harmless ACS and its directors, officers, agents,
attorneys and affiliates against, any fine, penalty, cost, loss, damage, injury,
obligation, demand, assessment, claim, expense or liability,
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including attorney's fees and expenses (individually and collectively
"Liabilities") asserted against or incurred by such persons or entities arising
out of or relating to any claim (1) made by a third party which arises from the
failure, incorrectness or breach of any representation, warranty or covenant
made by Customer in this Agreement, (2) for bodily injury to or death of any
person caused by Customer, (3) damage to, or loss or destruction of, tangible
real property or tangible personal property caused by Customer or its agents,
subcontractors or employees, or (4) resulting from any obligations or
liabilities of Customer not expressly assumed herein by ACS, except to the
extent caused by ACS.
(b) INDEMNITY BY ACS. ACS shall indemnify Customer from, and protect,
defend and hold harmless Customer and its directors, officers, agents, attorneys
and affiliates against, any Liabilities arising out of or relating to any claim
(1) for bodily injury to or death of any person caused by ACS, (2) damage to,
or loss or destruction of, any tangible real property or tangible personal
property caused by ACS or its agents, subcontractors or employees; provided,
however, in no event will ACS' indemnification obligation extend to Liabilities
asserted by third parties as a result of ACS' performance or nonperformance of
Services or (3) resulting from any obligations or liabilities of ACS not
expressly assumed herein by Customer, except to the extent caused by Customer.
(c) INTELLECTUAL PROPERTY INDEMNITY. ACS and Customer will each
indemnify, defend, protect and hold the other harmless from and against any and
all Liabilities, whether asserted during or after the Term of this Agreement,
arising from or related to any actual or alleged infringement or violation by
such indemnifying party of trade secret, copyright, trademark, service mark,
patent or similar intellectual property rights, including rights related to
Software, of any person resulting from the Software provided or work performed
by the indemnifying party.
(d) INDEMNIFICATION PROCEDURES. In the event either party is entitled
to indemnification (an "Indemnitee") from the other party pursuant to the terms
of this Agreement with respect to which such Indemnitee intends to seek
indemnification under this Section, such Indemnitee shall give written notice
to the indemnifying party (the "Indemnifying Party"), including a brief
description of the amount and basis therefor, if known, and any documentation
provided in connection therewith. Upon receipt of such notice, the Indemnifying
Party shall be obligated to defend such Indemnitee against such claim, and the
Indemnitee (except as provided below) shall cooperate fully with, and assist,
the Indemnifying Party in its defense against such claim. The Indemnifying
Party shall keep the Indemnitee fully apprised at all reasonable times as to the
status of the defense. The Indemnitee shall have the right to employ its own
separate counsel in any such action, but the fees and expenses of such counsel
shall be at the expense of such Indemnitee; provided, however, (1) if the
parties agree that it is advantageous to the defense for the Indemnitee to
employ its own counsel or (2) if the Indemnitee shall have reasonably concluded
in good faith that there may be a conflict of interest between the Indemnifying
Party and the Indemnitee in the conduct of the defense of such claim (in which
case, the Indemnifying Party shall not have the right to direct or participate
in the defense of such claim on behalf of the Indemnitee), then, in each such
instance,
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the reasonable fees and expenses of counsel for such Indemnitee shall be borne
by the Indemnifying Party. The Indemnifying Party shall not be liable for any
settlement effected without its consent.
Notwithstanding the foregoing, the Indemnitee shall retain, assume or reassume
sole control over any and all expenses relating to every aspect of the defense
that it believes is not the subject of the indemnification provided for in this
Section.
Until both (a) the Indemnitee receives notice from the Indemnifying Party that
it will defend, and (b) the Indemnifying Party assumes such defense, the
Indemnitee may, at any time after ten (10) days from notifying the Indemnifying
Party of the claim, resist the claim or, after consultation with and the consent
of the Indemnifying Party, settle or otherwise compromise or pay the claim. The
Indemnifying Party shall pay all costs of the Indemnitee arising out of or
relating to that defense and any such settlement, compromise or payment. The
Indemnitee shall keep the Indemnifying Party fully apprised at all times as to
the status of the defense.
Following indemnification as provided in this Section, the Indemnifying Party
shall be subrogated to all rights of the Indemnitee with respect to the matters
for which indemnification has been made.
9.3 ERROR CORRECTION. Except as expressly provided otherwise in this
Agreement, Customer shall be responsible for (a) the data supplied to ACS and
correcting errors or obtaining corrections of errors from Software Licensors in
the Customer Software provided by Customer to ACS and (b) any errors in and with
respect to data obtained from ACS because of any inaccurate or incomplete
Customer data, and ACS shall have no liability of any kind with regard to
Customer's use of such data and Software. ACS will correct any material error
in the output it provides to Customer or in the data files it maintains for
Customer to the extent caused by ACS' error in the provision of the Services
either by re-running the output or by adjusting the files, as determined to be
appropriate by ACS, only if the error results from defects in hardware, Software
or Services provided by ACS under this Agreement and is reported to ACS within
(30) days of Customer's receipt of the first output from ACS that evidences the
error, and provided that such restoration can reasonably be performed by ACS and
that Customer provides ACS with all source data necessary for such restoration.
Such restoration shall be Customer's sole remedy for such loss.
9.4 FORCE MAJEURE. Each party to this Agreement will be excused (other
than obligations with respect to payments or credits) from performance, and will
not be liable, for any period and to the extent that such party is prevented,
hindered or delayed from performing any Services or other obligations under this
Agreement, in whole or in part, as a result of acts, omissions, events, causes
or conditions beyond the control of such party, which include, by way of
illustration and not limitation, acts of God or public enemy; acts or omissions
of Customer; acts of government; civil disobedience or insurrection; lock-outs;
freight embargoes; errors or defects in the data supplied by Customer; errors
caused by Software; revocation of the Software License by the Software Licensor
in breach of the Software License for Third Party Software licensed to ACS and
used by or on behalf of Customer; third party nonperformance; failure or
malfunction of hardware, equipment or
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Software; breach or other nonperformance by any party's vendors and suppliers;
acts of civil or military authority; national emergencies; labor strikes or
disputes; fire, flood or catastrophe; war or riots. Notwithstanding the
foregoing provisions of this Section, it is expressly agreed that each party's
performance and liability shall only be excused for such period of time that
such party is exercising commercially reasonable efforts to remedy the cause of
such nonperformance.
9.5 NO WARRANTIES. EXCEPT AS SET FORTH ELSEWHERE IN THIS AGREEMENT ACS
DOES NOT MAKE ANY OTHER WARRANTIES WITH RESPECT TO THE SERVICES, ADDITIONAL
SERVICES OR THE SOFTWARE OR HARDWARE SYSTEMS OR EQUIPMENT AND EXPLICITLY
DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A SPECIFIC PURPOSE. ACS SHALL HAVE NO
LIABILITY OR RESPONSIBILITY WHATSOEVER WITH RESPECT TO THE "YEAR 2000" PROBLEM,
OTHER THAN TO CONFIRM THAT ACS HAS RESOLVED ANY SUCH PROBLEM IN THE ACS
SOFTWARE. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY IN
CONNECTION WITH THE PROVISION OR USE OF THE SERVICES OR ANY OTHER OBLIGATION OF
SUCH PARTY UNDER THIS AGREEMENT FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL,
RELIANCE, EXEMPLARY, OR SPECIAL DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES
FOR LOST PROFITS EXCEPT WITH RESPECT TO THE FEES AND OTHER CHARGES AND AMOUNTS
PAYABLE UNDER THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT, INDEMNITY, NEGLIGENCE, WARRANTY, STRICT LIABILITY OR TORT EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9.6 ACKNOWLEDGMENT. The parties acknowledge that the provisions of this
Agreement, including specifically this Article IX, were negotiated and expressly
bargained for by the parties and that they fully understand and accept the
obligations and limitations provided for herein. The parties further
acknowledge and agree that the provisions of this Section 9.1 and Section 9.2 of
this Agreement shall survive expiration or termination of this Agreement.
