<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 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
Lamonts Apparel, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware #75-2076160
(State of Incorporation) (I.R.S. Employer Identification Number)
12413 Willows Road N.E., Kirkland, Washington 98034
(Address of Principal Executive Offices)
(425) 814-5700
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
As of November 28, 1997, there were 17,900,053 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
Exhibit Index on Page 18
Page 1
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
FORM 10-Q
NOVEMBER 1, 1997
INDEX
Part I. Financial Informationf Page
Item 1 Consolidated Financial Statements
- Consolidated Balance Sheets - November 1, 1997
and February 1, 1997 3
- Consolidated Statements of Operations and Accumulated
Deficit for the quarter ended November 1, 1997 and
November 2, 1996 4
- Consolidated Statements of Operations and Accumulated
Deficit for the nine months ended November 1, 1997
and November 2, 1996 5
- Consolidated Statements of Cash Flows for the nine
months ended November 1, 1997 and November 2, 1996 6
- Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information
Item 1 - Legal Proceedings 18
Item 3 - Defaults Upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 6 - Exhibits and Reports on Form 8-K 18
2
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOVEMBER 1, FEBRUARY 1,
1997 1997
----------- ----------
Current Assets:
Cash $2,298 $2,066
Receivables - net 2,271 1,595
Inventories 55,712 37,559
Prepaid expenses and other 2,365 1,528
Restricted cash and deposits 1,703 714
-------- -------
Total current assets 64,349 43,462
Property and equipment - net of accumulated
depreciation and amortization of
$30,994 and $27,506, respectively 27,765 30,653
Leasehold interests 3,156 3,477
Excess of cost over net assets acquired - net 11,347 11,591
Deferred financing costs - net 1,447 1,989
Restricted cash and deposits 1,142 1,142
Other assets 787 958
--------- -------
Total assets $109,993 $93,272
-------- -------
-------- -------
Liabilities not subject to settlement under
reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility $24,401 $23,141
Accounts payable 25,435 13,578
Accrued payroll and related costs 2,525 2,285
Accrued taxes 1,400 812
Accrued interest 1,132 616
Accrued store closure costs -- 1,050
Other accrued expenses 6,487 5,325
Current maturities of obligations under
capital leases 122 12
-------- -------
Total current liabilities 61,502 46,819
Long-term debt 10,000 --
Obligations under capital leases 3,246 2,846
Other 167 302
-------- -------
Total liabilities not subject to settlement
under reorganization proceedings 74,915 49,967
-------- -------
Liabilities subject to settlement under
reorganization proceedings 103,489 102,858
-------- -------
Commitments and Contingencies
Stockholders' Equity (Deficit):
Common stock, $0.01 par value, 40,000,000
shares authorized, 17,900,053 shares issued
and outstanding 179 179
Additional paid-in capital 63,010 62,972
Accumulated deficit (131,600) (122,704)
-------- -------
Total stockholders' equity (deficit) (68,411) (59,553)
-------- -------
Total liabilities and stockholders' equity $109,993 $93,272
-------- --------
-------- --------
The accompanying notes are an integral part of the consolidated financial
statements.
3
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
---------------------------
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
Revenues $50,263 $50,705
Cost of merchandise sold 31,760 32,283
----------- ----------
Gross profit 18,503 18,422
----------- ----------
Operating and administrative expenses 16,508 16,504
Depreciation and amortization 1,723 2,015
----------- ----------
Operating costs 18,231 18,519
----------- ----------
Income (loss) from operations before other
income (expense) and reorganization expenses 272 (97)
Other income (expense):
Interest expense (contractual interest
of $3.6 million in 1997 and $3.5 million
in 1996) (1,415) (1,318)
Other 2 3
----------- ----------
Loss from operations before
reorganization expenses (1,141) (1,412)
Reorganization expenses 930 3,435
----------- ----------
Net loss (2,071) (4,847)
Accumulated deficit, beginning of period (129,529) (119,070)
----------- ----------
Accumulated deficit, end of period ($131,600) ($123,917)
----------- ----------
----------- ----------
Net loss per common share ($0.12 ) ($0.27)
----------- ----------
----------- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
4
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
----------------------------
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
Revenues $137,394 $138,284
Cost of merchandise sold 87,798 88,237
----------- ----------
Gross profit 49,596 50,047
----------- ----------
Operating and administrative expenses 47,235 49,482
Depreciation and amortization 5,484 6,051
Impairment of long-lived assets 4,170
----------- ----------
Operating costs 52,719 59,703
----------- ----------
Loss from operations before other income
(expense) and reorganization expenses (3,123) (9,656)
Other income (expense):
Interest expense (contractual
interest of $10.4 million in 1997
and $10.3 million in 1996) (3,855) (3,773)
Other 6 8
----------- ----------
Loss from operations before
reorganization expenses (6,972) (13,421)
Reorganization expenses 1,924 5,090
----------- ----------
Net loss (8,896) (18,511)
Accumulated deficit, beginning of period (122,704) (105,406)
----------- ----------
Accumulated deficit, end of period ($131,600) ($123,917)
----------- ----------
----------- ----------
Net loss per common share ($0.50) ($1.03)
----------- ----------
----------- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
5
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
----------------------
NOVEMBER 1, NOVEMBER 2,
1997 1996
-------- --------
Cash flows from operating activities:
Net loss ($8,896) ($18,511)
Adjustments to reconcile net loss to
net cash used in operating activities
before reorganization items:
Depreciation and amortization 5,484 6,051
Impairment of long-lived assets -- 4,170
Reorganization expenses 1,924 5,090
Increase in inventories (18,153) (23,211)
Increase in accounts payable 11,857 15,983
Other 845 1,225
------- -------
Net cash used in operating activities
before reorganization items (6,939) (9,203)
Operating cash flows used by reorganization
items:
Payments for professional fees and
other expenses related to the Chapter 11
proceedings (2,591) (2,195)
------- -------
Net cash used in operating activities (9,530) (11,398)
------- -------
Cash flows from investing activities:
Capital expenditures (1,050) (525)
Proceeds from sale of property and equipment 4 4,459
Other 257 45
------- -------
Net cash provided by (used in) investing
activities (789) 3,979
------- -------
Cash flows from financing activities:
Proceeds from term loan 10,000 --
Post-petition borrowings under working
capital facility 154,167 187,979
Post-petition payments under working
capital facility (152,908) (178,748)
Principal payments on obligations under
capital leases (666) (650)
Other (42) (49)
------- -------
Net cash provided by financing activities 10,551 8,532
------- -------
Net increase in cash 232 1,113
Cash, beginning of period 2,066 1,581
------- -------
Cash, end of period $2,298 $2,694
------- -------
------- -------
Supplemental disclosures of cash flow information:
Cash interest payments made $3,417 $3,615
------- -------
------- -------
Supplemental disclosure of noncash investing and
financing activities:
Capital lease relating to the purchase
of equipment ($511) --
------- -------
------- -------
Capital lease relating to sale-leaseback
of store -- $2,835
------- -------
------- -------
The accompanying notes are an integral part of the consolidated financial
statements.
6
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 1 - PETITION FOR RELIEF UNDER CHAPTER 11
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the "Company"
or "Lamonts") filed a voluntary petition for relief (the "Filing") under Chapter
11 ("Chapter 11") of title 11 of the United States Code (the "Bankruptcy Code")
in the United States Bankruptcy Court (the "Court") for the Western District of
Washington at Seattle. In Chapter 11, the Company has continued to manage its
affairs and operate its business as a debtor-in-possession. 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 "Prior Plan") and an
amended disclosure statement (the "Prior Disclosure Statement") were filed with
the Court. The Prior Disclosure Statement was approved by the Court on October
24, 1996, and the Prior Plan and Prior Disclosure Statement were transmitted to
all impaired creditors and equity security holders along with ballots for the
purpose of soliciting acceptances of the Prior Plan. A hearing to consider
confirmation of the Prior 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 Prior Plan and that all requirements for confirmation of the
Prior Plan had been satisfied, except that, 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 further deferred final confirmation of the
Prior Plan in order to afford Lamonts additional time in which to explore
opportunities to raise additional working capital.
On September 26, 1997, following approval by the Court, the Company entered into
an amended and restated loan agreement (the "BankBoston Facility") with
BankBoston, N.A. (f/k/a "The First National Bank of Boston") ("BankBoston")
pursuant to which BankBoston has provided the Company with a new $10 million
term loan (the "Term Loan"), resulting in an increase in the maximum amount of
the Company's line of credit from $32 million to $42 million. The Term Loan has
been guaranteed by the Surety (as defined therein). The Term Loan has been
fully disbursed and no further amounts may be borrowed thereunder. The
BankBoston Facility is discussed further in Note 3.
On October 31, 1997, Lamonts filed a modified and restated plan of
reorganization (the "Plan") to take into account the Term Loan and related
matters, together with a supplemented and restated disclosure statement (as
amended on November 21, 1997, the "Disclosure Statement"). On November 24,
1997, the Court approved the Disclosure Statement and authorized Lamonts to
distribute the Plan and Disclosure Statement and approved solicitation
materials to impaired creditors and equity security holders. A hearing on
confirmation of the Plan has been scheduled for December 18, 1997. If the
Plan is confirmed at that hearing, Lamonts expects the effective date of the
Plan to occur on January 31, 1998. There can be no assurance that
confirmation will be obtained or that the effective date will occur when
expected or at all.
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.
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
7
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significantly altered. Creditors may receive substantially less than the full
face amount of claims. Certain creditors have filed claims with the Court
substantially in excess of amounts reflected in the Company's financial
statements. The Company continues to analyze and reconcile the claims filed by
creditors with the Company's financial records, but believes it has made
appropriate provision for all claims filed. However, no estimate of the amount
of adjustments, if any, from recorded amounts, to amounts to be realized by
creditors, is available at this time. These liabilities are included in the
balance sheet as "liabilities subject to settlement under reorganization
proceedings."
As a result of the Company's Chapter 11 filing, the Company is currently in
default under the indentures governing the Company's 10-1/4% Subordinated
Notes due November 1999 (the "10-1/4% Notes") and its 13-1/2% Senior
Subordinated Notes which were due February 1995. 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".
Pre-petition liabilities subject to settlement under reorganization proceedings
include the following (dollars in thousands):
<TABLE>
<CAPTION>
NOVEMBER 1, FEBRUARY 1,
1997 1997
----------- -----------
<S> <C> <C>
Accounts payable and accrued liabilities $24,459 $23,121
Capital lease obligations 10,551 11,216
10-1/4% Notes (including pre-petition accrued interest) related party 67,600 67,600
13-1/2% Notes (including pre-petition accrued interest) 838 838
Notes payable 41 83
----------- -----------
$103,489 $102,858
----------- -----------
----------- -----------
</TABLE>
The increase in accounts payable and accrued liabilities is due to lease
damage claims accrued in fiscal year 1996 that have been reclassified as
liabilities subject to settlement under reorganization proceedings. The
reduction in capital lease obligations consists of payments to landlords for
store locations in the ongoing business operations of the Company.
In accordance with the Bankruptcy Code, the Company can seek Court approval for
the rejection of executory contracts, including real property leases. Any such
rejection may give rise to a prepetition unsecured claim for breach of contract.
In connection with the Company's Chapter 11 proceedings, the Company continues
to review all of its obligations under its executory contracts. As of November
1, 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 have consisted and will continue to
consist primarily of write-offs of property and equipment, professional fees,
lease related costs and severance costs.
8
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NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries. All
subsidiaries of the Company are inactive. All significant intercompany
transactions and account balances have been eliminated in consolidation. The
consolidated financial statements included herein should be read in conjunction
with the audited, annual consolidated financial statements for the fiscal year
ended February 1, 1997, included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on May 2, 1997. The year-end
condensed balance sheet was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles.
The accompanying consolidated financial statements of the Company have been
prepared on a going concern basis of accounting, and, for the periods subsequent
to the Filing, in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE. Recurring losses from operations and
the matters discussed herein related to the Filing raise substantial doubt about
the Company's ability to continue 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,
(ii) confirmation of a plan of reorganization under the Bankruptcy Code, (iii)
the ability to achieve profitable operations after such confirmation and (iv)
the ability to generate sufficient cash from operations to meet its obligations.
The consolidated financial statements presented herein reflect all adjustments
that are, in the opinion of management, necessary to present fairly the
operating results for the periods reported. Except as discussed in Note 1, all
such adjustments are normal and recurring in nature. The results of operations
for the quarterly periods are not necessarily indicative of results for the
entire year.
IMPAIRMENT OF LONG-LIVED ASSETS
In the first quarter of 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 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.
Statement No. 121 requires that assets be 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. Based on estimates by management as of November 1, 1997, subject to
the outcome of issues discussed in Note 1, no additional impairment has occurred
during the nine months ended November 1, 1997. Considerable management judgment
is necessary to estimate discounted future cash flows. Accordingly, actual
results could vary significantly from such estimates.
OTHER
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("Statement No.
128"). All companies are required to comply with the disclosure requirements of
the statement and the Company will adopt the policy in the 4th Quarter of its
Fiscal year ending January 31, 1998. Management is currently evaluating the
requirements of Statement No. 128.
9
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In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Comprehensive Income" ("Statement No.
130"). Statement No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Statement No. 130 is effective for fiscal years beginning
after December 15, 1997 and requires restatement of earlier periods presented.
Management is currently evaluating the requirements of Statement No. 130.
NOTE 3 - LOAN AND SECURITY AGREEMENTS
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement (the "Old DIP Facility") with Foothill Capital
Corporation ("Foothill"). The Old DIP Facility provided for a borrowing
capacity of up to $32.0 million in revolving loans, including up to $15.0
million of letters of credit, subject to borrowing base limitations based upon,
among other things, the value of inventory and certain real property. On June
4, 1996, the Company entered into a loan and security agreement with BankBoston
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.
On September 26, 1997, following approval by the Court, the Company entered
into the BankBoston Facility which consists of: (i) a revolving line of credit
with a maximum borrowing capacity of $32 million (the "Revolver"); and (ii) a
term loan in the amount of $10 million. The Term Loan has been guaranteed by
the Surety. Pursuant to, and on the terms and conditions set forth in the
BankBoston Facility, BankBoston is obligated to make loans and advances to
Lamonts on a revolving basis, and to issue letters of credit to or for the
account of Lamonts (with a sublimit for letters of credit of $3 million) in an
aggregate outstanding amount (net of repayments) not to exceed the lesser of $32
million and the Borrowing Base (as defined therein). The Term Loan has been
fully disbursed and no further amounts may be borrowed thereunder.
Assuming that the Plan is confirmed and becomes effective, the Revolver will
mature two years after the effective date of the Plan ("Effective Date") or,
if earlier, upon maturity of the Term Loan. The Term Loan will mature
December 26, 1999, or, if earlier, upon maturity of the Revolver. Lamonts
will have the option to extend the maturity date of the Term Loan for two
additional one-year periods (subject to earlier maturity upon maturity of the
Revolver), on the terms and conditions set forth in the BankBoston Facility
and upon payment of an extension fee described therein. There are no
extension options in respect of the Revolver. If the Plan is not confirmed
or does not become effective, both the Revolver and the Term Loan would
mature on February 27, 1998.
Lamonts is required to make principal payments on the Term Loan of $25,000 per
month commencing October 31, 1998. A substantial portion of the principal
amount of the Term Loan is scheduled to be outstanding on the maturity date of
the Term Loan. Lamonts' borrowings under both the Revolver and the Term Loan
bear interest at a floating rate of 1.5% above the Base Rate (as defined
therein) or, at Lamonts' option, at 2.75% above the fully reserved adjusted
Eurodollar Rate (as defined therein). The rates are subject to adjustment on
June 1, 1998, and annually thereafter, based upon Lamonts' financial results in
accordance with the criteria set forth in the BankBoston Facility. The default
rate of interest under the Revolver is 3% above the Base Rate. The default rate
of interest under the Term Loan prior to maturity is 7% above the non-default
rate otherwise applicable, and after maturity is 7% above the non-default rate
applicable to loans measured by the Base Rate.
A facility fee in respect of the Revolver will be payable in the amount of
$336,000 on the Effective Date and in the amount of $224,000 on December 31,
1998. A letter of credit fee of 1.75% per annum will be charged quarterly in
arrears based on the average daily Maximum Drawing Amount (as defined therein)
of all outstanding letters of credit. A commitment fee in the amount of 0.5%
per annum will be payable monthly in arrears based on the average daily unused
amount of the Revolver. Both the letter of credit fee and commitment fee are
subject to adjustment on June 1, 1998, and annually thereafter, based upon
Lamonts' financial results in accordance with the criteria set forth in the
BankBoston Facility. In addition to a closing fee in the amount of $500,000
which Lamonts paid at the closing of the Term Loan on September 26, 1997, an
additional closing fee in respect of the Term Loan calculated at the rate of 5%
per annum applied to the average daily
10
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principal balance of the Term Loan outstanding after September 26, 1998, is
payable at the times and in the manner set forth in the BankBoston Facility. If
the options to extend the maturity date of the Term Loan are exercised,
extension fees calculated at the rate of 5% per annum applied to the average
daily principal balance of the Term Loan outstanding during the applicable
extension period will be payable at the times and in the manner set forth in the
BankBoston Facility.
Advances by BankBoston under the BankBoston Facility are secured by all real and
personal property, rights and assets of Lamonts, including without limitation,
real estate leasehold interests, but excluding certain proceeds of bankruptcy
causes of action and proceeds from a special account established for unpaid
professional fees. During the Chapter 11 case, the BankBoston Facility is an
allowed administrative expense claim with super-priority over other
administrative expenses in the Chapter 11 case.
The BankBoston Facility requires that, as of the Effective Date, in partial
exchange for the BankBoston claim against the Company's Chapter 11 estate and
in consideration for the guaranty of the Term Loan by the Surety, the Surety
will receive under the Plan (i) a warrant exercisable for the purchase of
3,429,588 shares of common stock, and (ii) 10 shares of Class B Common Stock,
representing all of the Class B Common Stock (which shares have special
voting rights upon the occurence of certain events under the BankBoston
Facility) to be authorized and outstanding after the Effective Date.
The BankBoston Facility contains, among other things, covenants restricting (i)
the incurrence of debt and guarantees, (ii) the incurrence of liens and
encumbrances, (iii) the disposition of assets, (iv) mergers and investments, (v)
dividends and other restricted payments (as defined) and (vi) capital
expenditures. Any necessary waivers of or amendments to such covenants require,
with certain exceptions specified in the BankBoston Facility, the concurrence of
both BankBoston and the Surety.