ARTICLE X
INFORMATION
10.1 INFORMATION. In the performance of their respective obligations under
this Agreement, ACS and Customer and their respective officers, directors,
employees, subcontractors, or agents may receive or have access to pricing,
methods, processes, financial data, lists, statistics, Software, systems or
equipment, programs, research, development, strategic plans, upcoming
advertising content, promotions, organizational charts, operating data and other
confidential business, customer or personnel information or data, in written,
oral or other form (collectively "Information") owned or controlled by the other
party, including, without limitation, the terms of this Agreement. Such
Information may contain material which is proprietary or confidential,
disclosures of patentable
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inventions with respect to which patents may not have been issued or for which
patent applications may not have been filed, or material which is subject to
applicable laws regarding secrecy of communications or trade secrets or similar
proprietary rights. ACS and Customer covenant and agree:
(a) that all such Information so acquired by either party or any
of their respective employees, officers, directors, subcontractors or agents
hereunder from the other party shall be and shall remain the other party's
exclusive property;
(b) to inform all of their respective officers, directors,
employees, subcontractors and agents engaged in handling such Information of the
confidential character of such Information and of the existence of applicable
laws regarding secrecy of communications;
(c) to limit access to such Information to their respective
authorized officers, directors, employees, subcontractors and agents on a
need-to-know basis;
(d) to keep, and have their respective officers, directors,
employees, subcontractors and agents keep, such Information confidential, using
the same degree of care which it exercises with its own Information of like
importance, but in no event less than commercially reasonable means;
(e) not to copy or publish or disclose such Information to others
or authorize their respective officers, directors, employees, subcontractors or
agents or anyone else to copy or publish or disclose such Information to others
without the other party's prior written approval, except as may be required by
law or in connection with any legal proceeding or to enforce the provisions of
this Agreement; provided that if any disclosure of the other party's Information
is so required, the disclosing party will provide prior notice of such
disclosure to the other party and give the other party a reasonable opportunity
to object to the disclosure of such Information;
(f) to return any copies of such Information in written, graphic
or other tangible form to the requesting party at such party's request; and
(g) to use such Information only for purposes of this Agreement
and for other purposes only upon such terms as may be agreed upon between the
parties in writing.
It is expressly agreed that the term "Information" shall not include information
which: (a) is now, or hereafter becomes, through no unauthorized act of the
recipient party, generally known or available to the public; (b) is rightfully
known by a party hereto without an obligation of confidentiality at the time of
receiving such information from the other party; (c) is hereafter rightfully
furnished to a party hereto by a third party without an obligation of
confidentiality; or (d) is independently developed by a party hereto without use
of the other party's Information.
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Customer and ACS further agree that the provisions of this Agreement shall not
prohibit either party from discussing said party's level of satisfaction with
the performance of the other party under this Agreement.
10.2 AUDIT RIGHTS/OVERSIGHT. Customer and ACS each shall have the right to
review and conduct audits to verify compliance of the above-stated provisions
regarding the care of each other's Information, subject to the reasonable
security requirements of the affected party. Additionally, Customer shall have
the right (through an independent auditor other than an auditor whose business
is primarily or substantially providing mainframe data processing outsourcing
services), to conduct audits of the operations of ACS relating to the
performance of the Services to verify: (i) the accuracy of the charges to
Customer and (ii) the Services are being provided in accordance with
Performance Standards. In that regard, ACS will upon twenty-four (24) hours
written notice and with Customer's cooperation, provide such auditors with
reasonable access to the environment from which ACS is providing the Services
for the limited purpose of performing audits or inspections of Customer's data.
If any audit or examination reveals that ACS's invoices for the audited period
are not correct for such period, ACS shall promptly reimburse for the amount of
any overcharges, or Customer shall promptly pay ACS for the amount of any
undercharges, subject to the provisions of Section 6.4.
10.3 IRREPARABLE HARM. ACS and Customer acknowledge that any disclosure or
misappropriation of Information in violation of this Agreement could cause
irreparable harm, the amount of which may be extremely difficult to estimate,
thus making any remedy at law or in damages inadequate. ACS and Customer each
therefore agrees that the other shall have the right to apply to any court of
competent jurisdiction for an order restraining any breach or threatened breach
of this Article X and for any other relief as such other party deems
appropriate. This right shall be in addition to any other remedy available at
law or in equity.
10.4 UNAUTHORIZED ACTS. Each party shall (1) notify the other party
promptly of any material unauthorized possession, use or knowledge, or attempt
thereof, of the other party's Information by any person or entity which may
become known to such party, (2) promptly furnish to the other party full details
of the unauthorized possession, use or knowledge, or attempt thereof, and
reasonably cooperate with the other party in investigating or preventing the
reoccurrence of any unauthorized possession, use or knowledge, or attempt
thereof, of such Information, (3) use reasonable efforts to cooperate with the
other party in any litigation and investigation against third parties deemed
necessary by the other party to protect its proprietary rights, and (4) promptly
use all reasonable efforts to cooperate with the other party to the extent that
party may reasonably prevent a reoccurrence of any such unauthorized possession,
use or knowledge of Information. Except in the case of a breach of a covenant
by the other party, each party shall bear the costs it incurs as a result of
compliance with this Article X.
10.5 LEGAL ACTION. Neither Customer nor ACS shall commence any legal
action or proceeding against a third party in respect of any unauthorized
possession, use or knowledge, or attempt thereof, of the other party's
Information without the other party's consent.
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10.6 SURVIVAL. The provisions of this Article X shall survive the
expiration or termination of this Agreement for any reason.
ARTICLE XI
REPRESENTATIONS
11.1 BY CUSTOMER. Customer represents that: (1) it is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its incorporation, (2) it has all the requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement, (3) the
execution, delivery and performance of this Agreement have been duly authorized
by Customer, and (4) except as set forth below, no approval, authorization or
consent of any governmental or regulatory authority is required to be obtained
or made by it in order for it to enter into and perform its obligations under
this Agreement. Notwithstanding the above, the parties acknowledge that
Customer's ability to enter into this Agreement is conditioned upon its receipt
of approval by the Western District of Washington Bankruptcy Court and
Customer's appointed creditor's committees.
11.2 BY ACS. ACS represents that: (1) it is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
(2) it has all the requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement, (3) the execution, delivery
and performance of this Agreement has been duly authorized by ACS, and (4) no
approval, authorization or consent of any governmental or regulatory authority
is required to be obtained or made by it in order for it to enter into and
perform its obligations under this Agreement.
ARTICLE XII
DISPUTE RESOLUTION
12.1 RESOLUTION BY PARTIES. Prior to the initiation of any action or
proceeding under this Agreement to resolve disputes between the parties, the
parties shall make a good faith effort to resolve any such disputes by
negotiation between representatives with decision-making power, who shall not
have had substantive involvement in the matters involved in the dispute, unless
the parties otherwise agree.
12.2 ATTORNEYS' FEES. In the event of any dispute arising out of or
involving this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees, experts' fees, and costs, including those for
pretrial, trial, on appeal, in arbitration and in any bankruptcy proceeding and
all other costs and expenses associated with any such action, in addition to any
other relief granted.
ARTICLE XIII
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MISCELLANEOUS PROVISIONS
13.1 ASSIGNMENT. This Agreement shall be binding on the parties hereto and
their respective successors and assigns, except that no party may assign or
transfer its rights or obligations under this Agreement without the prior
written consent of the other party, which consent will not be unreasonably
withheld; provided that the merger of either party with another company or the
assignment of this Agreement to the purchaser of all or substantially all the
assets of a party shall not be deemed an assignment in violation of this Section
13.1. Furthermore, either party may assign its rights and obligations under
this Agreement to any parent, subsidiary or affiliate, provided that the
assignee agrees in writing to be bound by the terms and conditions of this
Agreement; provided that no such assignment shall affect the liability of the
assignor, nor release such party from its obligations under the terms of this
Agreement.
13.2 NOTICES. Whenever under this Agreement one party is required or
permitted to give notice to the other, such notice shall be deemed given when
delivered in hand or three (3) Business Days after the date mailed by United
States mail, certified mail, return receipt requested, postage prepaid, or when
transmitted via facsimile, and addressed as follows:
In the case of ACS:
Affiliated Computer Services, Inc.
2828 N. Haskell
Dallas, Texas 75204
Facsimile No.: (214) 823-5746
Attn: President
(With copy to the following officer at the above address):
Attn: General Counsel
In the case of Customer:
Lamonts Apparel, Inc.
12413 Willows Road, NE
Kirkland, Washington 98034
Facsimile No.: (___) ___-____
Attn: Peter Aaron, Executive Vice President
Either party may change its address for notification purposes by giving the
other three (3) days prior written notice of the new address and the date upon
which it will become effective.
13.3 INDEPENDENT CONTRACTOR. The parties hereby declare and agree that ACS
is engaged in an independent business, and shall perform its obligations under
this Agreement as an independent contractor; that any of ACS' personnel
performing the Services hereunder are agents, employees or
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 22
<PAGE>
subcontractors of ACS and are not agents, employees or subcontractors of
Customer; that ACS has and hereby retains the right to exercise full control of
and supervision over the performance of ACS' obligations hereunder and full
control over the employment, direction, compensation and discharge of any and
all of ACS' agents, employees, or subcontractors, including compliance with
workers' compensation, unemployment, disability insurance, social security,
withholding and all other federal, state and local laws, rules and regulations
governing such matters; that ACS shall be responsible for ACS' own acts and
those of ACS' agents, employees, and subcontractors; and that except as
expressly set forth in this Agreement, ACS does not undertake by this Agreement
or otherwise to perform any obligation of Customer, whether regulatory or
contractual, or to assume any responsibility for Customer's business or
operations. This Agreement shall not be deemed to create a partnership or joint
venture between the parties.
13.4 RELATIONSHIP OF PARTIES. Although the parties hereto are independent
contractors, this Agreement shall not, except as otherwise set forth herein,
create or imply an agency relationship between the parties. Pursuant to and
during the Term of this Agreement, ACS may, from time to time, request in
connection with various Software, hardware or other maintenance and license
agreements that Customer execute instruments and documents appointing ACS an
agent of Customer. Customer shall, in a timely manner, execute and deliver to
ACS or the third party requiring the same, such instruments designating ACS as
Customer's agent but only to the extent required by ACS to manage and perform
the Services.
13.5 SEVERABILITY. In the event any provision of this Agreement is held to
be unenforceable or invalid by any court of competent jurisdiction, the validity
and enforceability of the remaining provisions of this Agreement shall not be
affected and, in lieu of such invalid or unenforceable provision, there shall be
added automatically as part of this Agreement one or more provisions as similar
in terms as may be valid and enforceable under applicable law.
13.6 ENTIRE AGREEMENT. This Agreement, including any Schedules and
Services Addenda, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior and
contemporaneous representations, understandings or agreements, whether oral or
written, relating to the subject matter hereof. The terms of this Agreement
cannot be changed, released or discharged orally.
13.7 GOVERNING LAW. The validity, construction, and interpretation of this
Agreement and the rights and duties of the parties hereto, shall be governed by
the laws of the State of Texas, including its principles of conflict of laws.
13.8 VENUE AND JURISDICTION. The parties consent to venue in Dallas,
Texas, Pittsburgh, Pennsylvania, or Seattle, Washington, at the election of the
party bringing an action, and to the exclusive jurisdiction of the Courts of
such area, and the federal District Court for such area for all litigation
which may be brought, with respect to the terms of, and the transactions and
relationships contemplated by, this Agreement. The parties further consent to
the jurisdiction of any federal or
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 23
<PAGE>
state court located within a district which encompasses assets of a party
against which a judgment has been rendered, either through arbitration or
through litigation, for the enforcement of such judgment or award against the
assets of such party.
13.9 NO THIRD PARTY BENEFICIARIES. The provisions of this Agreement are
for the benefit of the parties hereto and not for any other person.
13.10 WAIVERS AND AMENDMENTS. Waiver by either party of any default by
the other party shall not be deemed a waiver by such party of any other default.
No provision of this Agreement shall be deemed waived, amended or modified by
either party, unless such waiver, amendment or modification is in writing and
signed by the authorized representative of the party against whom it is sought
to enforce such waiver, amendment or modification.
13.11 ORDER OF PRECEDENCE. In the event of any conflict or inconsistency
between provisions of this Agreement and any of the Services Addenda, the
provisions of the Services Addendum shall control; provided that the Agreement
and Services Addendum shall be interpreted so as to give effect to all
provisions in both to the extent reasonably practicable.
13.12 HEADINGS. The table of contents, if any, article, section and
paragraph headings contained in this Agreement are for reference purposes only
and shall not affect or enter into in any way the meaning or interpretation of
this Agreement.
13.13 COUNTERPARTS. This Agreement may be executed in several counterparts
all of which taken together shall constitute one single agreement between the
parties.
13.14 RIGHTS AND REMEDIES. Except as otherwise expressly provided herein,
the rights and remedies provided in this Agreement are cumulative and not
exclusive of any rights or remedies Customer and ACS could have at law or equity
or otherwise.
13.15 RESPONSE, CONSENT AND APPROVAL. Both parties agree not to withhold or
delay unreasonably its agreement, acceptance, response, consent, approval or
similar action where it is required under the terms of this Agreement.
13.16 OWNERSHIP OF MEDIA. Unless furnished or paid for by Customer, all
media upon which Customer data is stored is and shall remain the property of
ACS.
13.17 EXPENSES. The parties shall pay all of their respective expenses and
costs (including, without limitation, all counsel fees and expenses) in
connection with this Agreement and the consummation of the transactions
contemplated hereby. In the event of litigation with respect to this Agreement
or the performance by the parties hereunder, the costs and expenses, including
attorney fees, which are incurred by the prevailing party shall be paid by the
other party.
13.18 PUBLICITY. Each party will submit to the other all advertising,
written sales promotion, press releases and other publicity matters relating to
this Agreement in which the other party's name or mark is mentioned and will not
publish or use such advertising, sales promotion, press releases,
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 24
<PAGE>
or publicity matters without prior written approval of the other party.
Notwithstanding the above, either party may include the other party's name and a
factual description of the terms of and work performed under this Agreement on
employee bulletin boards, in its list of references and in the experiences
section of proposals to third parties, in internal business planning documents
and in its annual report to stockholders, and whenever required or appropriate
by reason of legal, accounting or regulatory requirements.
13.19 NO SOLICITATION: During the Term of this Agreement, and for a period
of one (1) year thereafter, the Parties agree that they will not solicit for
employment any employee of the other which is directly involved with, or relates
to the provision without the express written consent of the other party
Services.
13.20 SUBROGATION. Each party hereto hereby expressly waives any and all
rights of subrogation of any third party with respect to the other party under
this Agreement.
IN WITNESS WHEREOF, the parties hereto have each executed this Agreement by a
duly authorized officer as of the date indicated adjacent to their signatures
hereon.
ACS: CUSTOMER:
AFFILIATED COMPUTER SERVICES, INC. LAMONTS APPAREL, INC.
By: /s/ Larry Schinder By: /s/ Peter Aaron
-------------------------------- -----------------------------
Name: Larry Schinder Name: Peter Aaron
-------------------------------- -----------------------------
Title: SVP Title: Exec. V. P.
-------------------------------- -----------------------------
Date: 2/4/97 Date: 2/14/97
-------------------------------- -----------------------------
MASTER AGREEMENT FOR DATA PROCESSING
AND RELATED SERVICES - PAGE 25
<PAGE>
LEGACY OUTSOURCING SERVICES ADDENDUM
TO MASTER AGREEMENT FOR DATA
PROCESSING AND RELATED SERVICES
THIS LEGACY OUTSOURCING SERVICES ADDENDUM (the "Addendum") is entered into
by AFFILIATED COMPUTER SERVICES, INC. ("ACS") and LAMONTS APPAREL, INC.