The BankBoston Facility contains customary events of default for credit
facilities of this type. The Surety has the right, under specified
circumstances after a default, to direct BankBoston to declare Lamonts'
obligations under the BankBoston Facility immediately due and payable and to
exercise certain of BankBoston's rights and remedies under the BankBoston
Facility.
For the nine months ended November 1, 1997, the weighted average interest
rate for loans based on the Base Rate was 10.0% (calculated on the average
monthly Revolver balance) and the weighted average interest rate for loans
based on the Eurodollar Rate was 8.45% (calculated on the average monthly
Eurodollar loan balance). The Company has expensed fees of approximately
$568,000 for the BankBoston Facility for the nine months ended November 1,
1997, which fees payable under the BankBoston Facility for such period
consisted primarily of monthly payments based on the average unused borrowing
capacity and on the borrowing capacity under the Revolver.
NOTE 4 - LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss by the weighted
average number of common shares outstanding during the period. The common stock
equivalents, represented by stock options and warrants were not considered in
the calculation as they either have an exercise price greater than the
applicable market price, or the effect of assuming their exercise or conversion
would be anti-dilutive. The weighted average number of shares outstanding for
the quarter and nine months ended November 1, 1997 were 17,900,053.
The weighted average number of shares outstanding for the quarter and nine
months ended November 2, 1996 were 17,900,053 and 17,899,857, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various matters of litigation arising in the ordinary
course of business. In the opinion of management, the ultimate outcome of all
such matters should not have a material adverse effect on the financial position
of the Company, but, if decided adversely to the Company, could have a material
effect upon the Company's anticipated plan of reorganization and operating
results during the period in which the litigation is resolved. (See also Part
II, Item 1.)
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain information and statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations including, without
limitation, statements containing the words "believes", "anticipates", "expects"
and words of a similar import, constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause the actual results, performance, or achievements of
the Company (defined below), to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Although it is not possible to itemize all the factors and specific
events that could affect the outlook of the Company, factors that could
significantly impact the expected results include, among others, (i) national
and local general economic and market conditions, (ii) demographic changes,
(iii) liability and other claims asserted against the Company, (iv) competition,
(v) the loss of significant customers or suppliers, (vi) fluctuations in
operating results, (vii) changes in business strategy or development plans,
(viii) business disruptions, (ix) the ability to attract and retain qualified
personnel, and (x) the confirmation of the Plan and the terms thereof. The
Company disclaims any obligations to update any such factors or to announce
publicly the result of any revisions to any forward-looking statements contained
or incorporated by reference herein to reflect untrue events or developments.
BACKGROUND
Lamonts Apparel, Inc. (the "Company" or "Lamonts") retails brand-name apparel
and accessories for the entire family through its 38 apparel stores. Lamonts
currently operates in malls and regional shopping centers located in the states
of Alaska, Idaho, Oregon, Utah and Washington.
On January 6, 1995 (the "Petition Date"), Lamonts filed a voluntary petition for
relief (the "Filing") under Chapter 11 ("Chapter 11") of title 11 of the United
States Code (the "Bankruptcy Code") in the United States Bankruptcy Court (the
"Court") for the Western District of Washington at Seattle. In Chapter 11, the
Company has continued to manage its affairs and operate its business as a
debtor-in-possession. 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 Prior Plan") and an amended disclosure statement (the
"Prior Disclosure Statement") were filed with the Court. The Prior Disclosure
Statement was approved by the Court on October 24, 1996, and the Prior Plan and
Prior Disclosure Statement were transmitted to all impaired creditors and equity
security holders along with ballots for the purpose of soliciting acceptances of
the Prior Plan. A hearing to consider confirmation of the Prior 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 Prior Plan and
that all requirements for confirmation of the Prior Plan had been satisfied,
except that, 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 further deferred final confirmation of the Prior Plan in order to afford
Lamonts additional time in which to explore opportunities to raise additional
working capital.
On September 26, 1997, following approval by the Court, the Company entered into
an amended and restated loan agreement (the "BankBoston Facility") with
BankBoston, N.A. (f/k/a "The First National Bank of Boston") ("BankBoston")
pursuant to which BankBoston has provided the Company with a new $10 million
term loan (the "Term Loan"), resulting in an increase in the maximum amount of
the Company's line of credit from $32 million to $42 million. The Term Loan
has been guaranteed by the Surety (as defined therein). The Term Loan has been
fully disbursed and no further amounts may be borrowed thereunder. The
BankBoston Facility is discussed further in the Liquidity and Capital
Resources section below.
On October 31, 1997, Lamonts filed a modified and restated plan of
reorganization (the "Plan") to take into account the Term Loan and related
matters, together with a supplemented and restated disclosure statement (as
amended on
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November 21, 1997, the "Disclosure Statement"). On November 24, 1997, the
Court approved the Disclosure Statement and authorized Lamonts to distribute
the Plan and Disclosure Statement and approved solicitation materials to
impaired creditors and equity security holders. A hearing on confirmation of
the Plan has been scheduled for December 18, 1997. If the Plan is confirmed
at that hearing, Lamonts expects the effective date of the Plan to occur on
January 31, 1998. There can be no assurance that confirmation will be
obtained or that the effective date will occur when expected or at all.
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.
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. In a Chapter 11 reorganization
plan, the rights of the creditors may be significantly altered. Creditors may
receive substantially less than the full face amount of claims. Certain
creditors have filed claims with the Court substantially in excess of amounts
reflected in the Company's financial statements. The Company continues to
analyze and reconcile the claims filed by creditors with the Company's financial
records, but believes it has made appropriate provision for all claims filed.
However, no estimate of the amount of adjustments, if any, from recorded
amounts, to amounts to be realized by creditors, is available at this time.
As a result of the 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 its 13-1/2% Senior
Subordinated Notes which were due February 1995. 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.
Management believes that Lamonts has made substantial progress in the period
since the Filing. The Company has closed unprofitable stores, eliminated
unprofitable merchandise lines and reduced operating expenses. In addition,
management has implemented 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. Management is also
continually evaluating store locations and operations to determine whether to
close, downsize or relocate stores that do not meet performance objectives.
RESULTS OF OPERATIONS
The following discussion and analysis provides information with respect to the
results of operations for the quarter ("3rd Quarter 1997") and nine month period
("YTD 1997") ended November 1, 1997 compared to the quarter ("3rd Quarter 1996")
and nine month period ("YTD 1996") ended November 2, 1996.
REVENUES. Revenues of $50.3 million for the 3rd Quarter 1997 decreased $0.4
million on a total store basis from $50.7 million for the 3rd Quarter 1996.
Revenues of $137.4 million for YTD 1997 decreased $0.9 million on a total
store basis from $138.3 million for YTD 1996. The third quarter and YTD
decrease is attributable to the closure of 4 stores that were operating
during the prior periods. Comparable store (i.e., stores open since the
beginning of each of the periods presented) revenues increased 5.4% for the
3rd Quarter 1997, as compared to 3rd Quarter 1996. Comparable store revenues
increased 6.0% for YTD 1997 as compared to YTD 1996. Management believes
that comparable store revenues have increased due to increased levels of
inventory and continued improvement in the quality of the merchandise offered
in the stores compared to the prior year. There can be no assurance that a
continuation of such factors will increase revenues in future periods.
GROSS PROFIT. Gross profit, as a percentage of revenues, increased to 36.8%
during the 3rd Quarter 1997 compared to 36.3% during the 3rd Quarter 1996.
Gross profit, as a percentage of revenues was 36.1% for YTD 1997, compared to
36.2% for YTD 1996.
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OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
amounted to $16.5 million during the 3rd Quarter 1997 and the 3rd Quarter
1996. Operating and administrative expense savings of $0.9 million
attributable to closed stores operating in the prior year were offset by
increases in (i) credit card fees of $0.3 million, (ii) advertising of $0.2
million, (iii) payroll of $0.1 million, and (iv) other expenses of $0.3
million. Operating and administrative expenses of $47.2 million for YTD 1997
decreased 4.5% or $2.3 million from $49.5 million for YTD 1996. The decrease
is primarily the result of a reduction in operating costs of $2.9 million,
attributable to closed stores operating in the prior year and decreases in
computer fees and operating lease expenses of $0.6 million, offset by
increases in (i) credit card fees of $0.3 million, (ii) advertising of $0.4
million, (iii) payroll of $0.4 million, and (iv) other expenses of $0.1
million. Year 2000 costs included in operating and administrative expenses
for YTD 1997 amounted to approximately $0.2 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $1.7
million for the 3rd Quarter 1997 decreased $0.3 million as compared to $2.0
million for the 3rd Quarter 1996. Depreciation and amortization expense of $5.5
million for YTD 1997 decreased $0.5 million as compared to $6.0 million for YTD
1996. The decrease primarily relates to assets retired as a result of store
closures and assets becoming fully depreciated or amortized.
IMPAIRMENT OF LONG-LIVED ASSETS. A non-cash charge of $4.2 million for the
impairment of long-lived assets was recognized during YTD 1996 due to the
adoption of Statement of Financial Accounting Standards No. 121, see "Item 1 -
Consolidated Financial Statements - Note 2".
INTEREST EXPENSE. Interest expense was $1.4 million for 3rd Quarter 1997
compared to $1.3 million for 3rd Quarter 1996. YTD 1997 interest expense was
$3.9 million, compared to $3.8 million for YTD 1996. Interest expense is
related to outstanding borrowings under the Old BankBoston Facility and
BankBoston Facility.
REORGANIZATION EXPENSES. Reorganization expenses of $0.9 million for the 3rd
Quarter 1997 decreased $2.5 million from $3.4 million for the 3rd Quarter
1996. YTD 1997 reorganization expenses of $1.9 million decreased $3.0 million
from $5.1 million for YTD 1996. The reorganization expenses represent costs
directly related to the Company's Chapter 11 case and consist primarily of
professional fees, a substantial portion of which were incurred in fiscal
year 1996 in connection with the preparation of the Prior Disclosure
Statement.
NET LOSS. The Company reported a net loss of $2.1 million for the 3rd Quarter
1997 compared to a net loss of $4.8 million for the 3rd Quarter 1996. The $2.7
million decrease from the prior period is primarily due to (i) the reduction in
reorganization expenses of $2.5 million, and (ii) the decrease in depreciation
and amortization expense of $0.2 million.
The Company reported a net loss of $8.9 million for YTD 1997 compared to a net
loss of $18.5 million for YTD 1996. The decrease of $9.6 million from the prior
period resulted primarily from (i) no impairment of long-lived assets for YTD
1997 compared to the recognition of $4.2 million for the impairment of
long-lived assets for YTD 1996, (ii) the reduction in reorganization expenses of
$3.1 million, (iii) the decrease in operating and administrative expenses of
$2.3 million, and (iv) the decrease in depreciation and amortization expense of
$0.6 million, offset by a decrease in gross profit of $0.5 million.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company used $6.9 million of cash for operating activities before
reorganization items for YTD 1997, a decrease of $2.3 million as compared to
$9.2 million used for YTD 1996. The improvement is partially due to a decrease
in net loss. In addition, cash used for inventory purchases decreased $5.0
million to $18.2 million for YTD 1997 from $23.2 million for YTD 1996.
The difference in investing activities for YTD 1997 from YTD 1996 of $4.8
million results primarily from net sale proceeds of $4.5 million received in the
sale-leaseback of one of the Company's stores during YTD 1996.
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The Company received $10.6 million from financing activities for YTD 1997 as
compared to $8.5 million for YTD 1996. The $2.1 million difference is the
result of proceeds from the Term Loan offset by lower net borrowings under the
Revolver.
As of November 1, 1997, the Company had $2.3 million of cash and an additional
$1.7 million of current restricted cash, representing the funding of payroll and
taxes in connection with the Filing.
CAPITAL RESOURCES
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement (the "Old DIP Facility") with Foothill Capital
Corporation ("Foothill"). The Old DIP Facility provided for a borrowing
capacity of up to $32.0 million in revolving loans, including up to $15.0
million of letters of credit, subject to borrowing base limitations based upon,
among other things, the value of inventory and certain real property. On June
4, 1996, the Company entered into a loan and security agreement with BankBoston
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.
On September 26, 1997, following approval by the Court, the Company entered
into the BankBoston Facility which consists of: (i) a revolving line of credit
with a maximum borrowing capacity of $32 million (the "Revolver"); and (ii) a
term loan in the amount of $10 million. The Term Loan has been guaranteed by
the Surety. Pursuant to, and on the terms and conditions set forth in the
BankBoston Facility, BankBoston is obligated to make loans and advances to
Lamonts on a revolving basis, and to issue letters of credit to or for the
account of Lamonts (with a sublimit for letters of credit of $3 million) in an
aggregate outstanding amount (net of repayments) not to exceed the lesser of $32
million and the Borrowing Base (as defined therein). The Term Loan has been
fully disbursed and no further amounts may be borrowed thereunder.
Assuming that the Plan is confirmed and becomes effective, the Revolver will
mature two years after the effective date of the Plan ("Effective Date") or,
if earlier, upon maturity of the Term Loan. The Term Loan will mature
December 26, 1999, or, if earlier, upon maturity of the Revolver. Lamonts
will have the option to extend the maturity date of the Term Loan for two
additional one-year periods (subject to earlier maturity upon maturity of the
Revolver), on the terms and conditions set forth in the BankBoston Facility
and upon payment of an extension fee described therein. There are no
extension options in respect of the Revolver. If the Plan is not confirmed
or does not become effective, both the Revolver and the Term Loan would
mature on February 27, 1998.
Lamonts is required to make principal payments on the Term Loan of $25,000 per
month commencing October 31, 1998. A substantial portion of the principal
amount of the Term Loan is scheduled to be outstanding on the maturity date of
the Term Loan. Lamonts' borrowings under both the Revolver and the Term Loan
bear interest at a floating rate of 1.5% above the Base Rate (as defined
therein) or, at Lamonts' option, at 2.75% above the fully reserved adjusted
Eurodollar Rate (as defined therein). The rates are subject to adjustment on
June 1, 1998, and annually thereafter, based upon Lamonts' financial results in
accordance with the criteria set forth in the BankBoston Facility. The default
rate of interest under the Revolver is 3% above the Base Rate. The default rate
of interest under the Term Loan prior to maturity is 7% above the non-default
rate otherwise applicable, and after maturity is 7% above the non-default rate
applicable to loans measured by the Base Rate.
A facility fee in respect of the Revolver will be payable in the amount of
$336,000 on the Effective Date and in the amount of $224,000 on December 31,
1998. A letter of credit fee of 1.75% per annum will be charged quarterly in
arrears based on the average daily Maximum Drawing Amount (as defined therein)
of all outstanding letters of credit. A commitment fee in the amount of 0.5%
per annum will be payable monthly in arrears based on the average daily unused
amount of the Revolver. Both the letter of credit fee and commitment fee are
subject to adjustment on June 1, 1998, and annually thereafter, based upon
Lamonts' financial results in accordance with the criteria set forth in the
BankBoston Facility. In addition to a closing fee in the amount of $500,000
which Lamonts paid at the closing of the Term Loan on September 26, 1997, an
additional closing fee in respect of the Term Loan calculated at the rate of 5%
per annum applied to the average daily principal balance of the Term Loan
outstanding after September 26, 1998, is payable at the times and in the manner
set forth in the BankBoston Facility. If the options to extend the maturity
date of the Term Loan are exercised, extension fees calculated at the rate of 5%
per annum applied to the average daily
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principal balance of the Term Loan outstanding during the applicable extension
period will be payable at the times and in the manner set forth in the
BankBoston Facility.
Advances by BankBoston under the BankBoston Facility are secured by all real and
personal property, rights and assets of Lamonts, including without limitation,
real estate leasehold interests, but excluding certain proceeds of bankruptcy
causes of action and proceeds from a special account established for unpaid
professional fees. During the Chapter 11 case, the BankBoston Facility is an
allowed administrative expense claim with super-priority over other
administrative expenses in the Chapter 11 case.
The BankBoston Facility requires that, as of the Effective Date, in partial
exchange for the BankBoston claim against the Company's Chapter 11 estate and
in consideration for the guaranty of the Term Loan by the Surety, the Surety
will receive under the Plan (i) a warrant exercisable for the purchase of
3,429,588 shares of common stock, and (ii) 10 shares of Class B Common Stock,
representing all of the Class B Common Stock (which shares have special
voting rights upon the occurrence of certain events under the BankBoston
Facility) to be authorized and outstanding after the Effective Date.
The BankBoston Facility contains, among other things, covenants restricting (i)
the incurrence of debt and guarantees, (ii) the incurrence of liens and
encumbrances, (iii) the disposition of assets, (iv) mergers and investments, (v)
dividends and other restricted payments (as defined) and (vi) capital
expenditures. Any necessary waivers of or amendments to such covenants require,
with certain exceptions specified in the BankBoston Facility, the concurrence of
both BankBoston and the Surety.
The BankBoston Facility contains customary events of default for credit
facilities of this type. The Surety has the right, under specified
circumstances after a default, to direct BankBoston to declare Lamonts'
obligations under the BankBoston Facility immediately due and payable and to
exercise certain of BankBoston's rights and remedies under the BankBoston
Facility.
For the nine months ended November 1, 1997, the weighted average interest
rate for loans based on the Base Rate was 10.0% (calculated on the average
monthly Revolver balance) and the weighted average interest rate for loans
based on the Eurodollar Rate was 8.45% (calculated on the average monthly
Eurodollar loan balance). The Company has expensed fees of approximately
$568,000 for the BankBoston Facility for the nine months ended November 1,
1997, which fees payable under the BankBoston Facility for such period
consisted primarily of monthly payments based on the average unused borrowing
capacity and on the borrowing capacity under the Revolver.
As of November 28, 1997, the Company had $25.2 million of borrowings outstanding
under the Revolver with additional borrowing capacity thereunder of $6.8
million.
The Company's primary cash requirement is the procurement of inventory which is
currently funded through (i) borrowings under the BankBoston Facility (ii) trade
credit and (iii) cash generated from operations. Like other apparel retailers,
the Company is dependent upon its ability to obtain trade credit, which is
generally extended by its vendors and a small number of factoring institutions
that continually monitor the Company's credit lines. If the Company continues
to obtain the trade credit terms it is currently receiving, the Company believes
that borrowings under the BankBoston 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.
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 BankBoston
Facility. Such restrictions prohibit the payment of dividends for the
foreseeable future. In addition, the Bankruptcy Code prohibits the Company's
payment of cash dividends (during the pendency of the Company's Chapter 11
case).
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SEASONALITY
The Company's sales are seasonal, with the fourth quarter being its strongest
quarter as a result of the Christmas Season.
YEAR 2000
The Company has evaluated the significance of the year 2000 on its existing
computer systems and is currently taking steps to ensure that its computer
systems will not be adversely affected by the occurrence of the year 2000.