("Customer") for the purpose of supplementing the terms of that certain Master
Agreement For Data Processing And Related Services (the "Master Agreement")
between ACS and Customer, as follows:
1. SERVICES. ACS agrees to provide, and Customer agrees to purchase, the
services described in this Addendum during the term of this Addendum and in
accordance with the terms and conditions set forth in the Master Agreement and
in the Schedules attached to this Addendum, such Schedules being incorporated by
reference herein and made a part of this Addendum for all purposes.
2. TERM. The term of this Addendum shall begin as of the Cutover Date
indicated below and shall continue for a period of thirty six (36) months
thereafter.
3. CONTROLLING TERMS. This Addendum is governed by all of the terms of
the Master Agreement; however, this Addendum may include certain exceptions to
the general terms in the Master Agreement and in such cases, the terms of this
Addendum shall control. The term "Agreement" as used herein shall mean and
refer to the Master Agreement as modified by this Addendum. All terms the
initial letter of which is capitalized which are used in this Addendum but which
are not specifically defined herein shall have the meanings as defined in the
Master Agreement.
IN WITNESS WHEREOF, the parties have executed this Addendum as of this 4
day of February, 1997.
ACS: CUSTOMER:
AFFILIATED COMPUTER SERVICES, INC. LAMONTS APPAREL, INC.
By: /s/ Larry Schinder By: /s/ Peter Aaron
-------------------------------- ------------------------------
Name: Larry Schinder Name: Peter Aaron
-------------------------------- ------------------------------
Title: SVP Title: Exec. V. P.
------------------------------- -----------------------------
LEGACY OUTSOURCING SERVICES ADDENDUM TO
MASTER AGREEMENT FOR DATA PROCESSING AND RELATED SERVCES - PAGE 1
<PAGE>
SCHEDULE "A"
TO LEGACY OUTSOURCING SERVICES ADDENDUM
STATEMENT OF WORK
DEFINITION OF TERMS:
The following terms shall have the meanings set forth below where used herein
and identified with initial capital letters:
"ACS NETWORK" is the Network provided by ACS over which data is transmitted to
and from the ACS Facility to and from the Customer Facility.
"BATCH PROCESSING TIME" is the time by which ACS is required to complete the
processing of the scheduled batch processing jobs submitted by Customer pursuant
to an agreed schedule.
"CENTRAL SYSTEM AVAILABILITY" is available when MVS and its critical components
are up and operational so that any user system with all its specific components
can be run. Failures that impact the ability of specific systems to operate
will be counted against availability of those specific systems.
"CUSTOMER NETWORK" is the Network provided by Customer or which may be provided
by ACS pursuant to another Services Addendum, over which data is transmitted to,
from and within the Customer Facility and Customer's other facilities.
"CUTOVER DATE" is the date on which ACS begins to provide the Services, which
the parties anticipate will be on or before March 8, 1997.
"DASD" means a direct access storage device utilized for computer storage of
data that can respond directly to random requests for information.
"INTERNAL SYSTEM RESPONSE TIME" is the time required to process a data
processing trivial transaction beginning when the transaction is presented to
the CPU from the Network and continuing until the transaction is presented back
to the Network.
"LEGACY SOFTWARE" is the Customer application Software described in SCHEDULE "E"
to this Addendum.
"LEGACY WORKLOAD" is the series of on-line and batch application programs
executed by and on behalf of Customer.
SCHEDULE "A" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 1
<PAGE>
"MAINTENANCE PROGRAMMING" is the normal programming required, at the agreed upon
programming staffing levels, to keep Customer's Legacy Software operational at
the level of service provided in SCHEDULE "B" to this Addendum.
"NETWORK" is the telecommunication network architecture comprised of a
compilation of telecommunications circuits and related telecommunications
hardware and software required to allow electronic communications of data.
"NETWORK ACTUAL UPTIME" is the total number of hours the ACS Network is actually
available for use.
"NETWORK SCHEDULED DOWNTIME" is the total number of hours during which the ACS
Network is scheduled by ACS to be unavailable for use as reasonably deemed
necessary by ACS, which schedule will be provided to Customer.
"NETWORK SCHEDULED UPTIME" is the total number of hours in the month during
which the ACS Network is scheduled to be available for use and is determined by
subtracting Network Scheduled Downtime from Scheduled Hours.
"ONLINE SYSTEMS AVAILABILITY" are available when all components of the online
systems under the control of ACS 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 ACS or due to actions of the Customer or the
failure of the Customer to take necessary actions in a timely manner will not be
counted in determining ACS'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 provided reliability.
For example, if 10% of two hours, or 12 minutes, will be counted against
scheduled uptime. It will be the responsibility of Customer to supply ACS the
respective percentages for the failure of any component. The percentages for
each component may reflect the importance of the component to Customer 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 Customer to supply the ACS with the scheduled hours of
availability for all its online applications and file transactions.
"POINT OF PRESENCE" is the point up to and including which ACS has financial and
operational responsibility, which at the Customer Facility is the controller and
cable connection to the Network equipment provided by Customer or which may be
provided by ACS pursuant to another Services Addendum.
SCHEDULE "A" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 2
<PAGE>
"SCHEDULED HOURS" are the total number of hours in a month and is calculated by
multiplying the number of calendar days in the month by twenty-four (24).
"SYSTEM ACTUAL UPTIME" is the total number of hours the System Software is
actually executing and available.
"SYSTEM SCHEDULED DOWNTIME" is the total number of hours during which the System
Software is scheduled by ACS to be unavailable for use due to such things as
preventive maintenance to hardware, system upgrades, etc.
"SYSTEM SCHEDULED UPTIME" is the total number of hours the System Software is
scheduled to be available and is calculated by subtracting System Scheduled
Downtime from Scheduled Hours.
"SYSTEM SOFTWARE" is the binary code provided with license by the hardware
manufacturer for the purpose of program execution and interaction with the
devices at the hardware level.
"TECHNICAL ASSISTANCE CENTER" OR "TAC" is the department of personnel provided
by ACS at the ACS Facility for the purpose of facilitating delivery by ACS of
the Services, including responding to inquiries and requests for technical
assistance by Customer with respect to the operation by Customer of the Customer
Network.
"VTAM" is an IBM Systems Software Program otherwise known as Virtual Terminal
Access Method.
ARTICLE I
PROCESSING SERVICES
A. HARDWARE
Beginning on the Cutover Date and continuing through the term of this Addendum
on a Full Time Basis, ACS shall provide the computer equipment described on
SCHEDULE "G" to this Addendum to provide processing power (i.e. CPU cycles) to
support the Legacy Workload. ACS shall perform such processing on an existing
or an acquired processor. Customer shall provide and maintain at the Customer
Facility all end user devices and printers required or deemed necessary by
Customer. If either party wants to change such environment, then the parties
shall each exercise commercially reasonable efforts in good faith to agree to
the requirements therefor.
ACS shall provide DASD capacity to support the Legacy Workload. ACS may
configure DASD storage differently than Customer because of differences in
storage media availability; provided, however, substantially equivalent
performance shall be provided.
SCHEDULE "A" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 3
<PAGE>
ACS may alter the DASD configuration as ACS shall deem appropriate, including
for changes in technology, replacement of old and/or unreliable equipment, etc.
and ACS may also alter the tape subsystem with replacement hardware, different
features (e.g. data compression), an alternative configuration, or use of an
automated tape library system; provided, however, substantially equivalent
performance shall be provided with prior notification and approval by Customer,
which approval shall not be unreasonably withheld.
B. COMPUTER OPERATIONS
Beginning on the Cutover Date and continuing through the term of this Addendum,
ACS shall perform all day-to-day functions necessary to operate and support the
mainframe and associated peripherals and related subsystems located at the ACS
Facility as required to perform the Services. These functions include, but are
not limited, to the following:
1. All Legacy Workload system processing.
2. Monitoring of the operating system and Legacy Workload system processing.
3. Vendor interfaces related to hardware located in the ACS Facility.
4. Maintenance of the ACS Facility related to the Legacy Workload.
C. OPERATIONS CONTROL
Beginning on the Cutover Date and continuing through the term of this Addendum,
ACS shall perform the following operations control functions:
1. Maintain a Standards Manual which shall describe the essential processes to
be followed in the operation of the hardware located at the ACS Facility.
2. Provide problem determination and resolution for the Legacy Workload
related problems.
3. Measure service levels pursuant to SCHEDULE "B" to this Addendum and report
them on a regularly scheduled basis.
4. Implement corrective action where required to eliminate operating system,
subsystem or hardware related performance problems.
5. Document and report on open problem logs for those problems that are the
responsibility of ACS, and provide reports to Customer for those problems
that are the responsibility of Customer.
SCHEDULE "A" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 4
<PAGE>
D. TAPE LIBRARY
Beginning on the Cutover Date and continuing through the term of this Addendum,
ACS shall perform the following tape library functions at the ACS Facility:
1. Pull and file tapes (cartridge and reel) as required to fulfill the batch
processing requirements pursuant to the provisions of this SCHEDULE "A".
2. Mount and dismount tape media.
3. Pull scratch tapes, maintain vault patterns and other functions related to
the management of the tape library via software tools.
4. Log and track Customer's tape media coming into and leaving the ACS
Facility.
5. Preparing the daily shipment of tapes to off-site retention, and refiling
the tapes when returned.
E. PRINT
Except as may be provided in another Services Addendum, Customer shall be
responsible for the costs associated with maintenance of the printer equipment
located at the Customer Facilities.
F. LEGACY PRODUCTION CONTROL
Beginning on the Cutover Date and continuing through the term of this Addendum,
ACS shall be responsible for management, scheduling, monitoring, and first level
problem determination for Customer's batch data processing portion of the Legacy
Workload. First level problem determination includes evaluating and correcting
environmental problems at the ACS Facility, including problems with DASD, tape
files and batch system set-up. In that regard, ACS shall:
1. Develop and maintain schedules for the production Legacy Workload via
automated scheduling Software or otherwise as determined by ACS.
2. Monitor production Legacy Workload processing and adjust as necessary based
on changing Customer priorities, schedules, or application modifications.
3. Provide an interface with application programmers, analysts and end-users
for status reporting, assistance during problem determination, coordination
of schedules, and changes to applications.
4. Provide first level problem determination when an application system fails
and coordinate support based on instructions provided by Customer, from
users, programmers, and analysts.
SCHEDULE "A" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 5
<PAGE>
5. Coordinate and manage application "restores" via use of a program restart
Software product.
6. Schedule, submit, and manage application and system backup processes as
directed by Customer.
G. LEGACY SYSTEM SUPPORT
Beginning on the Cutover Date and continuing through the term of this Addendum,
ACS shall be responsible for maintenance, upgrades, problem trouble-shooting and
correction for the following Systems Software support functions:
1. Operating System Software and database management systems.
2. Communications Software.
3. Other Systems Software and systems management products, performance,
tuning, and monitoring tools and date base administration and programming
tool kits.
H. TECHNICAL ASSISTANCE CENTER, PROBLEM MANAGEMENT, AND CHANGE CONTROL
Beginning on the Cutover Date and continuing through the term of this Addendum,
ACS shall provide a Technical Assistance Center for the Services which shall
provide the following functions:
1. Problem logging, problem determination and problem resolution for calls
received from Customer related to Legacy Workload processing.
2. Forwarding to Customer problems that cannot be resolved according to agreed
upon procedures. The parties agree that they will use good faith efforts
to work together to develop and complete these procedures to each party's
satisfaction during the Transition Period and prior to the Cutover Date.
3. Maintaining a log of problem calls that cannot be resolved and the status
thereof. In cases where a problem was forwarded to Customer for problem
determination and resolution, Customer shall establish and follow
procedures to provide resolution status to ACS.
I. NETWORKS
Beginning on the Cutover Date and continuing through the term of this Addendum,
ACS shall be responsible for the following ACS Network responsibilities:
SCHEDULE "A" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 6
<PAGE>
1. Providing the necessary hardware, software, and interfaces with third party
vendors as necessary to ensure that performance on the communications link
meets the performance standards identified in SCHEDULE "B" to this
Addendum.
2. Confirming, coordinating, managing and monitoring the installation and
maintenance by third party vendors of the telecommunications lines and
equipment providing the telecommunications connection between the ACS
Facility and the Customer Facility.
Except as may be provided in another Services Addendum, Customer shall be
responsible for communications beyond the Point of Presence.
ACS may elect to use a different method of network connectivity during the term
of this Addendum, provided that such different method has a substantially
equivalent performance, with prior notification and approval by Customer, which
may not be unreasonably withheld.
J. REPORTING
ACS and Customer agree to use good faith efforts to mutually agree within sixty
(60) days after the date of this Addendum upon the method, timing, and format of
reporting ACS' performance of the Services under this Addendum.
K. THIRD PARTY SERVICES
Customer hereby represents that Customer has agreements with the third party
vendors described in SCHEDULE "J" to this Addendum, that Customer has furnished
to ACS complete and accurate copies of such agreements, that such agreements are
in full force and effect, that no default exists thereunder and that no event
has occurred which with notice and or the passage of time would constitute a
default thereunder has occurred. In reliance on such representations by
Customer, ACS and Customer agree as follows:
1. ACS will accept assignment from Customer of all such agreements and, upon
consummation of such assignments, will be responsible for future payments and
expenses which accrue after the Cutover Date.
2. Customer is responsible for obtaining approvals for assignment of such
agreements.
3. ACS shall administer and manage all nontransferable contracts for third
party services used solely to provide the Services and shall assume
responsibility for all payments and expenses.
ARTICLE II
LEGACY PROGRAMMING AND MAINTENANCE SERVICES
SCHEDULE "A" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 7
<PAGE>
Except as provided in this Agreement, the Services described below will be
provided on an ad hoc basis during the term of this Addendum.
DATABASE SUPPORT
ACS will provide ad hoc system level support of Customer's current database
software products. This support includes:
1. Planning and implementation of new releases of vendor supplied program
maintenance.
2. Managing database placement on DASD.
3. Monitoring and reporting on individual database performance, storage
capacity and other statistics as required.
4. Working with applications programming staff regarding database definitions
and ensuring that database changes are made in accordance with approved
system change control procedures.
ACS may contract with third parties for database administration to support
Customer database requirements and the maintenance of existing database if
required. The costs associated with these activities will be passed through to,
and paid by, Customer in accordance with the provisions of this Agreement.
ACS agrees that it will provide Customer up to twelve (12) hours per month of
Database Support as detailed above at no additional charge. Any Services above
this twelve (12) hour allotment will be billed at the rates set forth in
Schedule C.2. of this Addendum.
SCHEDULE "A" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 8
<PAGE>
SCHEDULE "B"
TO LEGACY OUTSOURCING SERVICES ADDENDUM
PERFORMANCE STANDARDS
ACS agrees to perform the Services and agrees that with respect to such
performance, ACS shall meet or exceed the Performance Standards set forth in
this SCHEDULE "B". The agreement by ACS to meet or exceed such Performance
Standards is subject to and conditioned upon the representation by Customer that
Customer has historically achieved and regularly and consistently operated under
such Performance Standards during the twelve (12) month period immediately
preceding the date of this Addendum. In that respect, prior to the Cutover
Date, Customer shall provide ACS with information to validate Customer's actual
historical performance for those areas affected by the Performance Standards.
In the event that Customer's relevant actual historical performance of the
Performance Standards is lower than as stated, the Performance Standards shall
be automatically revised as necessary in order to reflect Customer's actual
historical performance until such time ACS can determine cause and effect remedy
to meet customer stated performance standards (Customer shall bear all cost
associated with the effected remedy).
Customer and ACS acknowledge and agree that the results of the calculations of
the Performance Standards shall be adjusted for purposes of determining if a
material breach of this Agreement has occurred, to take into account any
excusable delay for which ACS is not responsible pursuant to Section 9.4 of this
Agreement and any failure attributable to delays or disruptions caused by
Customer.