The Company will spend approximately $350,000 in fiscal year 1997 current
fiscal year, $500,000 in fiscal year 1998, and $150,000 in fiscal year 1999.
The Company expects this process to be completed by the middle of fiscal year
1999. As of November 1, 1997, the Company has expensed approximately
$200,000 for year 2000 costs.
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PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No material change has occurred in the litigation described in "Item 3 - Legal
Proceedings" on pages 7 through 9 of the Company's Annual Report on Form 10-K
for the fiscal year ended February 1, 1997 and in "Part II, Item 1 - Legal
Proceedings" on page 17 of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended August 2, 1997.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
As a result of the Filing, the Company is currently in default under the
indentures governing the 10-1/4% Notes ($67.6 million in principal and
prepetition accrued interest as of November 1, 1997) and 13-1/2% Notes ($0.8
million in principal and prepetition accrued interest as of November 1, 1997)
(see Note 1 of the Notes to the Consolidated Financial Statements contained
elsewhere in this document).
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 24, 1997, the Court approved the Disclosure Statement and
authorized Lamonts to distribute the Plan and Disclosure Statement and
solicitation materials to impaired creditors and equityholders. Any holder
of a claim or equity interest entitled to vote on the Plan may cast a
modification ballot if such holder has not previously voted, or may use the
modification ballot to change such holder's vote if such holder has
previously voted. All modification ballots were to be cast by December 15,
1997.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description of Exhibit
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)
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4.8 First Supplemental Indenture to the 13-1/2% Indenture dated
December 30, 1986, among the Registrant, TPI and the 13-1/2%
Trustee. (3)
4.9 Second Supplemental Indenture to the 13-1/2% Indenture dated
October 4, 1988, among the Registrant, TPI and the 13-1/2%
Trustee. (2)
4.10 Third Supplemental Indenture to the 13-1/2% Indenture dated
October 29, 1992, among the Registrant, TPI and the 13-1/2%
Trustee. (4)
4.11 Warrant Agreement dated September 21, 1992 between the
Registrant and Society National Bank, as Warrant Agent. (4)
4.12 Warrant Agreement dated June 10, 1994 between the Registrant
and the other parties thereto (including the form of Warrant
attached thereto as Exhibit (A). (8)
4.13 Exchange Agreement, dated October 18, 1994, between the
Registrant and the holders of the Notes.(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)
10.27 Amended and Restated Debtor in Possession and Exit Financing
Loan Agreement dated September 26, 1997 between Lamonts
Apparel, Inc., BankBoston, N.A., and Certain Other Lending
Institutions. *
27.1 Financial Data Schedule. *
99.1 Debtor's Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code. (11)
99.2 Submission of "(Proposed) Disclosure Statement re Debtor's
Plan of Reorganization Under Chapter 11 of the Bankruptcy
Code". (11)
99.3 Plan Documentary Supplement.(11)
99.4 Debtor's Amended Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code.(12)
99.5 Amended Disclosure Statement re Debtor's Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code.(12)
99.6 Plan Documentary Supplement to "Debtor's Amended Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code".(12)
99.7 Debtor's Modified and Restated Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code. *
99.8 Supplemented and Restated Disclosure Statement (As Amended)
re Debtor's Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code. *
99.9 Plan Documentary Supplement to "Debtor's Modified and
Restated Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code". *
- ------------------
* Filed herewith
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(1) Incorporated by reference from Registration Statement Nos. 33-2292 and
33-2292-01 of the Registrant and TPI, respectively, as filed with the
Commission on December 19, 1985, and as amended on January 3, 1986,
January 29, 1986, February 6, 1986 and February 11, 1986.
(2) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on November 10, 1988.
(3) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with the Commission on March 31, 1989.
(4) Incorporated by reference from Current Report on Form 8-K of the
Registrant as filed with the Commission on November 13, 1992.
(5) Incorporated by reference from Registration Statement No. 33-56038 of
the Registrant, initially filed with the Commission on December 22,
1992.
(6) Incorporated by reference from Registration Statement No. 33-68720 of
the Registrant, initially filed with the Commission on September 14,
1993.
(7) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with the Commission on January 28, 1994.
(8) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on June 14, 1994.
(9) Incorporated by reference from 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 September 16, 1996.
(12) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on December 17, 1996.
(b) Reports filed on Form 8-K:
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Registrant: LAMONTS APPAREL, INC.
Date: December 12, 1997 By: /s/ Debbie Brownfield
--------------------------
Debbie Brownfield
Executive Vice President
Chief Financial Officer
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AMENDED AND RESTATED
DEBTOR IN POSSESSION AND
EXIT FINANCING
LOAN AGREEMENT
BY AND AMONG
LAMONTS APPAREL, INC.,
BANKBOSTON, N.A.
CERTAIN OTHER LENDING INSTITUTIONS,
AND
BANKBOSTON, N.A., AS AGENT
DATED AS OF SEPTEMBER 26, 1997
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TABLE OF CONTENTS
Section 1. DEFINITIONS AND RULES OF INTERPRETATION. . . . . . . . . . . 2
Section 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2. Rules of Interpretation. . . . . . . . . . . . . . . . 27
Section 2. DEBTOR IN POSSESSION AND EXIT REVOLVING CREDIT FACILITIES. . 28
Section 2.1. Commitment to Lend DIP Revolving Credit Loans. . . . . 28
Section 2.2. Repayments of DIP Revolving Credit Loans. . . . . . . . 29
Section 2.3. Conversion of DIP Revolving Credit Loans into Exit
Revolving Credit Loans; Commitment to Lend Exit Revolving
Credit Loans.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.4. Repayment of Exit Revolving Credit Loans. . . . . . . . 31
Section 2.5. Reduction of Commitments. . . . . . . . . . . . . . . . 32
Section 2.6. Request for Revolving Credit Loan Advances. . . . . . . 32
Section 2.7. Other Methods of Funding; Authorized Advances. . . . . 33
Section 2.8. Revolving Credit Notes. . . . . . . . . . . . . . . . . 34
Section 2.9. Interest on Revolving Credit Loans. . . . . . . . . . . 35
Section 2.10. Conversion Options for Base Rate and Eurodollar Loans . 36
Section 2.10.1. Conversion to Different Type of Revolving
Credit Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.10.2. Continuation of Type of Revolving Credit Loan. . 36
Section 2.10.3. Eurodollar Rate Loans. . . . . . . . . . . . . 37
Section 2.11. Settlements; Failure to Make Funds Available. . . . . 37
Section 2.12. Lock Box Account and Application of Funds. . . . . . . 38
Section 2.13. Fees and Expenses. . . . . . . . . . . . . . . . . . . 41
Section 2.14. Seafirst Concentration Account. . . . . . . . . . . . . 41
Section 3. DEBTOR IN POSSESSION AND EXIT TERM LOAN. . . . . . . . . . . 42
Section 3.1. Commitment to Lend DIP Term Loan. . . . . . . . . . . . 42
Section 3.2. Repayment of DIP Term Loans. . . . . . . . . . . . . . 42
Section 3.2.1. Schedule of Installment Payments of Principal
of Term Loan. . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.2.2. Mandatory Prepayments. . . . . . . . . . . . . . 42
Section 3.2.3. Optional Prepayment of DIP Term Loan. . . . . . 43
Section 3.3. Conversion of DIP Term Loan into Exit Term Loan;
Commitment to Lend Exit Term Loan. . . . . . . . . . . . . . . . . . 43
Section 3.4. Repayment or Prepayment of Exit Term Loan. . . . . . . 43
Section 3.5. The Term Loan Note. . . . . . . . . . . . . . . . . . . 43
Section 3.6. Interest on Term Loan. . . . . . . . . . . . . . . . . 44
Section 3.7. Conversion Options for Base Rate and Eurodollar Loans. . 45
Section 3.7.1. Notification by Borrower. . . . . . . . . . . . 45
Section 3.7.2. Amounts, etc. . . . . . . . . . . . . . . . . . 45
Section 4. LETTER OF CREDIT FACILITY. . . . . . . . . . . . . . . . . . 45
Section 4.1. Letter of Credit Commitment. . . . . . . . . . . . . . 45
Section 4.1.1. This Agreement to Govern. . . . . . . . . . . . 46
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Section 4.1.2. Terms and Duration of Letters of Credit . . . . . 46
Section 4.1.3. Reimbursement Obligations of Revolving
Credit Banks. . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 4.1.4. Participations of Revolving Credit Banks. . . . . 47
Section 4.2. Reimbursement Obligations of the Borrower. . . . . . . 47
Section 4.3. Letter of Credit Payments. . . . . . . . . . . . . . . 48
Section 4.4. Obligations Absolute. . . . . . . . . . . . . . . . . . 49
Section 4.5. Reliance by Issuer. . . . . . . . . . . . . . . . . . . 50
Section 4.6. Letter of Credit Fees. . . . . . . . . . . . . . . . . 50
Section 5. CERTAIN GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . 51
Section 5.1. Capital Adequacy. . . . . . . . . . . . . . . . . . . . 51
Section 5.2. Inability to Determine Eurodollar Rate. . . . . . . . . 51
Section 5.3. Illegality. . . . . . . . . . . . . . . . . . . . . . . 51
Section 5.4. Additional Costs, etc. . . . . . . . . . . . . . . . . . 52
Section 5.5. Certificate. . . . . . . . . . . . . . . . . . . . . . 53
Section 5.6. Indemnity. . . . . . . . . . . . . . . . . . . . . . . 53
Section 6. FEES AND PAYMENTS. . . . . . . . . . . . . . . . . . . . . . 54
Section 6.1. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.2. Payments; No Offset; Computations. . . . . . . . . . . 55
Section 7. PRIORITY AND LIENS. . . . . . . . . . . . . . . . . . . . . . 56
Section 7.1. Super-Priority Claims and Collateral Security. . . . . 56
Section 7.2. Collateral Security Perfection. . . . . . . . . . . . . 57
Section 7.3. No Discharge; Survival of Claims. . . . . . . . . . . . 57
Section 8. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . 58
Section 9. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . 64
Section 9.1. To Effective Date of DIP Term Loan. . . . . . . . . . . 64
Section 9.1.1. Loan Documents. . . . . . . . . . . . . . . . . . 64
Section 9.1.2. Certified Copies of Charter Documents.. . . . . . 64
Section 9.1.3. Corporate Action. . . . . . . . . . . . . . . . . 64
Section 9.1.4. Incumbency Certificate. . . . . . . . . . . . . . 64
Section 9.1.5. Perfection Certificate and Title Search Results . 64
Section 9.1.6. Financing Order.. . . . . . . . . . . . . . . . . 65
Section 9.1.7. Borrowing Base Report.. . . . . . . . . . . . . . 65
Section 9.1.8. Opinion of Counsel. . . . . . . . . . . . . . . . 65
Section 9.1.9. Payment of Fees.. . . . . . . . . . . . . . . . . 65
Section 9.1.10. Loan Request; Disbursement Instructions. . . . . 65
Section 9.1.11. Projections and Other Information; Quality of
Assets and Inventory. . . . . . . . . . . . . . . . . . . . . . . 66
Section 9.1.12. No Material Adverse Change.. . . . . . . . . . . 66
Section 9.1.13. Purchase and Guaranty Agreement. . . . . . . . 66
Section 9.2. To the Occurrence of the Exit Facility Date. . . . . . 66
Section 9.2.1. Loan Documents . . . . . . . . . . . . . . . . . 66
Section 9.2.2. Certified Copies of Charter Documents. . . . . . 67
Section 9.2.3. Corporate Action. . . . . . . . . . . . . . . . 67
Section 9.2.4. Incumbency Certificate. . . . . . . . . . . . . 67
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Section 9.2.5. Validity of Liens. . . . . . . . . . . . . . . . 67
Section 9.2.6. Perfection Certificates and UCC Search Results. . 67
Section 9.2.7. Reorganization Plan and Confirmation Order. . . 68
Section 9.2.8. Landlord Lien Waivers; Etc. . . . . . . . . . . 69
Section 9.2.9. Certificates of Insurance. . . . . . . . . . . . 70
Section 9.2.10. Borrowing Base Report. . . . . . . . . . . . . 70
Section 9.2.11. Opinion of Counsel. . . . . . . . . . . . . . . 70
Section 9.2.12. Payment of Fees. . . . . . . . . . . . . . . . 70
Section 9.2.13. Available Cash and Borrowing Capacity; Agency
Account Agreements. . . . . . . . . . . . . . . . . . . . . . . 70
Section 9.2.14. Post-Confirmation Capital Structure
and Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 9.2.15. Exit to Occur Concurrent With DIP
Maturity Date.. . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 9.2.16. Warrant Documents. . . . . . . . . . . . . . . 71
Section 9.2.17. Management Contracts. . . . . . . . . . . . . . 71
Section 9.2.18. Cure Payments. . . . . . . . . . . . . . . . . . 71
Section 9.2.19. Title Insurance. . . . . . . . . . . . . . . . 71
Section 9.3. To Each Loan and Issuance, Extension or Renewal of
Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 9.4. To Each Extension of the Term Loan Maturity Date. . . . 73
Section 10. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 10.1. Affirmative Covenants. . . . . . . . . . . . . . . . . 74
Section 10.2. Negative Covenants. . . . . . . . . . . . . . . . . . 81
Section 10.3. Financial Covenants. . . . . . . . . . . . . . . . . . 88
Section 10.4. Application of Financial Covenants. . . . . . . . . . 90
Section 10.5. Further Assurances. . . . . . . . . . . . . . . . . . 91
Section 11. EVENTS OF DEFAULT; ACCELERATION; ETC. . . . . . . . . . . . 92
Section 11.1. Events of Default; Acceleration.. . . . . . . . . . . . 92
Section 11.2. Remedies. . . . . . . . . . . . . . . . . . . . . . . 101
Section 11.3. Relief from Stay. . . . . . . . . . . . . . . . . . . 102
Section 11.4. Distribution of Collateral Proceeds.. . . . . . . . . . 103
Section 11.5. Priority. . . . . . . . . . . . . . . . . . . . . . . . 105
Section 12. SETOFF. . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 13. THE AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . 106
Section 13.1. Authorization. . . . . . . . . . . . . . . . . . . . . 106
Section 13.2. Employees and Agents. . . . . . . . . . . . . . . . . 107
Section 13.3. No Liability. . . . . . . . . . . . . . . . . . . . . 107
Section 13.4. No Representations. . . . . . . . . . . . . . . . . . 107
Section 13.5. Payments. . . . . . . . . . . . . . . . . . . . . . . 108
Section 13.6. Holders of Notes. . . . . . . . . . . . . . . . . . . 110
Section 13.7. Indemnity. . . . . . . . . . . . . . . . . . . . . . . 110
Section 13.8. Agent as Lender. . . . . . . . . . . . . . . . . . . . 110
Section 13.9. Resignation. . . . . . . . . . . . . . . . . . . . . . 111
Section 13.10. Notification of Defaults and Events of Default. . . . 111
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Section 13.11. Duties in the Case of Enforcement. . . . . . . . . . 111
Section 14. Assignment and Participation. . . . . . . . . . . . . . . . 112
Section 14.1. Conditions to Assignment by Banks.. . . . . . . . . . . 112
Section 14.2. Certain Representations and Warranties; Limitations;
Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Section 14.3. Register. . . . . . . . . . . . . . . . . . . . . . . 114
Section 14.4. New Notes. . . . . . . . . . . . . . . . . . . . . . . 114
Section 14.5. Participations. . . . . . . . . . . . . . . . . . . . 115
Section 14.6. Disclosure. . . . . . . . . . . . . . . . . . . . . . 115
Section 14.7. Assignee or Participant Affiliated with the Borrower. 116
Section 14.8. Miscellaneous Assignment Provisions. . . . . . . . . . 116
Section 14.9. Assignment by Borrower. . . . . . . . . . . . . . . . 117
Section 15. AGENT AND BANKS AS PARTIES IN INTEREST. . . . . . . . . . . 117
Section 16. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 117
Section 16.1. Costs and Expenses. . . . . . . . . . . . . . . . . . 117
Section 16.2. Indemnification. . . . . . . . . . . . . . . . . . . . 118
Section 16.3. Notices. . . . . . . . . . . . . . . . . . . . . . . . 118
Section 16.4. Amendment, Etc. . . . . . . . . . . . . . . . . . . . 119
Section 16.5. No Waiver. . . . . . . . . . . . . . . . . . . . . . . 121
Section 16.6. Severability. . . . . . . . . . . . . . . . . . . . . 121
Section 16.7. Governing Law. . . . . . . . . . . . . . . . . . . . . 121
Section 16.8. Transition Provision. . . . . . . . . . . . . . . . . 122
<PAGE>
AMENDED AND RESTATED
DEBTOR IN POSSESSION AND EXIT FINANCING
LOAN AGREEMENT
This AMENDED AND RESTATED DEBTOR IN POSSESSION AND EXIT FINANCING LOAN
AGREEMENT (this "Agreement") is made as of September 26, 1997, by and among
LAMONTS APPAREL, INC., a Delaware corporation (the "Borrower"), a debtor and
debtor in possession having its principal place of business and chief executive
office at 12413 Willows Road N.E., Kirkland, Washington 98034, BANKBOSTON, N.A.
(F/K/A "THE FIRST NATIONAL BANK OF BOSTON"), a national banking association, the
other lending institutions from time to time (if any) listed on SCHEDULE 1
attached hereto and BANKBOSTON, N.A. (F/K/A "THE FIRST NATIONAL BANK OF BOSTON")
as agent for itself and such other lending institutions.
WHEREAS, on January 6, 1995 (the "Filing Date"), the Borrower filed a
petition under chapter 11 of title 11 of the United States Code in the United
States Bankruptcy Court for the Western District of Washington at Seattle; and
WHEREAS, the Borrower has continued to operate its business pursuant to
Section 1107 and 1108 of the Bankruptcy Code; and
WHEREAS, pursuant to a Debtor In Possession and Exit Financing Loan
Agreement dated as of June 4, 1996 (as amended from time to time prior to the
date hereof, the "Original Credit Agreement") by and among the Borrower, the
Banks and the Agent, the Banks made a revolving credit facility in the principal
amount of $32,000,000 with a $3,000,000 sublimit for letters of credit available
to the Borrower to provide working capital for the Borrower, to finance
purchases of inventory, to refinance certain outstanding indebtedness and for
other general corporate purposes;
WHEREAS, the Borrower has requested, among other things, to amend and
restate the Original Credit Agreement so as to provide additional financing in
the form of a term loan facility for working capital requirements and general
corporate purposes and to finance a portion of the Borrower's Reorganization
Plan (as herein defined); and
WHEREAS, subject to the terms and conditions set forth herein, the Banks
have agreed to provide such facility;
NOW, THEREFORE, in consideration of these premises and of the mutual
undertakings set forth herein, the parties hereto hereby agree to amend and
restate the Original Credit Agreement in its entirety as follows as of the
Effective Date (as hereinafter defined):
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SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION.