The following Performance Standards and Minimum Performance Standards shall
apply to the indicated Services:
A. RELIABILITY AND PERFORMANCE OBJECTIVES
Provider will achieve the following Performance Standards:
Central system availability: 99.7% of the stated system availability,
measured monthly
(See note 3)
Online systems availability: 98.5% of the stated system availability,
measured monthly
(See note 1)
SCHEDULE "B" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 1
<PAGE>
Response time:
Production CICS (overall 2 seconds
average response time as (See note 5)
measured monthly)
TSO (overall average response 1 second
time as measured monthly, for (See note 2)
first period transactions)
Batch processing performance:
Batch queue time 1.5 minutes
(See note 4)
Batch workflow (Interim service level for 3084Q)
Production - Prime Shift 75%
Production - Off Shift 80%
Test 65%
A replacement technology independent
measurement to be developed jointly.
Note 1: 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.
Note 2: First period TSO (defined as a TSO transaction with less than 20
I/O's, exclusive of any database access) response time will be calculated
by subtracting the difference between the total and first period TSO
response times as reported by RMF from the overall response time reported
from RTM.
Note 3: Central System Availability will be measured by the ability of the
Provider to provide a basic system.
Note 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.
Note 5: 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.
SCHEDULE "B" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 2
<PAGE>
Schedule 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 limited 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 notifies Client prior to any such delay. 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.
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
------------------------ -------
127- 480 $ 5,000
481- 1,440 $10,000
1,441- 2,880 $15,000
ACS will be assessed a penalty of $5,000 for each increment of 1440
minutes above 2880 minutes in which Customer experiences, Central
System unavailability; however, the amount of any such penalty cannot
exceed the lesser of : (i) one month's invoice for the affected
Service element or (ii) $25,000.
b. All interruptions with a duration of less than 127 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.
CLIENT'S RESPONSIBILITY IN MEETING PERFORMANCE OBJECTIVES
SCHEDULE "B" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 3
<PAGE>
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 sure 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.
-Availability
-Central System Availability
-CPU
-CPU equivalent hour
-DASD
-Gigabytes-hours
-Online systems availability
-Reliability
-Tail circuit
-Volume
-Workflow
SCHEDULE "B" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 4
<PAGE>
SCHEDULE "C"
TO LEGACY OUTSOURCING SERVICES ADDENDUM
FEES
1. CHARGES FOR PROCESSING
A. CHARGES FOR CPU RESOURCES
Customer CPU utilization includes all CPU time consumed by Customer's
processing tasks, including all Customer batch jobs, data file
backups, on-line subsystems, and all Customer specific processing.
Customer CPU utilization shall not include CPU resources consumed by
the operating system, including the Power and VTAM subsystems, nor for
the CPU resources consumed by operating system software maintenance
tasks, or by backup processing required by ACS.
The unit of billing for CPU resources shall be on IBM 3090-300J
equivalent CPU hour. The fee per CPU hour shall be $210.00.
B. CHARGES FOR DASD
Customer DASD utilization includes all DASD space which is allocated
to Customer or which is dedicated to Customer's use and unavailable to
ACS for other purposes. Customer may request that ACS remove DASD
which is dedicated to Customer and ACS shall comply within thirty (30)
days of such written request; provided however, the minimum amount of
dedicated DASD which Customer can request to be removed at any one
time is ten (10) Gigabytes, unless otherwise agreed by the parties ACS
agrees that it will not unreasonably withhold it's consent for a
removal of less than ten (10) Gigabytes of data.
Customer DASD utilization shall not include storage required for
"spare" volumes or for DASD volumes which resides on the same DASD
strings as Customer data but which are not required to support
Customer's storage requirements.
The monthly charge for DASD will be $75.00 per gigabyte of disk space.
C. CHARGES FOR TAPE MOUNTS
All tape mounts shall be charged at a monthly rate of $.70 per mount.
This charge shall apply to both cartridge and reel tapes. (Tapes
generated by ACS for the purpose of full pack backups shall not be
included in this charge.)
SCHEDULE "C" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 1
<PAGE>
D. CHARGES FOR SOFTWARE
Customer shall be billed a rate of $7,500 per month for all Software
utilized by ACS in the provision of the Services (and as further
identified in Schedule E.2 to this Addendum).
E. CHARGES FOR TAPE STORAGE
Customer shall be charged $.35 per month for each cartridge or reel
tape stored at the ACS Facility or at an off-site location selected by
ACS. The cost for tape storage shall be computed as follows: (Tapes
used for ACS required backups shall not be included in this charge.)
Number of cartridge and reel tape storage days x $
--------------------------------------------------------
number of days in the billing month
F. CHARGES FOR DATA COMMUNICATIONS SERVICES
The telecommunications circuits and equipment charges set forth below
in this SCHEDULE "C" are based on the use by Customer of the
telecommunications circuits and equipment identified in SCHEDULE "G"
to this Addendum. Any increases or decreases in the charges imposed
by the telecommunications circuit vendor will be for the account of
Customer, and the charges set forth herein will be adjusted
accordingly for all periods after the effective date of any such
change. To the extent Customer adds to or deletes from the
telecommunications circuits or equipment indicated in SCHEDULE "G",
the charges set forth herein shall be adjusted accordingly.
ACS will provide the necessary hardware, Software, and configuration
management to allow ACS to monitor and support the ACS Network
remotely on a Full-Time Basis. ACS will be responsible for the
installation, configuration, testing, and support of the ACS Network
configuration. These Services will be provided to Customer for the
following monthly Fees:
<TABLE>
LAMONTS MAINFRAME CONNECTIVITY
One Time Installation Charges Monthly Recurring Charges
----------------------------- -------------------------
<S> <C> <C>
WDC FR 512k pt/224K pvc (Pgh) 1 $1,273.62
WDC FR 256k pt/128 pvc (Seattle) 1 $ 975.96
WDC FR 56k pt/32k pvc 1 $ 328.66
WDC FR 56k pt/323k pvc 1 $ 333.50
WDC FR 56k pt/16k pvc 1 $ 295.34
WDC FR 56k pt/16k pvc 1 $ 338.21
</TABLE>
SCHEDULE "C" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 2
<PAGE>
- -USW ISDN 1B+D Seattle 5 $1,750.00 $ 325.00
- -BATL ISDN 1B+d 412-788 1 $ 369.75 $ 40.00
- -Business line (diagnostics) 6 $2,100.00 $ 120.00
G. CHARGES FOR DISASTER RECOVERY SERVICES
Customer shall pay ACS for the Disaster Recovery portion of the
Services an amount equal to $2,230 per month.
H. MINIMUM CHARGES
The minimum monthly fees payable for the services is $50,000,
commencing on the Cutover Date, irrespective of whether or not
Customer's consumption of the individual components comprising the
services would result in invoices totally such amount.
2. GENERAL RATES FOR PROFESSIONAL SERVICES AS OF JULY, 1995
The following rates are intended to be used as a general guideline and can be
affected by specific hardware and software, level of experience required,
application complexity, and market conditions, and may be revised without
notice.
Programmer Level I $35.00-45.00 hr
Programmer Level II $40.00-50.00 hr
Sr. Programmer Analyst $60.00-80.00 hr
Systems Analyst $50.00-60.00 hr
Sr. Analyst/Project Manager $70.00-100.00 hr
LAN/WAN Administrator $40.00-65.00 hr
Technical Writer $25.00-55.00 hr
PC Support $30.00-45.00 hr
Customer Support/Software Testing $38.00-48.00 hr
Database Administrations/Database Design $65.00-90.00 hr
Systems Administration $65.00-90.00 hr
3. MISCELLANEOUS FEES
A. ACS FACILITY PRINT CHARGES
ACS will provide Customer with print services at the ACS Facility at a
charge of $.027 per page. Customer will be responsible for
transportation costs of printed reports from the ACS Facility to the
Customer Facility and for special forms used.
SCHEDULE "C" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 3
<PAGE>
B. MICROFICHE AND ARCHIVING CHARGES
ACS will provide microfiche services to Customer at an ACS facility
for a charge of $1.00 per original fiche and $0.09 per duplicate fiche
produced. Customer will be responsible for transportation costs from
such ACS facility to the Customer Facility.