SECTION 1.1 DEFINITIONS. The following terms shall have the meanings
set forth in this Section 1 or elsewhere in the provisions of this Agreement
referred to below:
ACCELERATION: See Section 11.3 hereof.
ADDITIONAL CLOSING FEE: An amount equal to the average daily principal
balance of the Term Loan during the period beginning on the first anniversary of
the Effective Date and ending on the Additional Closing Fee Calculation Date
multiplied by that percentage which would yield a fee of 5% per annum for such
period on such amount (pro rated for the actual number of days in such period).
ADDITIONAL CLOSING FEE CALCULATION DATE: The earlier of the Term Loan
Maturity Date (without giving effect to any Extension Period), or payment in
full of the Term Loan.
ADDITIONAL CLOSING FEE PREPAYMENT AMOUNT: An amount equal to the
outstanding principal balance of the Term Loan on the first anniversary of the
Effective Date multiplied by that percentage which would yield a fee of 5% per
annum for the period from such first anniversary date to the date which is 27
months following the Effective Date (pro rated for the actual number of days in
such period and regardless of any payments of principal on the Term Loan
actually paid during such period).
ADJUSTMENT DATE: The first day of the month immediately following the
month in which there occurs the receipt by the Banks and the Agent of the
Borrower's audited Financials for the previous fiscal year pursuant to Section
10.1(a)(i) hereof, commencing with the Adjustment Date pertaining to the fiscal
year ending January 31, 1998 and each fiscal year thereafter; PROVIDED that in
no event shall an Adjustment Date occur prior to the Exit Facility Date.
AFFILIATE: Any Person that would be considered to be an affiliate of the
Borrower (or of another relevant Person) under Rule 144(a) of the Rules and
Regulations of the Securities and Exchange Commission, as in effect on the
Effective Date, if the Borrower (or such other relevant Person) were issuing
securities.
AGENCY ACCOUNT AGREEMENTS: See Section 2.12 hereof.
AGENT: BankBoston, N.A. in its capacity as agent for the Banks.
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AGENT'S HEAD OFFICE: The office of the Agent located at 100 Federal
Street, Boston, Massachusetts 02110.
AGENT'S SPECIAL COUNSEL: Bingham, Dana & Gould LLP or such other counsel
as may be approved by the Agent.
AGREED ADMINISTRATIVE EXPENSE PRIORITIES: (a) Amounts payable pursuant to
28 U.S.C. Section 1930(a)(6), and (b) the Escrow Amount but only to the extent
allowed by the Bankruptcy Court.
AGREEMENT: See the preamble, which term shall include this Agreement as
amended, modified, supplemented or restated and in effect from time to time.
APPLICABLE RATE: See Section 2.9(c) hereof.
APPLICABLE PRICING: As applicable, the Base Rate Margin, the Eurodollar
Rate Margin, the Letter of Credit Rate, or the Exit Commitment Fee Rate, as the
case may be.
ASSEMBLY (OR ATD): Assembly Transportation Distribution Systems, Inc., a
Washington corporation (and its successors as operator of the distribution
center of the Borrower in Kent, Washington, or any similar facility from time to
time of the Borrower).
ASSIGNMENT AND ACCEPTANCE: See Section 14.1 hereof.
BANKS: The Revolving Credit Banks and the Term Loan Lender.
BANKRUPTCY CODE: Title 11, United States Code, 11 U.S.C. Sections 101 ET
SEQ.
BANKRUPTCY COURT: The United States Bankruptcy Court for the Western
District of Washington at Seattle or such other court having jurisdiction over
the Case.
BASE RATE: The higher of (a) the annual rate of interest announced from
time to time by BkB at its head office as its "base rate" and (b) one-half of
one percent (1/2%) above the Federal Funds Effective Rate.
BASE RATE LOANS: DIP Loans and/or Exit Loans bearing interest calculated
by reference to the Base Rate.
BASE RATE MARGIN: (a) At all times prior to the Exit Facility Date, the
Base Rate Margin shall be one and one-half percent (1.5%) per annum.
(b) From the Exit Facility Date to the first Adjustment Date, the Base
Rate Margin shall be one and one-half percent (1.5%) per annum. On the first
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Adjustment Date and on each subsequent Adjustment Date, by reference to the
Borrower's and its Subsidiaries' audited Financials, the Borrower's and its
Subsidiaries' (i) Consolidated EBITDA for the period of the relevant fiscal year
then most recently ended shall be calculated, and the lowest Base Rate Margin
corresponding to the results of such test on the table set forth below shall be
determined, (ii) Debt Service Coverage Ratio for the period of the relevant
fiscal year then most recently ended shall be calculated, and the lowest Base
Rate Margin corresponding to the result of such test on the table set forth
below shall be determined, (iii) Leverage Ratio determined as of the last day of
the relevant fiscal year then most recently ended shall be calculated, and the
lowest Base Rate Margin corresponding to the result of such test on the table
set forth below shall be determined. The three resulting Base Rate Margins so
indicated by applying such three tests separately shall be compared, and the
highest resulting Base Rate Margin of such three results shall then be the
applicable Base Rate Margin (until the next Adjustment Date):
<TABLE>
<CAPTION>
Consolidated Debt Service Leverage Base Rate
EBITDA Coverage Ratio Ratio Margin
------------ -------------- ----- (Per Annum)
-----------
<S> <C> <C> <C> <C>
Tier 1 Greater than or Greater than or Less than or 0.50%
equal to equal to equal to
$12,000,000 1.50 to 1.00 5.00 to 1.00
Tier 2 Greater than or Greater than or Less than or 1.00%
equal to equal to equal to
$10,000,000 1.25 to 1.00 6.00 to 1.00
Tier 3 Greater than or Greater than or Greater than 1.50%
equal to equal to 6.00
$8,000,000 1.00 to 1.00 to 1.00
Tier 4 Less than Less than 1.00 Greater than 1.75%
$8,000,000 to 1.00 6.00 to 1.00
</TABLE>
Notwithstanding the foregoing, (i) if the Borrower and its Subsidiaries
fail to deliver any audited Financials for the previous fiscal year when
required by Section 10.1(a)(i) hereof, then for the period commencing on the
last date on which such audited Financials were to have been delivered
continuing to the next Adjustment Date, the Base Rate Margin shall be the margin
set forth in Tier 4 in the table above, and (ii) all adjustments to the Base
Rate Margin shall take effect immediately with respect to all Base Rate Loans on
the applicable Adjustment Date.
BKB: BankBoston, N.A., (f/k/a The First National Bank of Boston), a
national banking association, in its individual capacity.
BOOK VALUE: With respect to inventory, the valuation thereof at the lower
of cost (using the retail last-in, first-out ("LIFO") method) or net realizable
value, determined in accordance with GAAP.
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BORROWER: See the preamble.
BORROWING BASE: At the relevant time of reference thereto, an amount
determined by the Agent by reference to the most recent Borrowing Base Report
delivered to the Banks and the Agent pursuant to Section 10.1(a)(iv), which is
equal to:
(a) At any time prior to the Exit Facility Date:
(i) 65% of the result of (A) Eligible Inventory at such time
MINUS (B) the Inventory Shrink Reserve; MINUS
(ii) the aggregate amount of any Cure Payment Reserve.
(b) At any time on or after the Exit Facility Date:
(i) 65% of the result of (A) Eligible Inventory at such time,
MINUS (B) the Inventory Shrink Reserve; MINUS
(ii) the aggregate amount of any Landlord Lien Reserves with
respect to all Specified Leases at such time.
PROVIDED, however, that the Agent shall be entitled to make reasonable
adjustments from time to time to the Borrowing Base formula and components
thereof, including without limitation any applicable advance rate, on the basis
of inventory liquidation analyses, commercial finance examinations, or
collateral audits.
BORROWING BASE REPORT: A borrowing base report signed and certified by the
chief financial officer or assistant treasurer of the Borrower and in
substantially the form of EXHIBIT A hereto.
BUSINESS DAY: Any day on which banks in Boston, Massachusetts, are open
for the transaction of banking business and, in the case of Eurodollar Rate
Loans, also a day which is a Eurodollar Business Day.
CAPITAL ASSETS: Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will); PROVIDED, that Capital Assets shall not
include any item customarily charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with GAAP.
CAPITAL EXPENDITURES: With respect to any period, amounts paid or, without
duplication, Indebtedness incurred by the Borrower or any of its Subsidiaries in
connection with the purchase or lease by the Borrower or any of its Subsidiaries
during such period of Capital Assets that would be required
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to be capitalized and shown on the balance sheet of such Person in accordance
with GAAP.
CAPITALIZED LEASES: Leases of real or personal property under which rental
payment obligations are required to be capitalized on a balance sheet of the
lessee thereof in accordance with GAAP.
CASE: The Borrower's reorganization case No. 95-00100 under chapter 11 of
the Bankruptcy Code pending in the Bankruptcy Court.
CASH COLLATERALIZED LETTERS OF CREDIT: An amount equal to the Maximum
Drawing Amount of Letters of Credit issued hereunder with respect to which cash
collateral in an amount equal to not less than 105% of the Maximum Drawing
Amount thereof has been pledged to the Agent pursuant to the requirements of
this Agreement to secure the Borrower's Reimbursement Obligations with respect
thereto.
CHARTER DOCUMENTS: In respect of any entity, the certificate or articles
of incorporation or organization and the by-laws of such entity, or other
constitutive documents of such entity.
CLOSING FEE: That certain fee payable to the Agent for the account of the
Term Loan Lender on the Effective Date pursuant to Section 6.1(f) hereof.
COLLATERAL: All of the property, rights and assets of the Borrower,
wherever located, whether now or hereafter acquired or arising, real or
personal, tangible or intangible, owned, licensed, leased (to the extent of the
Borrower's leasehold interests or licensee's interests therein), or consigned
(to the extent of the Borrower's interests therein), including, without
limitation, all accounts, inventory, equipment, instruments, documents, chattel
paper, securities, and deposit accounts as well as customer lists, trademarks
and all other general intangibles, and any and all products and proceeds
thereof, excluding (a) all of the Borrower's rights under Sections 544, 545,
547, 548, 549 and 550 of the Bankruptcy Code and (b) the Escrow Account, but in
any event including without limitation the Borrower's residual interest (if any)
in the Escrow Account.
COMMITMENT PERCENTAGE: With respect to each Revolving Credit Bank, the
percentage set forth on SCHEDULE 1 attached hereto as such Bank's percentage of
the aggregate DIP Commitments of all of the Revolving Credit Banks or the
aggregate Exit Commitments of all of the Revolving Credit Banks, as applicable.
COMPLIANCE CERTIFICATE: See Section 10.1(a)(iii) hereof.
CONFIRMATION ORDER: See Section 9.2.7 hereof.
<PAGE>
-7-
CONSENT: In respect of any person or entity, any permit, license or
exemption from, approval, consent of, registration or filing with any local,
state or federal governmental or regulatory agency or authority, required under
applicable law.
CONSOLIDATED EBITDA: For any period, the result of (a) Consolidated Net
Income (or Deficit) of the Borrower and its Subsidiaries PLUS (b) the sum of (i)
interest expense, (ii) income tax expense, (iii) depreciation and amortization
charges, (iv) other non-cash charges and non-cash reserves taken and (v)
extraordinary charges or expenses associated with the Case and the Borrower's
reorganization thereunder, MINUS (c) extraordinary gains or extraordinary
income, in each case determined in accordance with GAAP, and in the case of
items (b) and (c) to the extent included in the calculation of Consolidated Net
Income (or Deficit) and in any event without duplication.
CONSOLIDATED NET INCOME (OR DEFICIT): The consolidated net income (or
deficit) of the Borrower and its Subsidiaries, after deduction of all expenses,
taxes, and other proper charges, but before adjustments for accounting of
inventory on a LIFO basis, determined in accordance with GAAP.
CONSOLIDATED TANGIBLE NET WORTH: On any date of determination, the excess
of Consolidated Total Assets over Consolidated Total Liabilities, and less the
total book value of all assets of the Borrower and its Subsidiaries properly
classified as intangible assets under GAAP, including such items as goodwill,
the purchase price of acquired assets in excess of the fair market value
thereof, trademarks, trade names, service marks, brand names, copyrights,
patents and licenses, and rights with respect to the foregoing.
CONSOLIDATED TOTAL ASSETS: On any date of determination, all assets of the
Borrower and its Subsidiaries determined on a consolidated basis in accordance
with GAAP.
CONSOLIDATED TOTAL INTEREST EXPENSE: For any period, the aggregate amount
of all interest required to be paid or accrued by the Borrower and its
Subsidiaries during such period on all Indebtedness of the Borrower and its
Subsidiaries outstanding during all or any part of such period, whether such
interest was or is required to be reflected as an item of expense or
capitalized, including payments consisting of interest in respect of Capitalized
Leases and including commitment fees, agency fees, facility fees, balance
deficiency fees, letter of credit fees and similar fees or expenses in
connection with the borrowing of money, and excluding attorneys fees and similar
transaction expenses.
CONSOLIDATED TOTAL LIABILITIES: All liabilities of the Borrower and its
Subsidiaries determined on a consolidated basis in accordance with GAAP, and,
without duplication, all Indebtedness of the Borrower and its
<PAGE>
-8-
Subsidiaries, including without limitation, all letters of credit, whether or
not so classified.
CONVERSION REQUEST: A notice given by the Borrower to the Agent of the
Borrower's election to convert or continue a Loan pursuant to Section 2.10 or
Section 3.7.1 hereof.
CURE PAYMENT RESERVE: The total sums required by the Borrower to cure
defaults under the Real Estate Leases as a condition to the assumption of the
Real Estate Leases in the Case.
DEBT SERVICE COVERAGE RATIO: For any fiscal period, the ratio of (i)
Operating Cash Flow of the Borrower and its Subsidiaries for such period to (ii)
Total Debt Service of the Borrower and its Subsidiaries for such period.
DEFAULT: An event or act which, with the giving of notice and/or the lapse
of time, would become an Event of Default.
DELINQUENT BANK: See Section 13.5(e) hereof.
DIP COMMITMENT: With respect to each Revolving Credit Bank, the amount of
such Revolving Credit Bank's commitment to make DIP Revolving Credit Loans to,
and to participate in the issuance, extension and renewal of Letters of Credit
for the account of, the Borrower up to such Revolving Credit Bank's Commitment
Percentage of an aggregate amount not to exceed the lesser of (a) $32,000,000,
and (b) the amount approved in the Financing Order, as such amount may be
reduced from time to time or terminated hereunder.
DIP LOANS: The DIP Revolving Credit Loans and the DIP Term Loan.
DIP MATURITY DATE: The date on which the DIP Commitment expires, which
shall be the earliest of (a) February 27, 1998, and (b) the effective date of a
Reorganization Plan that has been confirmed by the Confirmation Order of the
Bankruptcy Court, and (c) twenty (20) days after the entry of the Confirmation
Order by the Bankruptcy Court, if the Reorganization Plan shall not have become
effective prior to such date.
DIP REVOLVING CREDIT LOANS: Revolving credit loans made or to be made by
the Revolving Credit Banks to the Borrower pursuant to Section 2.1 hereof.
DIP REVOLVING CREDIT NOTES: See Section 2.8(a) hereof.
DIP TERM LOAN: The term loan made or to be made by the Term Loan Lender to
the Borrower on the Effective Date in the aggregate principal amount of
$10,000,000 pursuant to Section 3.1 hereof.
DIP TERM LOAN NOTE: See Section 3.5 hereof.
<PAGE>
-9-
DIRECT COLLECTION LETTER: See Section 2.12 hereof.
DISCLOSURE STATEMENT: The Disclosure Statement pursuant to Section 1125 of
the Bankruptcy Code filed or to be filed pursuant to the Reorganization Plan.
DOLLARS OR $: Dollars in the lawful currency of the United States of
America.
DOMESTIC LENDING OFFICE: As to any Bank, the office of such Bank located
within the United States of America that will be making or maintaining Base Rate
Loans.
DRAWDOWN DATE: In respect of any Loan, the date on which such Loan is made
or to be made to the Borrower, and the date on which any Loan is converted or
continued in accordance with Section 2.10 or, as applicable, Section 3.7.1
hereof.
EFFECTIVE DATE: The first date on which the conditions set forth in
Section 9.1 and Section 9.3 hereof have been satisfied.
ELIGIBLE ASSIGNEE: Any of (a) a commercial bank organized under the laws
of the United States, or any State thereof or the District of Columbia, and
having total assets in excess of $1,000,000,000; (b) a savings and loan
association or savings bank organized under the laws of the United States, or
any State thereof or the District of Columbia, and having a net worth of at
least $100,000,000, calculated in accordance with GAAP; (c) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having total assets in excess of
$1,000,000,000, or the central bank of any country which is a member of the
OECD, PROVIDED, in each case, that such bank is acting through a branch or
agency located in the country in which it is organized or another country which
is also a member of the OECD; (d) a commercial finance company or other
financial institution organized under the laws of any State of the United States
or the District of Columbia and having a net worth, in accordance with GAAP, of
at least $500,000,000; and (e) if, but only if, an Event of Default has occurred
and is continuing, any other bank, insurance company, commercial finance company
or other financial institution or other Person approved by the Agent, such
approval not to be unreasonably withheld.
ELIGIBLE INVENTORY: An amount, equal to the Book Value and determined by
the Agent in its reasonable discretion consistent with its usual business
practices and policies, of first quality finished goods inventory owned and held
for sale by the Borrower, PROVIDED that Eligible Inventory shall not include any
inventory (i) held on consignment or not otherwise owned by the Borrower or of
<PAGE>
-10-
a type no longer sold by the Borrower, (ii) which has been returned by a
customer unless it is of first quality, not obsolete and not subject to any Lien
or legal encumbrance (or purported ownership interest of any Person, other than
of the Borrower) pursuant to the Store Credit Card Program or any other credit
card program, (iii) which is subject to any Lien or legal encumbrance, or
purported ownership interest of any Person other than of the Borrower (other
than Liens in favor of the Agent for the benefit of the Banks and landlords
Liens), (iv) which is not in the possession of the Borrower (except as provided
in clause (v) of this definition with respect to inventory in the possession of
Assembly or the Borrower's "inventory consolidators" and other applicable
Persons referred to in clause (v)) unless the Agent has received and holds a
waiver from the party in possession of such inventory in form and substance
satisfactory to the Agent, (v) which is in the possession of Assembly, or the
applicable "inventory consolidators" for the Borrower and other applicable
Persons in possession of inventory of the Borrower in a similar capacity,
unless, from and after the Exit Facility Date, the Agent has received and holds
a waiver from such relevant Person in form and substance satisfactory to the
Agent, (vi) which is not located within the United States of America, (vii) in
which the Agent does not have a first priority perfected security interest
(subject, from and after the Exit Facility Date, only to landlords' Liens, if
any, to the extent such Liens may be entitled to priority by the operation of
Law), (viii) which has been shipped to a customer of the Borrower regardless of
whether such shipment is on a consignment basis, (ix) which is not located at a
Permitted Inventory Location, (x) which is damaged, or (xi) which the Agent in
its reasonable discretion deems obsolete or not marketable or otherwise does not
consider Eligible Inventory.
ENVIRONMENTAL LAWS: All laws pertaining to environmental matters,
including without limitation, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water
Act, the Federal Clean Air Act, the Federal Oil Pollution Act, the Toxic
Substances Control Act, in each case as amended, and all rules, regulations,
judgments, decrees, orders and licenses arising under all such laws.
ERISA: The Employee Retirement Income Security Act of 1974, as amended,
and all rules, regulations, judgments, decrees, and orders arising thereunder.
ERISA AFFILIATE: Any Person which is treated as a single employer with the
Borrower under Section 414 of the IRC.
ESCROW ACCOUNT: The continuing escrow account presently maintained with
Seafirst by the Borrower for the sole purpose of setting aside funds, on a
<PAGE>
-11-
monthly basis, for the payment of professional fees and expenses incurred by the
Borrower and each of the official creditors' committees and the equity committee
in connection with the Case upon, and solely to the extent of, the allowance of
such fees and expenses by the Bankruptcy Court, PROVIDED that no funds may be so
deposited therein during the continuance of an Event of Default.
ESCROW AMOUNT: At any time of determination, the amount of cash then
standing to the credit of the Escrow Account.
EURODOLLAR RATE MARGIN: (a) At all times prior to the Exit Facility Date,
the Eurodollar Rate Margin shall be two and three-quarters percent (2.75%) per
annum.
(b) From the Exit Facility Date to the first Adjustment Date, the
Eurodollar Rate Margin shall be two and three-quarters percent (2.75%) per
annum. On the first Adjustment Date and on each subsequent Adjustment Date, by
reference to the Borrowers' and its Subsidiaries' audited Financials, the
Borrower's and its Subsidiaries' (i) Consolidated EBITDA for the period of the
relevant fiscal year then most recently ended shall be calculated, and the
lowest Eurodollar Rate Margin corresponding to the results of such test on the
table set forth below shall be determined, (ii) Debt Service Coverage Ratio for
the period of the relevant fiscal year then most recently ended shall be
calculated, and the lowest Eurodollar Rate Margin corresponding to the result of
such test on the table set forth below shall be determined, (iii) Leverage Ratio
determined as of the last day of the relevant fiscal year then most recently
ended shall be calculated, and the lowest Eurodollar Rate Margin corresponding
to the result of such test on the table set forth below shall be determined. The
three resulting Eurodollar Rate Margins so indicated by applying such three
tests separately shall be compared, and the highest resulting Eurodollar Rate
Margin of such three results shall then be the applicable Eurodollar Rate Margin
(until the next such adjustment):
<TABLE>
<CAPTION>
Consolidated Debt Service Leverage Eurodollar
EBITDA Coverage Ratio Ratio Rate Margin
------ -------------- ----- (Per Annum)
-----------
<S> <C> <C> <C> <C>
Tier 1 Greater than or Greater than or Less than or 1.75%
equal to equal to equal to
$12,000,000 1.50 to 1.00 5.00 to 1.00
Tier 2 Greater than or Greater than or Less than or 2.25%
equal to equal to equal to 6.00
$10,000,000 1.25 to 1.00 to 1.00
<PAGE>
-12-
Tier 3 Greater than or Greater than or Greater than 2.75%
equal to equal to 6.00 to 1.00
$8,000,000 1.00 to 1.00
Tier 4 Less than Less than 1.00 Greater than 3.00%
$8,000,000 to 1.00 6.00 to 1.00
</TABLE>
Notwithstanding the foregoing, (i) if the Borrower and its Subsidiaries
fail to deliver any audited Financials for the prior fiscal year as and when
required by Section 10.1(a)(i) hereof, then for the period commencing on the
last date on which such audited Financials were to have been delivered
continuing to the next Adjustment Date, the Eurodollar Rate Margin shall be the
margin set forth in Tier 4 in the table above, and (ii) all adjustments to the
Eurodollar Rate Margin as to any particular Eurodollar Rate Loan shall take
effect on the Drawdown Date (including the date of conversion to or continuation
as such) of each such Eurodollar Rate Loan occurring on or after the applicable
Adjustment Date.
EUROCURRENCY RESERVE RATE: For any day with respect to a Eurodollar Rate
Loan, the maximum rate (expressed as a decimal) at which any lender subject
thereto would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against "Eurocurrency
Liabilities" (as that term is used in Regulation D), if such liabilities were
outstanding. The Eurodollar Rate shall be adjusted automatically on and as of
the effective date of any change in the Eurocurrency Reserve Rate.
EURODOLLAR BUSINESS DAY: Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London or such
other Dollar interbank market as may be selected by the Agent in its sole
discretion acting in good faith.
EURODOLLAR LENDING OFFICE: As to any Bank, the office of such Bank located
within the United States of America that will be making or maintaining
Eurodollar Rate Loans.
EURODOLLAR RATE: For any Interest Period with respect to a Eurodollar Rate
Loan, the rate of interest per annum equal to (i) the rate at which BkB's
Eurodollar Lending Office is offered Dollar deposits two Eurodollar Business
Days prior to the beginning of such Interest Period in the interbank eurodollar
market where the eurodollar and foreign currency and exchange operations of such
Eurodollar Lending Office are customarily conducted, for delivery on the first
day of such Interest Period for the number of days comprised therein and in an
amount comparable to the amount of the Eurodollar Rate Loan of BkB to
<PAGE>
-13-
which such Interest Period applies, divided by (ii) a number equal to 1.00 minus
the Eurocurrency Reserve Rate.
EURODOLLAR RATE LOANS: Loans bearing interest calculated by reference to
the Eurodollar Rate.
EVENT OF DEFAULT: Any of the events listed in Section 11 hereof.
EXIT COMMITMENT: With respect to each Revolving Credit Bank, the amount of
such Revolving Credit Bank's commitment to make Exit Revolving Credit Loans to,
and to participate in the issuance, extension and renewal of Letters of Credit
for the account of, the Borrower up to such Revolving Credit Bank's Commitment
Percentage of an aggregate amount not to exceed the lesser of (a) if and to the
extent the DIP Commitment shall have been reduced or terminated at any time
prior to the Exit Facility Date by the Borrower or the Revolving Credit Banks
pursuant to the terms of this Agreement, the DIP Commitment in effect
immediately prior to the Exit Facility Date and (b) $32,000,000; as such amount
may be reduced from time to time or terminated hereunder.
EXIT COMMITMENT FEE RATE: From the Exit Facility Date to the first
Adjustment Date, the Exit Commitment Fee Rate shall be one half of one percent
(0.50%) per annum. On the first Adjustment Date and on each subsequent
Adjustment Date, by reference to the Borrowers' and its Subsidiaries' audited
Financials, the Borrower's and its Subsidiaries' (i) Consolidated EBITDA for the
period of the relevant fiscal year then most recently ended shall be calculated,
and the lowest Exit Commitment Fee Rate corresponding to the results of such
test on the table set forth below shall be determined, (ii) Debt Service
Coverage Ratio for the period of the relevant fiscal year then most recently
ended shall be calculated, and the lowest Exit Commitment Fee Rate corresponding
to the result of such test on the table set forth below shall be determined,
(iii) Leverage Ratio determined as of the last day of the relevant fiscal year
then most recently ended shall be calculated, and the lowest Exit Commitment Fee
Rate corresponding to the result of such test on the table set forth below shall
be determined. The three resulting Exit Commitment Fee Rates so indicated by
applying such three tests separately shall be compared, and the highest
resulting Exit Commitment Fee Rate of such three results shall then be the
applicable Exit Commitment Fee Rate (until the next such adjustment):
<PAGE>
-14-
<TABLE>
<CAPTION>
Exit Commitment
Consolidated Debt Service Leverage Fee Rate
EBITDA Coverage Ratio (per annum)
------ Ratio ----- -----------
-----
<S> <C> <C> <C> <C>
Tier 1 Greater than or Greater than or Less than or 0.375%
equal to equal to equal to
$12,000,000 1.50 to 1.00 5.00 to 1.00
Tier 2 Greater than or Greater than or Less than or 0.375%
equal to equal to equal to
$10,000,000 1.25 to 1.00 6.00 to 1.00
Tier 3 Greater than or Greater than or Greater than 0.50%
equal to equal to 6.00 to 1.00
$8,000,000 1.00 to 1.00
Tier 4 Less than Less than Greater than 0.50%
$8,000,000 1.00 to 1.00 6.00 to 1.00
</TABLE>
Notwithstanding the foregoing, (i) if the Borrower and its Subsidiaries
fail to deliver any audited Financials for the prior fiscal year as and when
required by Section 10.1(a)(i) hereof, then for the period commencing on the
last date on which such audited Financials were to have been delivered
continuing to the next Adjustment Date, the Exit Commitment Fee Rate shall be
the rate set forth in Tier 4 in the table above, and (ii) all adjustments to the
Exit Commitment Fee Rate shall take effect immediately on the applicable
Adjustment Date.
EXIT FACILITY DATE: The date on which all of the conditions precedent
under Sections 9.2 and 9.3 hereof are satisfied.
EXIT LOANS: The Exit Revolving Credit Loans and the Exit Term Loan.
EXIT MATURITY DATE: The date which is the second anniversary of the Exit
Facility Date, PROVIDED that, in the event that the Exit Maturity Date is
otherwise scheduled to extend beyond the Term Loan Maturity Date, the Exit
Maturity Date shall be concurrent with the Term Loan Maturity Date.
EXIT NOTES: The Exit Revolving Credit Notes and the Exit Term Loan Note.
EXIT REVOLVING CREDIT LOANS: Any loan converted into an Exit Revolving
Credit Loan pursuant to Section 2.3(a) hereof and any loan made or to be made to
the Borrower pursuant to Section 2.3(b) hereof.
EXIT REVOLVING CREDIT NOTES: See Section 2.8(b) hereof.
EXIT TERM LOAN: Any loan converted into an Exit Term Loan pursuant to
Section 3.3 hereof.
<PAGE>
-15-
EXIT TERM LOAN NOTE: See Section 3.5(b) hereof.
EXTENDED PERIOD: See Section 11.1 hereof.
EXTENSION DATE: The first day of any Extension Period.
EXTENSION FEE: An amount equal to the principal amount of the Term Loan
outstanding on any applicable Extension Date multiplied by 5%.
EXTENSION PERIOD: See the definition of Term Loan Maturity Date.
FEE LETTER: The letter agreement with respect to certain fees dated as of
June 4, 1996, as amended, by and between the Borrower and the Agent.
FEDERAL FUNDS EFFECTIVE RATE: For any day, the rate per annum equal to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for such day on such transactions received by the Agent from three
funds brokers of recognized standing selected by the Agent.
FILING DATE: See the preamble.
FINANCIALS: In respect of any period, the consolidated and consolidating
balance sheet(s) of any Person and its Subsidiaries as at the end of such
period, and the related consolidated and consolidating statement of income and
consolidated statement of cash flow for such period, each setting forth in
comparative form the figures for the previous comparable fiscal period, all in
reasonable detail and prepared in accordance with GAAP; subject, in the case of
such balance sheets and statements delivered at the end of fiscal periods other
than such Person's fiscal year, to year-end audit adjustments.
FINANCING ORDER: See Section 9.1.6 hereof.
GAAP: Generally accepted accounting principles consistent with those
adopted by the Financial Accounting Standards Board and its predecessor, (a)
generally, as in effect from time to time, and (b) except as otherwise expressly
provided in this Agreement, for purposes of (i) determining compliance by the
Borrower with the financial covenants set forth herein and (ii) the computation
of the financial performance tests used in the determination of the Applicable
Pricing hereunder, such principles, as in effect for the fiscal year therein
reported in the most recent Financials submitted by the Borrower to the Agent
prior to execution of this Agreement.
<PAGE>
-16-
GUARANTEED PENSION PLAN: See Section 11.1(b)(xvi) hereof.
HICKEL LITIGATION: The Borrower's claims against Hickel Investment Company
which are the subject of litigation pending in the United States District Court
for the District of Alaska as Case No. A95-0463 (HRH).
INDEBTEDNESS: In respect of any Person, all obligations, contingent and
otherwise, that in accordance with GAAP should be classified as liabilities,
including, without limitation, (a) all debt obligations, (b) all liabilities
secured by Liens, (c) all guarantees, recourse agreements, and similar
undertakings, (d) all liabilities in respect of bankers' acceptances or letters
of credit, and (e) all obligations to purchase, redeem, retire, defease or
otherwise make any payment (including mandatory dividends or distributions) in
respect of any capital stock or any warrants, rights, or options to acquire
capital stock. When used in respect of the Borrower, the term "Indebtedness"
includes the Obligations.
INTEREST PAYMENT DATE: (a) As to each Base Rate Loan, (i) the first
Business Day of each calendar month with respect to interest accrued during the
previous calendar month, including without limitation, the calendar month which
includes the Drawdown Date thereof, (ii) the DIP Maturity Date, unless the Exit
Facility Date shall have occurred, (iii), the Exit Maturity Date, if the Exit
Facility Date shall have occurred, and (iv) the Term Loan Maturity Date and (b)
as to any Eurodollar Rate Loan, (i) the last day of the Interest Period with
respect thereto, (ii) the DIP Maturity Date, unless the Exit Facility Date shall
have occurred, (iii) the Exit Maturity Date, if the Exit Facility Date shall
have occurred and (iv) the Term Loan Maturity Date.
INTEREST PERIOD: With respect to each Loan, (a) initially, the period
commencing on the Drawdown Date of such Loan and ending on the last day of one
of the periods set forth below, as selected by the Borrower in a Loan Request
(i) for any Base Rate Loan, ending on the last day of each calendar month and
(ii) for any Eurodollar Rate Loan, 1, 2 or 3 months; and (b) thereafter, each
period commencing on the last day of the next preceding Interest Period
applicable to such Loan and ending on the last day of one of the periods set
forth above, as selected by the Borrower in a Conversion Request; PROVIDED that
all of the foregoing provisions relating to Interest Periods are subject to the
following:
(A) if any Interest Period with respect to a Eurodollar Rate Loan
would otherwise end on a day that is not a Eurodollar Business Day, that
Interest Period shall be extended to the next succeeding Eurodollar
Business Day unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event such
<PAGE>
-17-
Interest Period shall end on the immediately preceding Eurodollar Business
Day;
(B) if the Borrower shall fail to give notice as provided in Section
2.10.1 or Section 3.7.1, the Borrower shall be deemed to have requested a
conversion of the affected Eurodollar Rate Loan to a Base Rate Loan and the
continuance of all Base Rate Loans as Base Rate Loans on the last day of
the then current Interest Period with respect thereto;
(C) any Interest Period relating to any Eurodollar Rate Loan that
begins on the last Eurodollar Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Eurodollar
Business Day of a calendar month; and
(D) any Interest Period relating to any Eurodollar Rate Loan that
would otherwise extend beyond (x) the DIP Maturity Date, if the Exit
Facility Date shall not have occurred, shall end on the DIP Maturity Date,
(y) the Exit Maturity Date, if the Exit Facility Date shall have occurred,
shall end on the Exit Maturity Date, and (z) the Term Loan Maturity Date
shall end on the Term Loan Maturity Date.
INVENTORY SHRINK RESERVE: At any time, an amount equal to the product of
(a) the Book Value of the Borrower's inventory multiplied by (b) the Inventory
Shrink Reserve Percentage then in effect.
INVENTORY SHRINK RESERVE PERCENTAGE: At the time of reference thereto, a
percentage reasonably determined by the Agent from time to time based on
commercial finance examinations of the Borrower and its inventory, with regard
to the Borrower's historical experience with respect to losses of inventory due
to shoplifting, employee theft, inventory errors, and other "shrinkage" events.
The parties acknowledge and agree that as of the Effective Date, the Inventory
Shrink Reserve Percentage is 2.6%.
IRC: The Internal Revenue Code of 1986.
LANDLORD LIEN RESERVE: At any time of reference, with respect to each
Specified Lease, an amount reasonably determined by the Agent as a reserve
against inventory located on the leasehold created by such Specified Lease with
respect to which the landlord thereof may have a common law or statutory
landlord's Lien for unpaid rental obligations senior in priority to the Liens
thereon in favor of the Agent for the benefit of the Banks.
LANDLORD WAIVER: A waiver from the lessor or sublessor of property leased
by the Borrower as lessee in substantially the form attached hereto as
<PAGE>
-18-
EXHIBIT B and in any event in form and substance satisfactory to the Agent in
all respects.
LAW OR LAWS: Statute(s), law(s), ordinance(s), regulation(s), order(s),
writ(s), injunction(s) or decree(s) of any political or governmental body or
Tribunal (federal, state, county, municipal, foreign or domestic, or otherwise)
having competent jurisdiction, including, without limitation, Environmental
Laws.
LETTER OF CREDIT: See Section 4.1 hereof.
LETTER OF CREDIT APPLICATION: See Section 4.1 hereof.
LETTER OF CREDIT FEE: See Section 4.6 hereof.
LETTER OF CREDIT PARTICIPATION: See Section 4.1.3 hereof.
LETTER OF CREDIT RATE:
(a) At all times prior to the Exit Facility Date, the Letter of Credit
Rate shall be one and three-quarters percent (1.75%) per annum.