4. TERMINATION CHARGES:
Subject to the provisions of 8.3 (d) of the Agreement, upon termination of this
Addendum and in accordance with the provisions of Section 8.7 of the Agreement,
Customer shall pay ACS the following amounts (all of such amounts shall be
referred to herein as the "Termination Charges"):
a. all Fees and other charges accrued through the termination date; plus
b. remainder of any unpaid amounts due under this Addendum; plus
c. an amount equal to $20,833.33 multiplied by number of months remaining in
the Term.
Notwithstanding the above, Customer agrees that it will not terminate this
Agreement for any reason (other than ACS's breach or default) during the initial
twelve (12) month period of the contract term.
SCHEDULE "C" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 4
<PAGE>
SCHEDULE "D"
TO LEGACY OUTSOURCING SERVICES ADDENDUM
CUSTOMER'S RESPONSIBILITIES
1. Except as may be provided in this Addendum or in another Services Addendum,
Customer will retain responsibility for and manage all equipment outside
the Point of Presence.
2. Except as may be provided in this Addendum or in another Services Addendum,
Customer will also be responsible for the following:
a) End User Support - Providing support to Customer's local and remote
application software users in the areas of (i) applications software
training, and (ii) problem resolution specific to the use, development and
modification of the applications software.
b) Reporting - Reporting the applications software problem resolution to
the Technical Assistance Center.
c) Communications -Providing the necessary communication devices (pagers,
cellular telephones, etc.), to Customer's personnel for problem escalation
and resolution purposes.
d) Applications Software - All areas applicable to the applications
software (both vendor supplied and in-house developed), including the
following: migration to new releases, upgrades of existing applications,
customization of existing applications, development of new applications,
testing of new releases and modifications, documentation, debugging
problems, applying application fixes, etc.
SCHEDULE "D" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 1
<PAGE>
SCHEDULE "E"
TO LEGACY OUTSOURCING SERVICES ADDENDUM
SOFTWARE PROGRAMS AND LICENSES
1. SOFTWARE TO BE PROVIDED BY CUSTOMER:
A) THIRD PARTY SOFTWARE:
1) TO BE OPERATED BY ACS AS AN AUTHORIZED PROCESSOR:
The following Third Party Software licensed by Customer as of the
date of this Addendum shall be subject to the provisions of this
Section 1 (A)(1):
VENDOR SOFTWARE PRODUCT / DESCRIPTION
DDA Accounts Payable
PRJ ARBS (basic stock replenishment)
PRJ Distribution Center Proc
DDA General Ledger
DDA Generalized Systems
Ceridian Payroll
Comshare Performance Tracking
Comshare System W
Comshare Commander
Comshare Planning
PRJ Price Management
PRJ Purchase Order Management
CRS Sales Audit
PRJ Stock Status System
Customer shall retain the license and shall continue as the
licensee of the above described Third Party Software, but same
shall be made available for use by ACS as Customer's authorized
processor to provide the Services during the term of this
Addendum. In that regard, as of the date of this Addendum, and
subject to the provisions of 2.7(b) of the Agreement, Customer
hereby appoints ACS as Customer's agent to represent Customer in
obtaining consent from these Software Licensors to such usage.
Customer shall pay all expenses to obtain such consent. In the
event ACS is unable to obtain such consent after reasonable
effort, the parties shall exercise reasonable efforts in good
faith to mutually agree on the appropriate alternative therefor.
Customer is responsible for all costs associated with these Third
Party Software Licenses, including maintenance agreement costs.
This Third Party Software shall be
SCHEDULE "E" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 1
<PAGE>
retained by Customer after the date of this Addendum and shall
not be transferred to ACS.
All additional Third Party Software purchased by Customer over
the term of this Addendum shall be identified by Customer within
sixty (60) days of the purchase of same, and shall be subject to
the provision of this Section.
2) TO BE ASSIGNED TO ACS:
The following Third Party Software licensed by Customer as of the
date of this Addendum shall be subject to the provisions of this
Section 1 (A)(2):
VENDOR SOFTWARE PRODUCT / DESCRIPTION
------ ------------------------------
[ NOT APPLICABLE ]
(B) CUSTOMER SOFTWARE:
The following Customer Software is all of the Customer Software as of
the date of this Addendum:
SOFTWARE PRODUCT / DESCRIPTION
------------------------------
Gift Certificates
Invoice Processing
Item SKU
Sales Planning
Sale Reporting/Analysis
Stock Ledger
Stock Status Reporting
Stock to Sales
UPC Processing
Employee Performances
Sales Audit
Fashion Reporting
Transfers and Adjustments
Customer hereby grants ACS, at no charge, the right to use any
Customer Software, including the Customer Software referenced above,
for the sole purpose of providing the Services to Customer.
All Customer Software not included in the above list as of the date of
this Addendum shall be identified by Customer within sixty (60) days
of the date of this Addendum,
SCHEDULE "E" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 2
<PAGE>
and shall be subject to the provisions of this Section. Customer
shall provide ACS with written notice of all Customer Software which
may be developed by Customer over the term of this Addendum within
sixty (60) days of the development of same, and such Customer Software
shall be subject to the provisions of this Section.
2. SOFTWARE TO BE PROVIDED BY ACS:
As of the date of this Addendum, the ACS Software to be utilized to provide the
Services includes the following:
SOFTWARE PRODUCT / DESCRIPTION
------------------------------
MVS/ESA IBM PRODUCTS
--------------------
ASSEMBLER HL
BTAM/SP
CACHE RMF
CICS/MVS
COBOL II
CSP/AD
CSP/AE
DB2
DFP
DCF
DFSMS
DFDSS
DFHSM
DITTO
DITTO/EXT
DSF
EP
EREP
GDDM
ICFRU
ISPF/PDF
JES328X PRT
MVS/ESA JES2
MVS ESA SPV4
MVS SCP
JES2 SP 4.2
NCP
NETVIEW
NETVIEW/DM
QMF
IRLM
RACF
RMF
SDF/CICS
SCHEDULE "E" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 3
<PAGE>
SDSF
SLR
SMP/E
SSP
TSO/E
VS COBOL
VTAM
3270 PC FTP
MVS/ESA NON-IBM PRODUCTS
------------------------
CA-AUTOMATE
CA-AUTOMATE
CA-90S
CA-DOCVIEW
CA-CORP/TIE
CA-DYNAM/TLM
CA-EARL
CA-EASYTRIEVE
CA-EZ/ESP
CA-EZ/IQ
CA-EXP DEL
CA-IDMS
CA-INSIGHT/DB2
CA-INTEREST
CA-JARS
CA-JCLCHECK
CA-MGR
CA-OPTIMIZER
CA-PANVALET
CA-PAN/ISPF
CA-PAN/SQL
CA-SAR
CA-SMFI
CA-VCIVCSS
CAFC
CPK
FDR/DSF
SYNCSORT/OS
T-MON/CICS
T-MON/MVS
GOAL SUBSYSTEM
ODEII
STOPX37
The parties expressly acknowledge and agree that ACS may provide additional,
substitute and/or replacement ACS Software during the term of this Addendum with
prior notification's approval by client.
SCHEDULE "E" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 4
<PAGE>
SCHEDULE "F"
TO LEGACY OUTSOURCING SERVICES ADDENDUM
DISASTER RECOVERY PLAN
1. DISASTER RECOVERY:
The Disaster Recovery Plan shall provide for disaster recovery capability for
Customer's processing environment using ComDisco, Inc. or a similarly qualified
alternative, as determined by ACS. The Disaster Recovery Plan capability shall
provide for continued satisfaction of Customer's requirement to have an
operating system available for executing essential functionality of critical
applications included within the Services, as defined by Customer, within forty-
eight (48) hours of a declared disaster.
Either ACS or Customer can formally declare a disaster for purposes of
activating the Disaster Recovery Plan. Only ACS can formally declare a disaster
with a recovery provider. Application recovery shall remain the responsibility
of Customer. The recovery of the ACS Network connection to the Customer Network
and/or the Customer Facilities is a shared responsibility.
2. ACS' RESPONSIBILITIES:
A. The following functions shall be responsibilities of ACS:
1) Maintain and publish the Disaster Recovery Plan.
2) Provide Customer with the name and contact information of the ACS
disaster recovery coordinator.