(b) From the Exit Facility Date to the first Adjustment Date, the Letter
of Credit Rate shall be one and three-quarters percent (1.75%) per annum. On
the first Adjustment Date and on each subsequent Adjustment Date, by reference
to the Borrowers' and its Subsidiaries' audited Financials, the Borrower's and
its Subsidiaries' (i) Consolidated EBITDA for the period of the relevant fiscal
year then most recently ended shall be calculated, and the lowest Letter of
Credit Rate corresponding to the results of such test on the table set forth
below shall be determined, (ii) Debt Service Coverage Ratio for the period of
the relevant fiscal year then most recently ended shall be calculated, and the
lowest Letter of Credit Rate corresponding to the result of such test on the
table set forth below shall be determined, (iii) Leverage Ratio determined as of
the last day of the relevant fiscal year then most recently ended shall be
calculated, and the lowest Letter of Credit Rate corresponding to the result of
such test on the table set forth below shall be determined. The three resulting
Letter of Credit Rates so indicated by applying such three tests separately
shall be compared, and the highest resulting Letter of Credit Rate of such three
results shall then be the applicable Letter of Credit Rate (until the next such
adjustment):
<PAGE>
-19-
<TABLE>
<CAPTION>
Consolidated Debt Service Leverage Letter of Credit
EBITDA Coverage Ratio Rate (per annum)
------ Ratio ----- ----------------
-----
<S> <C> <C> <C> <C>
Tier 1 Greater than or Greater than or Less than or 1.25%
equal to equal to equal to
$12,000,000 1.50 to 1.00 5.00 to 1.00
Tier 2 Greater than or Greater than or Less than or 1.50%
equal to equal to equal to
$10,000,000 1.25 to 1.00 6.00 to 1.00
Tier 3 Greater than or Greater than or Greater than 1.75%
equal to equal to 6.00 to 1.00
$8,000,000 1.00 to 1.00
Tier 4 Less than Less than Greater than 2.00%
$8,000,000 1.00 to 1.00 6.00 to 1.00
</TABLE>
Notwithstanding the foregoing, (i) if the Borrower and its Subsidiaries
fail to deliver any audited Financials for the prior fiscal year as and when
required by Section 10.1(a)(i) hereof, then for the period commencing on the
last date on which such audited Financials were to have been delivered
continuing to the next Adjustment Date, the Letter of Credit Rate shall be the
rate set forth in Tier 4 in the table above, and (ii) all adjustments to the
Letter of Credit Rate shall take effect with respect to each particular Letter
of Credit immediately on the applicable Adjustment Date.
LEVERAGE RATIO: On any date of determination, the ratio of (i)
Consolidated Total Liabilities of the Borrower and its Subsidiaries to (ii)
Consolidated Tangible Net Worth of the Borrower and its Subsidiaries.
LIENS: Any lien, encumbrance, mortgage, pledge, hypothecation, charge,
restriction or other security interest of any kind securing any obligation of
any Person.
LIFO: See the definition of Book Value.
LOANS: Collectively, the DIP Loans and the Exit Loans.
LOAN DOCUMENTS: This Agreement, the Notes, the Purchase and Guaranty
Agreement, the Fee Letter, the Letter of Credit Applications (if any), the
Surety Power of Attorney, and the applicable Security Documents, in each case as
amended, modified, supplemented or restated and in effect from time to time.
LOCK BOX ACCOUNT: See Section 2.12 hereof.
<PAGE>
-20-
LOCK BOX AGREEMENT: The Lock Box Agreement, in form and substance
satisfactory to the Agent, between the Borrower and the Agent.
MAJORITY BANKS: Both the Majority Revolving Credit Banks and the Term Loan
Lender.
MAJORITY REVOLVING CREDIT BANKS: As of any date, the Revolving Credit
Banks holding at least 51% of the outstanding principal amount of the Revolving
Credit Notes on such date; and if no such principal is outstanding, (a) prior to
the Exit Facility Date, the Revolving Credit Banks whose aggregate DIP
Commitments constitute at least 51% of the Total DIP Commitment and (b) from and
after the Exit Facility Date, the Revolving Credit Banks whose aggregate Exit
Commitments constitute at least 51% of the Total Exit Commitment.
MATERIALLY ADVERSE EFFECT: Any materially adverse effect (resulting from
any single event or any combination of multiple events) on, or change in, the
financial condition, business operations, properties, or prospects of the
Borrower, individually or taken together, or with respect to the value of the
Collateral, or material impairment (resulting from any single event or any
combination of multiple events) of the ability of the Borrower to perform its
obligations hereunder or under any of the other Loan Documents, or material
impairment (resulting from any single event or any combination of multiple
events) of the legality, validity, or enforceability of any Loan Document or the
perfection or priority of any Lien under any of the Loan Documents.
MAXIMUM DRAWING AMOUNT: The maximum aggregate amount from time to time
that the beneficiaries may draw under all outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
MAXIMUM RATE: See Section 2.9(c) hereof.
MORTGAGED PROPERTY: Any Real Estate which is subject to any Mortgage.
MORTGAGES: The mortgages (or deeds of trust, as applicable) from the
Borrower to the Agent with respect to the fee and leasehold interests of the
Borrower in the Real Estate Collateral in form and substance satisfactory to the
Borrower, the Banks, the Surety and the Agent.
NON-REAL ESTATE COLLATERAL: The Collateral other than the Real Estate
Collateral.
NOTES: Collectively, the DIP Notes and the Exit Notes.
<PAGE>
-21-
OBLIGATIONS: All indebtedness, obligations and liabilities of the Borrower
to the Agent, the Banks and the Surety, existing on the date of this Agreement
or arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising or
incurred under this Agreement or any other Loan Document or in respect of any of
the Loans or Letters of Credit or the Notes or other instruments at any time
evidencing any thereof.
OECD: See the definition of Eligible Assignee.
OPERATING ACCOUNT: The Borrower's operating account (No. 503-20493) with
BkB.
OPERATING CASH FLOW: For any period, an amount equal (without duplication)
to (i) Consolidated EBITDA of the Borrower and its Subsidiaries for such period,
MINUS (ii) cash payments for all income taxes paid by the Borrower and its
Subsidiaries during such period, MINUS (iii) cash payments during such period on
account of Capital Expenditures by the Borrower and its Subsidiaries PLUS (iv)
to the extent otherwise deducted in the computation of Operating Cash Flow, the
sum of (A) the fees payable pursuant to Section 6.1(a) hereof, (B) the fee in
the amount of $475,000, payable to the Gordian Group on or about the Effective
Date, and (C) payments to settle prepetition tax claims as provided in the
Reorganization Plan.
ORDER: The Financing Order.
OSHA: The Occupational Safety and Health Act, as amended, and all rules,
regulations, judgments, decrees and orders arising thereunder.
PBGC: The Pension Benefit Guaranty Corporation, and any successor entity
or entities bearing similar responsibilities.
PERFECTION CERTIFICATE: The Perfection Certificate relating to the
Security Agreement, executed and delivered by the Borrower, to be in form and
substance satisfactory to the Banks and the Agent.
PERMITTED INVENTORY LOCATION(S): The retail stores and distribution
centers of the Borrower located in the United States of America and listed on
SCHEDULE 8(p) hereto, and any future retail stores of the Borrower located in
the United States of America, in each case so long as from and after the Exit
Facility Date appropriate Uniform Commercial Code financing statements or other
applicable documents showing the Borrower as debtor and the Agent as secured
party shall have been filed in the proper filing offices in a manner and form
sufficient to perfect the Agent's first priority security interest in the
<PAGE>
-22-
inventory and other assets of the Borrower located at such store or other
facility.
PERMITTED LIENS: See Section 10.2(c) hereof.
PERMITTED PRIOR LIENS: Valid, perfected and otherwise unavoidable Liens
existing as of the Effective Date and listed and described in reasonable detail
on SCHEDULE 10.2(c) attached hereto, and, only from and after the Exit Facility
Date, landlord Liens (if any) to the extent such Liens are entitled to priority
by the operation of Law over the Liens of the Agent and the Banks under the
Security Documents.
PERSON: Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
PTO: See Section 9.1.5 hereof.
PURCHASE AND GUARANTY AGREEMENT: The Purchase and Guaranty Agreement among
the Banks, the Agent, the Surety, and acknowledged by and agreed to by the
Borrower substantially in the form attached hereto as EXHIBIT C, or otherwise in
form and substance satisfactory to the Borrower, the Banks, the Agent and the
Surety, and pursuant to which the Surety guaranties the purchase or payment of
the Term Loan and the parties enter into certain intercreditor arrangements.
RATIFICATION CERTIFICATE: A certificate to be dated the Exit Facility Date
in form and substance satisfactory to the Banks, the Agent and the Surety
pursuant to which the Borrower shall ratify all of the Obligations and the Liens
securing the Obligations.
REAL ESTATE: All real property at any time owned or leased (as lessee or
sublessee) by the Borrower.
REAL ESTATE COLLATERAL: All of the Real Estate Leases and all other
Collateral which at any time consists of the Borrower's real property interests
including fixtures, but excluding the Hickel Litigation or any proceeds thereof.
REAL ESTATE LEASES: All store or other retail outlet leases to which the
Borrower is a party as of the date hereof or which may otherwise become a "Real
Estate Lease" pursuant to Section 10.5 hereof. Any Real Estate Lease shall
cease to be a "Real Estate Lease" for purposes of this Agreement if (a) the
Specified Amount for such Real Estate Lease has been paid in full and applied to
the prepayment of the Term Loan, as permitted by Section 10.2(m) hereof, or (b)
such Real Estate Lease has expired by its terms, with no renewal right or option
to extend.
<PAGE>
-23-
REGISTER: See Section 14.3 hereof.
REGISTRATION RIGHTS AGREEMENT: The Grant of Registration Rights between
the Borrower and the Term Loan Lender or its nominee substantially in the form
attached as ANNEX 3 to the Warrant Agreement or otherwise in form and substance
satisfactory to the Borrower and the Term Loan Lender or its nominee.
REIMBURSEMENT OBLIGATION: The Borrower's obligation to reimburse the Agent
and the Revolving Credit Banks on account of any drawing under any Letter of
Credit as provided in Section 4.2 hereof.
REORGANIZATION PLAN: A plan or plans of reorganization in the Case.
REQUIREMENT OF LAW: In respect of any Person, any law, treaty, rule,
regulation or determination of an arbitrator, court, or other governmental
authority, in each case applicable to or binding upon such Person or affecting
any of its property.
REVOLVING CREDIT BANKS: BkB and the other lending institutions listed on
SCHEDULE 1 attached hereto as Revolving Credit Banks and any other Person who
becomes an assignee of any rights and obligations of a Revolving Credit Bank
pursuant to Section 14 hereof.
REVOLVING CREDIT LOAN REQUEST: See Section 2.6 hereof.
REVOLVING CREDIT LOANS: The DIP Revolving Credit Loans and/or the Exit
Revolving Credit Loans, as applicable.
REVOLVING CREDIT NOTES: The DIP Revolving Credit Notes and the Exit
Revolving Credit Notes.
SEAFIRST: See Section 2.14 hereof.
SEAFIRST ACCOUNT: See Section 2.14 hereof.
SECURITY AGREEMENT: The security agreement dated as of June 4, 1996
between the Borrower and the Agent, or otherwise in form and substance
satisfactory to the Borrower, the Banks and the Agent.
SECURITY DOCUMENTS: The Security Agreement, the Perfection Certificate,
the Mortgages, the Lock Box Agreement, the Trademark Agreement, the Agency
Account Agreements, the Ratification Certificate and all other security
agreements, pledge agreements, collateral assignment agreements, mortgages,
deeds of trust, assignments, or other instruments or documents, in form and
substance satisfactory to the Agent, the Surety and the Banks, which shall grant
to the Agent, for the benefit of the Agent, the
<PAGE>
-24-
Surety and the Banks, credit support for the Obligations or Liens upon any of
the Collateral.
SETTLEMENT: The making of, or receiving of payments, in immediately
available funds, among the Revolving Credit Banks and the Agent, to the extent
necessary to cause each Revolving Credit Bank's actual share of the outstanding
amount of Revolving Credit Loans (after giving effect to any Revolving Credit
Loan Request) to be equal to each Revolving Credit Bank's Commitment Percentage
of the outstanding amount of Revolving Credit Loans (after giving effect to any
Revolving Credit Loan Request), where, prior to such event or action, the actual
share is not so equal.
SETTLEMENT AMOUNT: See Section 2.11(a) hereof.
SETTLEMENT DATE: (a) The Drawdown Date relating to any Revolving Credit
Loan Request, (b) Friday of each week, or if Friday is not a Business Day, the
Business Day immediately following such Friday, (c) the Business Day immediately
following the Agent becoming aware of the existence of an Event of Default, (d)
any Business Day on which the aggregate amount of Revolving Credit Loans
outstanding from BkB and the Agent PLUS BkB's Commitment Percentage of the sum
of the Maximum Drawing Amount and any Unpaid Reimbursement Obligations is equal
to or greater than BkB's Commitment Percentage of (i) prior to the Exit Facility
Date, the Total DIP Commitment or (ii) on or after the Exit Facility Date, the
Total Exit Commitment, or (e) the Business Day immediately following any
Business Day on which the amount of Revolving Credit Loans outstanding increases
or decreases by more than $2,000,000 as compared to the previous Settlement
Date.
SETTLING BANK: See Section 2.11(a) hereof.
SPECIAL LEASE OBLIGATIONS: See Section 10.2 hereof.
SPECIAL SHARES: See Section 9.2.7(b) hereof.
SPECIFIED AMOUNT: See Section 10.2(m)(ii)(A) hereof.
SPECIFIED LEASE: Each lease by the Borrower as Lessee of real property at
which Eligible Inventory is held and as to which the Agent has not from time to
time received evidence, in form and substance satisfactory to the Agent, that
based upon then existing law, the landlord of such property would not have or be
entitled to claim a lien on inventory superior to the security interest granted
to the Agent under the Security Agreements, securing obligations past due or
securing future obligations; PROVIDED that no lease for which the Agent shall
have received a Landlord Waiver shall be a Specified Lease.
<PAGE>
-25-
STORE CREDIT CARD PROGRAM: The Borrower's existing private label credit
card program, evidenced by and implemented pursuant to the Store Credit Card
Program Documents, and/or any other private label credit card program for
purchases of merchandise in the Borrower's stores by its customers, on terms
substantially similar to the Store Credit Card Program in effect on the
Effective Date or on terms more favorable to the Banks and the Borrower, in each
case as shall be approved by the Agent; it being understood that the Store
Credit Card Program may not, in any event, consist of a so-called receivable
"securitization" or similar receivables purchase facility.
STORE CREDIT CARD PROGRAM DOCUMENTS: The Credit Card Plan Agreement dated
as of June 20, 1988, between the Borrower and Alliance Data Systems as successor
to National City Bank, Columbus, Ohio, a national banking association (formerly
known as BancOhio National Bank), as amended by amendments dated September 30,
1992, August 23, 1993, March 30, 1994, November 2, 1994, and December, 1996 in
the respective forms thereof delivered to the Agent prior to the Effective Date,
evidencing and relating to the Store Credit Card Program, and, to the extent
each is approved by the Agent, any amendments, modifications, and successor or
substitute documents with respect thereto, evidencing or relating to the Store
Credit Card Program as in effect from time to time.
SUBSIDIARY: In respect of any Person, any business entity of which such
Person at any time owns or controls directly or indirectly more than fifty
percent (50%) of the outstanding shares of stock or similar equity interests
having voting power, regardless of whether such right to vote depends upon the
occurrence of a contingency.
SUPER-PRIORITY CLAIM: A claim against the Borrower or its estate in the
Case which is an administrative expense claim having priority over (a) any and
all allowed administrative expenses and (b) unsecured claims now existing or
hereafter arising including, without limitation, administrative expenses of the
kind specified in Section 503(b), 506(c) or 507(b) of the Bankruptcy Code.
SURETY: Any Person, satisfactory to the Term Loan Lender and the Agent in
their sole and absolute discretion, that has agreed to guaranty the purchase or
payment of the Term Loan upon the terms of the Purchase and Guaranty Agreement.
SURETY POWER OF ATTORNEY: The Power of Attorney in form and substance
satisfactory to the Borrower, the Surety and the Agent, and pursuant to which
the Borrower grants to the Surety the right, as the Borrower's attorney-in-fact,
to take certain actions from time to time with respect to the Real Estate
Collateral.
TERM LOAN: The DIP Term Loan or the Exit Term Loan as applicable.
<PAGE>
-26-
TERM LOAN LENDER: BkB in its capacity as lender of the Term Loan and any
other Person who becomes an assignee of any rights and obligations of the Term
Loan Lender pursuant to Section 14 hereof.
TERM LOAN MATURITY DATE: The earlier to occur of (a) the date which is 27
months following the Effective Date, and (b) either (i) the DIP Maturity Date if
the DIP Revolving Credit Loans are not prior to such date converted to Exit
Revolving Credit Loans, or (ii) the Exit Maturity Date if the DIP Revolving
Credit Loans are converted to Exit Revolving Credit Loans, provided that the
Term Loan Maturity Date may be extended by the Borrower for two consecutive one
year periods (each an "Extension Period") subject to the satisfaction of the
provisions contained in Section 9.4 hereof.
TITLE POLICY. Such ALTA standard form title insurance policy issued by
such title insurance company as approved by, and with such endorsements,
exceptions and affirmative insurance satisfactory to, the Borrower, the Agent,
the Term Loan Lender and the Surety.
TOTAL DEBT SERVICE: For any period, an amount equal to the result (without
duplication) of (a) Consolidated Total Interest Expense and any other cash
financing fees for such period, but excluding to the extent otherwise included
in the computation of Total Debt Service, the sum of (i) the fees payable
pursuant to Section 6.1(a) hereof, (ii) the fee in the amount of $475,000,
payable to the Gordian Group on or about the Effective Date, and (iii) payments
to settle prepetition tax claims as provided in the Reorganization Plan, PLUS
(b) the sum of all payments with respect to principal on Indebtedness that
became due and payable or are due to become due and payable during such period
pursuant to any agreement or instrument to which the Borrower or any of its
Subsidiaries is a party relating to the borrowing of money or the obtaining of
credit or in respect of Capitalized Leases, PROVIDED that demand obligations
shall be deemed to be due and payable during every fiscal period during which
such obligations are outstanding.
TOTAL DIP COMMITMENT: The sum of the DIP Commitments of the Revolving
Credit Banks, as in effect from time to time.
TOTAL EXIT COMMITMENT: The sum of the Exit Commitments of the Revolving
Credit Banks, as in effect from time to time.
TOTAL REVOLVER OUTSTANDINGS: At any time of determination, the sum of (a)
the aggregate principal amount of Revolving Credit Loans outstanding, PLUS (b)
the Maximum Drawing Amount of all Letters of Credit, PLUS (c) all Unpaid
Reimbursement Obligations.
TRADEMARK AGREEMENT: The Trademark Collateral Assignment and Security
Agreement dated as of a date on or prior to the Exit Facility Date
<PAGE>
-27-
made by the Borrower in favor of the Agent and in form and substance
satisfactory to the Banks and the Agent.
TRIBUNAL: Any agency, board, business, commission, court, department,
instrumentality or tribunal of any political or government authority having
competent legislative or judicial jurisdiction.
TYPE: As to any DIP Loan or Exit Loan, its nature as a Base Rate Loan or a
Eurodollar Rate Loan.
UCC: See Section 9.1.5 hereof.
UNIFORM CUSTOMS: The Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500 or any
successor thereto.
UNPAID REIMBURSEMENT OBLIGATION: Any Reimbursement Obligation for which
the Borrower has not reimbursed the Agent and the Banks on the date specified
in, and in accordance with, Section 4.2 hereof.
WARRANT AGREEMENT: The Warrant Agreement between the Borrower and the Term
Loan Lender, or its nominee, substantially in the form attached hereto as
EXHIBIT D, or otherwise in form and substance satisfactory to the Borrower, the
Term Loan Lender or its nominee.
WARRANT DOCUMENTS: The Warrant Agreement, the Registration Rights
Agreement and the Warrants.
WARRANTS: The Warrants substantially in the form attached as ANNEX 1 to
the Warrant Agreement or otherwise in form and substance satisfactory to the
Borrower, and Term Loan Lender or its nominee.
SECTION 1.2. RULES OF INTERPRETATION.
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to
time in accordance with its terms and the terms of this Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification to
such law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
<PAGE>
-28-
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by GAAP applied on a consistent basis by the accounting
entity to which they refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by GAAP, which
terms are defined in the Uniform Commercial Code as in effect in
Massachusetts, have the meanings assigned to them therein.
(h) Reference to a particular "Section " refers to that section of
this Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like
import shall refer to this Agreement as a whole and not to any particular
section or subdivision of this Agreement.
SECTION 2. DEBTOR IN POSSESSION AND EXIT REVOLVING CREDIT FACILITIES.
SECTION 2.1 COMMITMENT TO LEND DIP REVOLVING CREDIT LOANS.
(a) Upon the terms and subject to the conditions of this
Agreement, each of the Revolving Credit Banks severally agrees to lend
to the Borrower such sums that the Borrower may request from time to
time up to a maximum aggregate amount outstanding (after giving effect
to all amounts requested) at any one time equal to such Revolving
Credit Bank's DIP Commitment MINUS such Revolving Credit Bank's
Commitment Percentage of the sum of the Maximum Drawing Amount and all
Unpaid Reimbursement Obligations, from the date hereof until but not
including the DIP Maturity Date, PROVIDED that (i) the Total Revolver
Outstandings (after giving effect to all amounts requested) shall not
exceed the lesser of (A) the Total DIP Commitment, and (B) the amount
approved to be borrowed by way of DIP Revolving Credit Loans and
Letters of Credit in the Financing Order, and (ii) the Total Revolver
Outstandings (after giving effect to all amounts required) MINUS Cash
Collateralized Letters of Credit shall not exceed the Borrowing Base
then in effect.
(b) Notwithstanding the provisions of Section 2.1(a), if (i) the
Borrower in a Revolving Credit Loan Request irrevocably designates proceeds
of any Revolving Credit Loan to be used to satisfy obligations owing to a
landlord of a Real Estate Lease for which there is an amount included in
the Cure Payment Reserve, and (ii) arrangements are in place satisfactory
to the Agent for such proceeds to be paid to such landlord for
<PAGE>
-29-
application to such cure payment amount owing to such landlord, the
Borrowing Base shall be computed for purposes of Section 2.1(a) to take
into account the reduction in the Cure Payment Reserve to be effected by
the payment of such Revolving Credit Loan proceeds to such landlord for
application as a cure payment.
(c) Except as otherwise provided herein, the DIP Revolving Credit
Loans shall be made PRO RATA in accordance with each Bank's Commitment
Percentage. Loans made to the Borrower pursuant to the Original Credit
Agreement shall constitute DIP Revolving Credit Loans under this Agreement.
SECTION 2.2 REPAYMENTS OF DIP REVOLVING CREDIT LOANS.
(a) The Borrower hereby agrees to pay each Revolving Credit Bank on
the DIP Maturity Date, unless the Exit Facility Date occurs on such date
and the DIP Revolving Credit Loans outstanding on such date are converted
into Exit Revolving Credit Loans as provided in Section 2.3 hereof, the
entire unpaid principal of and interest on such Revolving Credit Bank's DIP
Revolving Credit Note. If the Exit Facility Date does not occur on the DIP
Maturity Date, all other Obligations evidenced by the DIP Revolving Credit
Notes shall, if not sooner paid, become and be absolutely due and payable
by the Borrower on the DIP Maturity Date.
(b) The Borrower may elect to prepay the outstanding principal
of all or any part of any DIP Revolving Credit Loan, without premium
or penalty, PROVIDED that any full or partial prepayment of the
outstanding amount of any Eurodollar Rate Loan pursuant to this
Section 2.2(b) made on any day other than the last day of the Interest
Period relating thereto shall subject the Borrower to the
indemnification provisions of Section 5.6 hereof. Except as otherwise
provided in Section 2.12, the Borrower shall give the Agent written,
telegraphic or telephonic notice no later than (i) 10:00 a.m. Boston
time on the date of such prepayment of Base Rate Loans and (ii) 12:00
noon Boston time three (3) Eurodollar Business Days prior to the date
of such prepayment of Eurodollar Rate Loans, in either case specifying
the proposed date of prepayment and the principal amount to be
prepaid. Each such partial prepayment of the DIP Revolving Credit
Loans shall be applied, in the absence of instruction by the Borrower,
first to the principal of Base Rate Loans and then to the principal of
Eurodollar Rate Loans. Subject to the conditions of Section 2.1
hereof, amounts so prepaid may be reborrowed.
(c) If at any time the DIP Revolving Credit Loans outstanding
shall exceed any specific amount approved to be borrowed solely by way
of DIP Revolving Credit Loans in the Financing Order, the Borrower
<PAGE>
-30-
shall immediately pay the amount of such excess to the Agent for pro rata
application to the DIP Revolving Credit Loans in accordance with each
Revolving Credit Bank's Commitment Percentage. If at any time the Total
Revolver Outstandings shall exceed the lesser of (i) the Total DIP
Commitment, and (ii) the amount approved to be borrowed by way of DIP
Revolving Credit Loans and Letters of Credit in the Financing Order, the
Borrower shall immediately pay the amount of such excess to the Agent for
PRO RATA application to the DIP Revolving Credit Loans in accordance with
each Bank's Commitment Percentage or, if no DIP Revolving Credit Loans are
then outstanding, to be held by the Agent as cash collateral to secure
payment of all Reimbursement Obligations up to the amount of 105% of the
Maximum Drawing Amount. If at any time the Total Revolver Outstandings
MINUS Cash Collateralized Letters of Credit shall exceed the Borrowing Base
then in effect, the Borrower shall immediately pay the amount of such
excess to the Agent for PRO RATA application to the DIP Revolving Credit
Loans in accordance with each Revolving Credit Bank's Commitment Percentage
or, if no DIP Revolving Credit Loans are then outstanding, to be held by
the Agent as cash collateral to secure payment of all Reimbursement
Obligations up to the amount of 105% of the Maximum Drawing Amount.
(d) Prior to the Exit Facility Date, during a period of thirty (30)
consecutive days during the period beginning on December 15, 1997, and
ending on January 31, 1998, the Borrower shall be required to make such
prepayments in respect of the DIP Revolving Credit Loans and to take such
other actions as shall be necessary to cause the aggregate amount of the
Total Revolver Outstandings not to exceed $21,500,000 on each day of such
period.
SECTION 2.3 CONVERSION OF DIP REVOLVING CREDIT LOANS INTO EXIT REVOLVING
CREDIT LOANS; COMMITMENT TO LEND EXIT REVOLVING CREDIT LOANS.
(a) Upon the satisfaction of the conditions precedent set forth
in Sections 9.2 and 9.3 hereof, the DIP Revolving Credit Loans
outstanding on the Exit Facility Date shall automatically convert into
Exit Revolving Credit Loans hereunder.
(b) Upon the terms and subject to the conditions of this Agreement,
each of the Revolving Credit Banks severally agrees to lend to the Borrower
such sums that the Borrower may request up to a maximum aggregate amount
outstanding (after giving effect to all amounts requested) at any one time
equal to such Revolving Credit Bank's Exit Commitment MINUS such Revolving
Credit Bank's Commitment Percentage of the sum of the Maximum Drawing
Amount
<PAGE>
-31-
and all Unpaid Reimbursement Obligations, from the Exit Facility Date until
but not including the Exit Maturity Date, PROVIDED that (i) the Total
Revolver Outstandings (after giving effect to all amounts requested) shall
not exceed the Total Exit Commitment and (ii) the Total Revolver
Outstandings (after giving effect to all amounts requested) MINUS Cash
Collateralized Letters of Credit shall not exceed the Borrowing Base then
in effect. Except as otherwise provided herein, the Exit Revolving Credit
Loans shall be made PRO RATA in accordance with each Revolving Credit
Bank's Commitment Percentage.
SECTION 2.4 REPAYMENT OF EXIT REVOLVING CREDIT LOANS.
(a) The Borrower hereby agrees to pay each Revolving Credit Bank on
the Exit Maturity Date the entire unpaid principal of and interest on such
Revolving Credit Bank's Exit Revolving Credit Note. All other Obligations
evidenced by the Exit Revolving Credit Notes shall, if not sooner paid,
become and be absolutely due and payable by the Borrower on the Exit
Maturity Date.
(b) The Borrower may elect to prepay the outstanding principal
of all or any part of any Exit Revolving Credit Loan, without premium
or penalty, PROVIDED that any full or partial prepayment of the
outstanding amount of any Eurodollar Rate Loan pursuant to this
Section 2.4(b) made on any day other than the last day of the Interest
Period with respect thereto shall subject the Borrower to the
indemnification provisions of Section 5.6 hereof. Except as otherwise
provided in Section 2.12, the Borrower shall give the Agent written
telegraphic or telephonic notice no later than (i) 10:00 a.m. Boston
time on the date of such prepayment of Base Rate Loans and (ii) 12:00
noon Boston time three (3) Eurodollar Business Days prior to the date
of such prepayment of Eurodollar Rate Loans, in either case specifying
the proposed date of prepayment and the principal amount to be
prepaid. Each such partial prepayment of the Exit Revolving Credit
Loan shall be applied, in the absence of instruction by the Borrower,
first to the principal of Base Rate Loans and then to the principal of
Eurodollar Rate Loans. Subject to the conditions of Section 2.3(b)
hereof, amounts so prepaid may be reborrowed.
(c) If at any time the Total Revolver Outstandings shall exceed the
Total Exit Commitment then in effect, the Borrower shall immediately pay
the amount of such excess to the Agent for PRO RATA application to the Exit
Revolving Credit Loans in accordance with each Revolving Credit Bank's
Commitment Percentage or, if no Exit Revolving Credit Loans are then
outstanding, to be held by the Agent as cash collateral to secure payment
of all Reimbursement Obligations up to the amount of 105% of the Maximum
Drawing Amount. If at any time
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the Total Revolver Outstandings MINUS Cash Collateralized Letters of Credit
shall exceed the Borrowing Base then in effect, the Borrower shall
immediately pay the amount of such excess to the Agent for PRO RATA
application to the Exit Revolving Credit Loans in accordance with each
Revolving Credit Bank's Commitment Percentage or, if no Exit Revolving
Credit Loans are then outstanding, to be held by the Agent as cash
collateral to secure payment of all Reimbursement Obligations up to the
amount of 105% of the Maximum Drawing Amount.
(d) From and after the Exit Facility Date, during a period of thirty
(30) consecutive days during each period beginning on December 15 of any
calendar year and ending on January 31 of the immediately following
calendar year, the Borrower shall be required to make such prepayments in
respect of the Exit Revolving Credit Loans and to take such other actions
as shall be necessary to cause the aggregate amount of the Total Revolver
Outstandings not to exceed $20,500,000 on each day of such applicable
period of thirty (30) consecutive days.
SECTION 2.5 REDUCTION OF COMMITMENTS. The Borrower may elect to reduce
the Total DIP Commitment or the Total Exit Commitment, as applicable, by a
minimum principal amount of $1,000,000 or a greater integral multiple of
$1,000,000 or to terminate the Total DIP Commitment or the Total Exit
Commitment, as applicable, upon written notice to the Agent given by 10:00 a.m.
Boston time at least two (2) Business Days prior to the date of such reduction
or termination. The Borrower shall not be entitled to reinstate the Total DIP
Commitment or the Total Exit Commitment, as applicable, following any such
reduction or termination.
SECTION 2.6 REQUEST FOR REVOLVING CREDIT LOAN ADVANCES. Except as
otherwise provided in Section 2.7 hereof, the Borrower shall notify the Agent in
writing or telephonically (each such notice, a "Revolving Credit Loan Request"),
not later than (a) 3:00 p.m. Boston time on the day of the Drawdown Date (which
date must be a Business Day) of any Base Rate Loan being requested and (b) 12:00
noon Boston time three (3) Eurodollar Business Days prior to the proposed
Drawdown Date of any Eurodollar Rate Loan. Each such Revolving Credit Loan
Request shall specify (i) the principal amount of the Revolving Credit Loan
requested (which shall be, in the case of any Eurodollar Rate Loan, in a minimum
aggregate amount of $1,000,000 or a whole multiple of $100,000 in excess
thereof), (ii) the proposed Drawdown Date of such Revolving Credit Loan, (iii)
the Interest Period for such Revolving Credit Loan and (iv) the Type of such
Revolving Credit Loan. No Revolving Credit Loan may be made as a Eurodollar
Rate Loan during the continuance of a Default or Event of Default. Promptly
upon receipt of any such notice, the Agent shall notify each of the Revolving
Credit Banks thereof. Subject to the foregoing and except as otherwise provided
in Section 2.7 hereof, so long as the DIP Commitments
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or the Exit Commitments, as applicable, are then in effect and the applicable
conditions set forth in Section 9 hereof have been met, each of the Revolving
Credit Banks will make available to the Agent no later than 4:00 p.m. Boston
time on the Drawdown Date, at the Agent's Head Office, in immediately available
funds, its PRO RATA share, based upon such Revolving Credit Bank's Commitment
Percentage, of the amount requested. Except as otherwise provided in Section
2.7 hereof, upon receipt from each Revolving Credit Bank of such amount, the
Agent will make available to the Borrower the aggregate amount of such Revolving
Credit Loan by transferring such amount to the Operating Account not later than
the close of business on such Drawdown Date. The Borrower shall be deemed to
make and to have made automatic Revolving Credit Loan Requests for Base Rate
Loans from time to time at the appropriate times, and in the appropriate
amounts, necessary to credit sufficient funds to the Operating Account for
direct application to the payment when due of any and all interest, fees and
expenses payable with respect to the Loans, and scheduled principal installments
of the Term Loan pursuant to Section 3.2.1 hereof.
SECTION 2.7 OTHER METHODS OF FUNDING; AUTHORIZED ADVANCES.
Notwithstanding the notice requirement set forth in Section 2.6 hereof, but
otherwise in accordance with the terms and conditions of this Agreement,
(a) each of the Revolving Credit Banks agrees to make DIP Revolving
Credit Loans or, as the case may be, Exit Revolving Credit Loans (from and
after the Exit Facility Date) to the Borrower sufficient to pay any Unpaid
Reimbursement Obligations on the date on which such Reimbursement
Obligations become Unpaid Reimbursement Obligations;
(b) the Agent may, in its sole discretion and without conferring
with the Banks, make DIP Revolving Credit Loans or, as the case may
be, Exit Revolving Credit Loans (from and after the Exit Facility
Date) to the Borrower hereunder (i) by causing funds to be credited to
the Operating Account to cover checks or other items or charges which
the Borrower has drawn or made against such account or (ii) in amounts
as otherwise requested by the Borrower as set forth in Section 2.6;
and
(c) the Agent may, in its sole discretion and without conferring
with the Banks, make DIP Revolving Credit Loans or, as the case may
be, Exit Revolving Credit Loans (from and after the Exit Facility
Date) by causing funds in the appropriate sufficient amounts to be
credited to the Operating Account for direct application to the
payment when due of any and all interest, fees and expenses payable
hereunder.
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The Borrower hereby requests and authorizes the Agent to make from time to
time such Revolving Credit Loans (A) by means of paying such Unpaid
Reimbursement Obligations, (B) by advancing funds that are credited to the
Operating Account sufficient to cover checks and other items or charges then
presented to the Operating Account, or otherwise funding the Operating Account,
and (C) by advancing funds that are credited to the Operating Account sufficient
to cover any and all interest, fees and expenses payable hereunder, and hereby
authorizes and requests the Agent to debit the Operating Account in an amount
equal to any such interest, fees and expenses. The Borrower acknowledges and
agrees that the making of such Loans shall, in each case, be subject in all
respects to provisions of this Agreement including, without limitation, the
limitations set forth in Sections 2.1 and 2.3 hereof and the requirements that
the applicable conditions in Section 9 hereof be satisfied. All actions taken
by the Agent pursuant to the provisions of this Section 2.7 shall be conclusive
and binding on the Borrower, absent manifest error. Loans made pursuant to this
Section 2.7 shall be Base Rate Loans until converted in accordance with the
provisions of this Agreement, and prior to a Settlement, interest on Loans made
pursuant to this Section 2.7 shall be for the account of the Agent.
SECTION 2.8 REVOLVING CREDIT NOTES.
(a) The obligation of the Borrower to repay to the Revolving Credit
Banks the principal of the DIP Revolving Credit Loans and interest accrued
thereon shall be evidenced by separate promissory notes dated the Effective
Date (the "DIP Revolving Credit Notes"), completed with the appropriate
insertions and in the form attached hereto as EXHIBIT E. One DIP Revolving
Credit Note shall be payable to the order of each Revolving Credit Bank in
a principal amount equal to such Revolving Credit Bank's DIP Commitment or,
if less, the outstanding amount of all DIP Revolving Credit Loans made by
such Revolving Credit Bank, plus interest accrued thereon, as set forth
below.
(b) The obligation of the Borrower to repay to the Revolving Credit
Banks the principal of the Exit Revolving Credit Loans and interest accrued
thereon shall be evidenced by separate promissory notes dated the Exit
Facility Date (the "Exit Revolving Credit Notes"), completed with the
appropriate insertions and in the form attached hereto as EXHIBIT F. One
Exit Revolving Credit Note shall be payable to the order of each Revolving
Credit Bank in a principal amount equal to such Revolving Credit Bank's
Exit Commitment or, if less, the outstanding amount of all Exit Revolving
Credit Loans made by such Revolving Credit Bank, plus interest accrued
thereon, as set forth below.
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SECTION 2.9 INTEREST ON REVOLVING CREDIT LOANS.
(a) So long as no Event of Default has occurred and is continuing,
the Borrower shall pay interest on the Revolving Credit Loans as follows:
(i) the Base Rate Loans shall bear interest for the period commencing with
the respective Drawdown Dates thereof and ending on the last day of the
Interest Period with respect thereto at the rate per annum which is equal
to the sum of (A) the Base Rate PLUS (B) the Base Rate Margin as in effect
from time to time, (ii) each Eurodollar Rate Loan shall bear interest for
the period commencing with the Drawdown Date thereof and ending on the last
day of the Interest Period with respect thereto at the rate per annum which
is equal to the sum of (A) the Eurodollar Rate determined for such Interest
Period PLUS (B) the Eurodollar Rate Margin as in effect from time to time,
and (iii) the Borrower promises to pay interest on each Loan in arrears on
each Interest Payment Date with respect thereto.
(b) While an Event of Default is continuing amounts payable under any
of the Loan Documents, except with respect to the Term Loan and the Term
Loan Note for which provision is made in Section 3.6(b), shall bear
interest (compounded monthly and payable on demand in respect of overdue
amounts) at a rate per annum which is equal to the greater of (i) the sum
of (A) the Base Rate PLUS (B) three percent (3%) and (ii) the applicable
rate of interest otherwise applicable to the principal of any Revolving
Credit Loans included in such overdue amounts, until such amount is paid in
full (after as well as before judgment) or until such Event of Default has
been cured or waived in writing in accordance with Section 16.4 hereof.
(c) Notwithstanding any other provision of this Agreement, no
Revolving Credit Loan shall bear interest at a rate per annum (the
"Applicable Rate") greater than the Maximum Rate permitted by applicable
Law as the same exists from day to day during the term hereof (the "Maximum
Rate"). If at any time the Applicable Rate shall exceed the Maximum Rate,
thereby causing the interest on the Revolving Credit Loans to be limited to
the Maximum Rate, then any subsequent reduction in the Applicable Rate
shall not reduce the rate of interest on the Revolving Credit Loans below
the Maximum Rate until the aggregate amount of interest accrued on the
Revolving Credit Loans equals the aggregate amount of interest which would
have accrued on the Revolving Credit Loans if the Applicable Rate had at
all times been in effect.
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SECTION 2.10 CONVERSION OPTIONS FOR BASE RATE AND EURODOLLAR LOANS.
SECTION 2.10.1 CONVERSION TO DIFFERENT TYPE OF REVOLVING CREDIT
LOAN. The Borrower may elect from time to time to convert any
outstanding Revolving Credit Loan to a Revolving Credit Loan of
another Type, PROVIDED that (a) with respect to any such conversion of
a Eurodollar Rate Loan to a Base Rate Loan, the Borrower shall give
the Agent written notice of such election no later than 12:00 Noon
Boston time on the proposed date of such conversion; (b) with respect
to any such conversion of a Base Rate Loan to a Eurodollar Rate Loan,
the Borrower shall give the Agent written notice of such election no
later than 12:00 Noon Boston time three (3) Eurodollar Business Days
prior to the proposed date of such conversion; (c) with respect to any
such conversion of a Eurodollar Rate Loan into a Revolving Credit Loan
of another Type, such conversion shall only be made on the last day of
the Interest Period with respect thereto; and (d) no Revolving Credit
Loan may be made as, or converted into, a Eurodollar Rate Loan during
the continuance of a Default or Event of Default. On the date on
which such conversion is being made each Revolving Credit Bank shall
take such action as is necessary to fund such Loans through its
Domestic Lending Office or its Eurodollar Lending Office, as the case
may be. All or any part of outstanding Revolving Credit Loans of any
Type may be converted into a Revolving Credit Loan of another Type as
provided herein, PROVIDED that any partial conversion into a
Eurodollar Rate Loan shall be in a minimum aggregate amount of
$1,000,000 or a whole multiple of $100,000 in excess thereof. Each
Conversion Request relating to the conversion of a Revolving Credit
Loan to a Eurodollar Rate Loan shall be irrevocable by the Borrower.
The Revolving Credit Loans shall bear interest at the Base Rate unless
a Revolving Credit Loan Request or a Conversion Request for a
Eurodollar Rate Loan with respect to any Revolving Credit Loan is made
by the Borrower and such request has become effective.
SECTION 2.10.2 CONTINUATION OF TYPE OF REVOLVING CREDIT LOAN.
Any Revolving Credit Loan of any Type may be continued as a Revolving
Credit Loan of the same Type upon the expiration of an Interest Period
with respect thereto by compliance by the Borrower with the notice
provisions contained in Section 2.10.1; PROVIDED that no Eurodollar
Rate Loan may be continued as such when any Default or Event of
Default has occurred and is continuing, but shall be converted
automatically to a Base Rate Loan on the last day of the first
Interest Period relating thereto ending during the continuance of any
Default or Event of Default of which officers of the Agent active upon
the Borrower's account have actual knowledge. In the event that the
Borrower fails to provide any such notice with respect to the
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continuation of any Eurodollar Rate Loan, such Eurodollar Rate Loan shall
be automatically converted to a Base Rate Loan on the last day of the
applicable Interest Period relating thereto. The Agent shall notify the
Revolving Credit Banks when any such automatic conversion contemplated by
this Section 2.10 is scheduled to occur.
SECTION 2.10.3 EURODOLLAR RATE LOANS. Any conversion to or from
Eurodollar Rate Loans shall be in such amounts and shall be made
pursuant to such elections so that, after giving effect thereto, the
aggregate principal amount of all Eurodollar Rate Loans having the
same Interest Period shall not be less than $1,000,000 or a whole
multiple of $100,000 in excess thereof. No more than four (4)
Eurodollar Rate Loans, comprising Revolving Credit Loans, having
different Interest Periods shall be outstanding at any time.
SECTION 2.11 SETTLEMENTS; FAILURE TO MAKE FUNDS AVAILABLE.
(a) On each Settlement Date, the Agent shall, not later than
1:00 p.m. Boston time, give telephonic or facsimile notice (i) to the
Revolving Credit Banks and the Borrower of the respective outstanding
amount of Revolving Credit Loans made by the Agent on behalf of the
Revolving Credit Banks from the immediately preceding Settlement Date
through the close of business on the prior day, (ii) to the Revolving
Credit Banks of the unfunded amount, if any, of each Revolving Credit
Loan requested pursuant to Sections 2.1 or 2.3 hereof as of such date,
and (iii) to the Revolving Credit Banks of the amount (a "Settlement
Amount") that each Revolving Credit Bank (the "Settling Bank") shall
pay to effect a Settlement of any Revolving Credit Loan. A statement
of the Agent submitted to the Revolving Credit Banks and the Borrower
or to the Revolving Credit Banks with respect to any amounts owing
under this Section 2.11 shall be PRIMA FACIE evidence of the amount
due and owing. Each Settling Bank shall, not later than 3:00 p.m.
Boston time on such Settlement Date, effect a wire transfer of
immediately available funds to the Agent in the amount of the
Settlement Amount. All funds advanced by any Revolving Credit Bank as
a Settling Bank pursuant to this Section 2.11 shall for all purposes
be treated as a Revolving Credit Loan made by such Settling Bank to
the Borrower and all funds received by any Revolving Credit Bank
pursuant to this Section 2.11 shall for all purposes be treated as a
repayment of amounts owed with respect to Revolving Credit Loans made
by such Revolving Credit Bank.
(b) The Agent may, unless notified to the contrary by any
Revolving Credit Bank prior to a Settlement Date, assume that such
Revolving Credit Bank has made or will make available to the Agent on
such Settlement Date the amount of such Revolving Credit Bank's
Settlement
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Amount, and the Agent may (but it shall not be required to), in reliance
upon such assumption, make available to the Borrower a corresponding
appropriate amount of a requested Revolving Credit Loan. If any Revolving
Credit Bank makes available to the Agent such amount on a date after such
Settlement Date, such Revolving Credit Bank shall pay to the Agent on
demand an amount equal to the product of (i) the average computed for the
period referred to in clause (iii) below, of the weighted average interest
rate paid by the Agent for federal funds acquired by such Agent during each
day included in such period, TIMES (ii) the amount of such Settlement
Amount, TIMES (iii) a fraction, the numerator of which is the number of
days that elapse from and including such Settlement Date to the date on
which the amount of such Settlement Amount shall become immediately
available to such Agent, and the denominator of which is 365. A statement
of the Agent submitted to such Revolving Credit Bank with respect to any
amounts owing under this paragraph shall be PRIMA FACIE evidence of the
amount due and owing to the Agent by such Revolving Credit Bank. If such
Revolving Credit Bank's Settlement Amount is not made available to the
Agent by such Revolving Credit Bank within three (3) Business Days
following such Settlement Date, such Revolving Credit Bank shall be deemed
to be a Delinquent Bank and the provisions of Section 13.5(e) hereof shall
apply thereto.
(c) The failure or refusal of any Revolving Credit Bank to make
available to the Agent at the aforesaid time and place on any
Settlement Date the amount of its Settlement Amount (i) shall not
relieve any other Revolving Credit Bank from its several obligations
hereunder to make available to the Agent the amount of such other
Revolving Credit Bank's Settlement Amount and (ii) shall not impose
upon such other Revolving Credit Bank any liability with respect to
such failure or refusal or otherwise increase the DIP Commitment or
the Exit Commitment, as the case may be, of such other Revolving
Credit Banks.
SECTION 2.12 LOCK BOX ACCOUNT AND APPLICATION OF FUNDS.
(a) The Borrower will, subject to Section 2.14 hereof, (i) continue to
maintain a depository lock box and concentration account (the "Lock Box
Account") with the Agent and under the control of the Agent, as contemplated by
this Agreement and by the terms of the Lock Box Agreement, and (ii) except as
otherwise provided in Section 2.14 hereof, and except for those certain types of
payments described on SCHEDULE 2.12A hereto, at all times direct its account
debtors and obligors on instruments or its other obligors with respect to any of
the Non-Real Estate Collateral, including payments with respect to the Store
Credit Card Program, in each case pursuant to a notification letter (a "Direct
Collection Letter") in form and substance satisfactory to the Agent, to make all
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payments on or with respect to any of the Non-Real Estate Collateral due or to
become due to the Borrower (and, except as otherwise provided below in this
Section 2.12 with respect to cash allowed to be held in the Borrower's stores
overnight and funds properly held in payroll accounts (whether for payroll or
for applicable withholding tax) or sales tax trust accounts, the Borrower will
at all times otherwise cause all cash proceeds of Collateral and other funds it
may hold or receive from time to time to be deposited and transferred) directly
to the Lock Box Account or into one or more of the deposit accounts maintained
with the institutions listed on SCHEDULE 2.12 attached hereto (other than
accounts thereon described as payroll accounts or sales tax trust accounts), for
each of which deposit accounts there shall be in full force and effect (other
than for such payroll accounts and such sales tax trust accounts) an agency
account agreement in form and substance satisfactory to the Agent (collectively,
the "Agent Account Agreements") pursuant to which all collected funds in each
such deposit account (other than amounts not to exceed $500,000 with respect to
all such accounts in the aggregate which may be retained therein on an overnight
basis as of the end of each day, except that such amount shall be zero during
the continuance of an Event of Default occurring upon the stated maturity of the
Obligations or in respect of which there is an Acceleration in effect) shall be
transferred to the Lock Box Account on a daily basis. If, notwithstanding the
issuance of such Direct Collection Letters or any prior instructions, the
Borrower receives any cash proceeds of any of the Non-Real Estate Collateral,
whether in the form of money, checks or otherwise, such Person will hold such
cash proceeds in trust for the benefit of the Agent and the Banks and deposit
such cash proceeds within one (1) Business Day following receipt thereof into
any deposit account for which an Agency Account Agreement is in effect or within
one (1) Business Day following receipt thereof turn over such cash proceeds
(other than, in any such event, an amount of cash not to exceed $500,000 with
respect to all stores in the aggregate as of the end of each day which may be
retained in the Borrower's stores on an overnight basis in addition to the
amounts to be deposited in any such deposit account on the next Business Day) to
the Agent in the identical form received by the deposit of the same to the Lock
Box Account. During the period from February 1 to October 31 of each year, the
aggregate of cash proceeds which may be retained in deposit accounts and stores
as of the end of each day may not exceed a total sum of $600,000 in addition to
the amounts in stores to be deposited on the next Business Day.
(b) Prior to the occurrence of an Event of Default, the Agent shall, on
the date of receipt by the Agent of any and all cash proceeds from account
debtors or obligors or pursuant to the Agency Account Agreements, or (as the
case may be) from the Borrower (or from Seafirst pursuant to Section 2.14) so
deposited in the Lock Box Account and on a provisional basis until final receipt
of good collected funds, apply all such cash proceeds which were deposited to
the Lock Box Account in the form of money, checks or like items as follows:
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(i) FIRST, to all amounts due and payable under this
Agreement other than the outstanding principal amount of the DIP
Loans or Exit Loans, as applicable, and other than Unpaid
Reimbursement Obligations;
(ii) SECOND, to the unpaid principal amount of all DIP
Revolving Credit Loans or Exit Revolving Credit Loans, as
applicable, consisting of Base Rate Loans and all Unpaid
Reimbursement Obligations;
(iii) THIRD, to the unpaid principal amount of all DIP
Revolving Credit Loans or Exit Revolving Credit Loans, as
applicable, consisting of Eurodollar Rate Loans (with the
provisions of Section 5.6 hereof applicable thereto), or at the
Borrower's option, to provide cash collateral in an amount equal
to 105% of the principal amount of all outstanding Revolving
Credit Loans consisting of Eurodollar Rate Loans (to be applied
thereto at the end of the applicable Interest Period);
(iv) FOURTH, the Agent shall cause any excess to be
credited to the Operating Account.
(c) Following the occurrence and during the continuance of an Event of
Default, such cash proceeds shall be distributed for application as provided in
Section 11.4 hereof. All prepayments of the Revolving Credit Loans and Unpaid
Reimbursement Obligations pursuant to this Section 2.12 shall be allocated among
the Revolving Credit Banks holding the same, in proportion, as nearly as
practicable, to the respective unpaid principal amount thereof outstanding, with
adjustments to the extent practicable to equalize any prior payments not in
proportion; PROVIDED that, prior to any Settlement Date, all prepayments of the
Revolving Credit Loans and Unpaid Reimbursement Obligations shall be applied, in
accordance with this Section 2.12, first to outstanding Revolving Credit Loans
and Unpaid Reimbursement Obligations of the Agent, and then to other outstanding
Revolving Credit Loans and Unpaid Reimbursement Obligations ratably in
accordance with the outstanding amounts thereof. Section 11.4 shall apply in
the case of an Event of Default. For purposes of the foregoing provisions of
this Section 2.12, the Agent shall not be deemed to have received any such cash
proceeds on any day unless received by the Agent before 3:00 p.m. Boston time on
such day. The Borrower further acknowledges and agrees that any such
provisional credit by the Agent shall be subject to reversal, and hereby agrees
to indemnify the Agent with respect thereto, if final collection in good
collected funds of the related item is not received by the Agent in accordance
with the Agent's customary procedures and practices for collecting provisional
items.
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SECTION 2.13. FEES AND EXPENSES. The Borrower agrees to pay to the
Agent for the Agent's account any and all fees, costs and expenses which the
Agent incurs in connection with the opening and maintenance of the Lock Box
Account and the Operating Account and the deposit for collection by the Agent
of any check or other item of payment. The Borrower agrees to indemnify the
Agent and to hold the Agent harmless from and against any loss, cost or
expense sustained or incurred by the Agent on account of any claims arising
in connection with the Agent's operation of the Lock Box Account or the
Operating Account or in respect of the Lock Box Agreement.
SECTION 2.14. SEAFIRST CONCENTRATION ACCOUNT. Notwithstanding the
provisions of Section 2.12 hereof, until that date which is ninety (90) days
after the Exit Facility Date, the Borrower may maintain in place its existing
concentration account arrangements with Bank of America, N.W. N.A., d/b/a
Seafirst Bank ("Seafirst"), pursuant to which all payments on or with respect
to any of the Non-Real Estate Collateral and all other funds held or received
(other than funds properly held in payroll accounts (whether for payroll or
for applicable withholding tax) or sales tax trust accounts, and other than
amounts not to exceed $500,000 in cash with respect to all stores in the
aggregate as of the end of each day which may be retained in the Borrower's
stores on an overnight basis) shall be paid or transferred daily into the
deposit accounts maintained with the depository institutions listed on
SCHEDULE 2.14 attached hereto. The Borrower hereby covenants and agrees
that (i) it shall cause each such depository institution to transfer all
collected funds in such deposit accounts (except for amounts not to exceed
$500,000) with respect to all such accounts in the aggregate which may be
retained therein on an overnight basis as of the end of each day, except that
such amount shall be zero during the continuance of an Event of Default
occurring upon the stated maturity of the Obligations or in respect of which
there is an Acceleration in effect) to the Borrower's concentration account
with Seafirst (the "Seafirst Account") on a daily or almost daily basis, (ii)
it shall at all times maintain in full force and effect an Agency Account
Agreement with Seafirst in favor of the Agent with respect to the Seafirst
Account under which all collected funds therein are transferred to the Lock
Box Account on a daily basis, for application to the Obligations in the order
(and pursuant to the procedure) set forth in Section 2.12, and (iii) the
Seafirst Account shall be closed no later than the date which is ninety (90)
days after the Exit Facility Date and all payments on or with respect to any
of the Collateral and such other funds shall thereafter be made in accordance
with the provisions of Section 2.12. The Borrower acknowledges and agrees
that the amounts of cash otherwise permitted to be retained in stores
overnight and amounts otherwise permitted to be retained in deposit accounts
overnight pursuant to Sections 2.12 and 2.14 hereof, respectively, shall be
without duplication, and shall not in any event exceed $500,000 in aggregate
amounts otherwise permitted to be held overnight in stores and $500,000 in
aggregate amounts otherwise permitted to be held overnight in
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deposit accounts, respectively, whether pursuant to Section 2.12 or Section 2.14
or both, in each case in addition to amounts in stores to be deposited in
deposit accounts on the next Business Day. During the period from February 1 to
October 31 of each year, the aggregate of cash proceeds which may be retained in
deposit accounts and stores as of the end of each day may not exceed a total sum
of $600,000 in addition to amounts in stores to be deposited in deposit accounts
on the next Business Day.
SECTION 3. DEBTOR IN POSSESSION AND EXIT TERM LOAN.
SECTION 3.1. COMMITMENT TO LEND DIP TERM LOAN. Upon the terms and
subject to the conditions set forth in this Agreement, the Term Loan Lender
agrees to lend to the Borrower on the Effective Date the principal amount of
$10,000,000.
SECTION 3.2. REPAYMENT OF DIP TERM LOANS.
SECTION 3.2.1. SCHEDULE OF INSTALLMENT PAYMENTS OF PRINCIPAL OF TERM
LOAN. The Borrower promises to pay to the Agent for the account of the
Term Loan