3) Maintain a mirror image of the Customer operating environment for
the disaster recovery hotsite.
4) Review and maintain the DASD backup and off-site storage
requirements to assure timely recovery of the computing
environment at the hotsite.
5) Conduct one annual walk-through of Customer's disaster recovery
plan, and (subject to Customer's full cooperation) one annual
test of Customer's disaster recovery plan (as scheduled by ACS
and agreed to by Customer).
6) Assure that Customer's data is completely erased from disaster
recovery hotsite DASD storage following a test.
SCHEDULE "F" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 1
<PAGE>
7) Keep network equipment owned by Customer in the ACS Facility to
aid network recovery as appropriate and agreed to by Customer, if
Customer provides ACS with said equipment.
8) Support and assist with testing of any dedicated
telecommunications network, as applicable, upon request by
Customer.
B. The following functions shall be the responsibilities of ACS in the
event of a disaster:
1) Formally declare a disaster with the disaster recovery provider.
2) Notify the Customer disaster recovery coordinator that a disaster
has occurred.
3) Notify the ACS disaster recovery teams that a disaster has been
declared.
4) Have magnetic tape media from the ACS offsite storage facility
delivered to the disaster recovery hotsite.
5) Establish the Customer's environment for execution of essential
functionality of critical application systems identified in the
Customer's plan.
6) Work with Customer and common carriers to establish the Customer
network connection to the hotsite.
7) Establish all critical Customer sub-systems at the hotsite.
3. CUSTOMER'S RESPONSIBILITIES:
A. Except as otherwise provided in another Services Addendum, the
following functions shall be ongoing responsibilities of Customer:
1) Maintain the Customer Network disaster recovery plan and conform
Customer's existing plan to the Disaster Recovery Plan.
2) Provide ACS with names and contacts of Customer's disaster
recovery coordinators.
3) Participate in the ACS annual walk-through and test of the
Disaster Recovery Plan.
4) Assist ACS in the deletion of Customer's data at the hotsite upon
completion of a test.
SCHEDULE "F" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 2
<PAGE>
B. Except as otherwise provided in another Services Addendum, the
following functions shall be the responsibility of Customer in the
event of a disaster:
1) Notify ACS of a disaster if Customer is first to know of a
disaster.
2) Notify members of Customer's disaster recovery teams that a
disaster has been declared.
3) Work with ACS and common carriers to establish network connection
to the hotsite.
4) Provide primary interface to Customer's users, application
programming support personnel and analysts.
5) Provide recovery for critical applications systems after critical
subsystems are brought up.
SCHEDULE "F" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 3
<PAGE>
SCHEDULE "G"
TO LEGACY OUTSOURCING SERVICES ADDENDUM
EQUIPMENT AND TELECOMMUNICATIONS CIRCUITS AND LINES
1. EQUIPMENT TO BE ACQUIRED BY ACS FROM CUSTOMER:
[ DOES NOT APPLY]
2. TELECOMMUNICATIONS EQUIPMENT TO BE PROVIDED BY ACS:
Description & Model Quantity
------------------- --------
ISX 5300 V35 1-DS1 (ACS&Seattle) 2
V35 ISX5300 Cable 2
TI ISX5300 Demark Cable 2
Rack Mount kit 1
NMS NM1 Cable 2
Demark 8-mod 2
DAP DSU 232/V35 (4 remotes) 4
V35 DSU Cable 5956-879Y-10 4
NMS NMI Cable 4
Frad 4200 8 port (Seattle) 1
V35 DSU Cable AV35DTEM 6
AV35DCE Cable 1
A232DCE Cable 8
Frad 4200 TR port (ACS) 1
Sync Mrrg&Talk 1
PC CMS plateform 1
CMS DMM90 1
FF200 Base (Remotes) 4
RS232 modules 3
V35 modules 1
ISDN Module 4
SDLC 1-4 port key 4
BRI 2000 ISDN TIU 2
Demark Cable 5956-149G-25 2
V35 ADAP 5956-744R-2 2
RENEX
TMS4 Protocol Converter 1
CABINET, MISC CABLES, ETC.
Async dial modems 7
Cabinet 1
Enet filter 1
rs232, power, v35 1
SCHEDULE "F" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 1
<PAGE>
3. TELECOMMUNICATIONS CIRCUITS AND LINES TO BE PROVIDED:
a. By ACS
Description & Model Quantity
------------------- --------
WDC FR 512k pt/224K pvc (Pgh) 1
WDC FR 256k pt/128 pvc (Seattle) 1
WDC FR 56k pt/32k pvc 1
WDC FR 56k pt/323k pvc 1
WDC FR 56k pt/16k pvc 1
WDC FR 56k pt/16k pvc 1
- -USW ISDN 1B+D Seattle 5
- -BATL ISDN 1B+d 412-788 1
- -Business line (diagnostics) 6
b. By Customer
Description & Model Quantity
------------------- --------
[ DOES NOT APPLY]
SCHEDULE "G" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 2
<PAGE>
SCHEDULE "H"
TO LEGACY OUTSOURCING SERVICES ADDENDUM
EMPLOYEES AND EMPLOYEE BENEFITS
[ INTENTIONALLY OMITTED ]
SCHEDULE "H" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 1
<PAGE>
SCHEDULE "I"
TO LEGACY OUTSOURCING SERVICES ADDENDUM
ADDITIONAL SERVICES REQUEST FORM
NOTE: This form is a SAMPLE and may be revised by mutual agreement of the
parties.
ADDITIONAL SERVICES REQUEST FORM
FAX To: ______________________________________________________________________
FAX Number: __________________________________________________________________
From: ________________________________________________________________________
Phone #: _____________________________________________________________________
Pager #: _____________________________________________________________________
Date of Request: ______________________ Time of Request: ____________________
Priority: Emergency _______ High _____ Medium _____ Low ______
Please respond by:
_______________________________________________________________________________
Please respond to:
_______________________________________________________________________________
(Enter name if different from above)
DESCRIPTION OF ADDITIONAL SERVICES REQUEST (work to be performed)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Check here if additional information is attached: ____)
SCHEDULE "I" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 1
<PAGE>
SCHEDULE "J"
TO LEGACY OUTSOURCING SERVICES ADDENDUM
CUSTOMER'S THIRD PARTY VENDOR AGREEMENTS
WHICH ARE TO BE ASSIGNED TO ACS
[DOES NOT APPLY]
SCHEDULE "J" TO
LEGACY OUTSOURCING SERVICES ADDENDUM - PAGE 1
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to incorporation by reference in the Registration Statement of
Lamonts Apparel, Inc. on Form S-8 (File No. 33-6872) 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 March 28,
1997 on our audits of the consolidated financial statements of Lamonts Apparel,
Inc. as of February 1, 1997, February 3, 1996, January 28, 1995, and the 52
weeks ended February 1, 1997, the 53 weeks ended February 3, 1996, the
quarter ended January 28, 1995 and the 52 weeks ended October 29, 1994, which
report is included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND
Seattle, Washington
May 2, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 2,066
<SECURITIES> 0
<RECEIVABLES> 1,595
<ALLOWANCES> 0
<INVENTORY> 37,559
<CURRENT-ASSETS> 43,462
<PP&E> 30,653
<DEPRECIATION> 0
<TOTAL-ASSETS> 93,272
<CURRENT-LIABILITIES> 46,819<F1>
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> (59,732)
<TOTAL-LIABILITY-AND-EQUITY> 93,272
<SALES> 203,602
<TOTAL-REVENUES> 203,602
<CGS> 130,480
<TOTAL-COSTS> 130,480
<OTHER-EXPENSES> 85,379<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,053
<INCOME-PRETAX> (17,298)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,298)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,298)
<EPS-PRIMARY> (0.97)
<EPS-DILUTED> 0
<FN>
<F1>Includes $1,407 accrual for store closure costs. Excluded Liabilities subject
to settlement under reorganization proceedings.
<F2>Includes operating and administrative expenses of $67,173, depreciation and
amortization of $7,999, impairment of long-lived assets of $4,170 and
Reorganization expense of $6,037.
</FN>
</TABLE>
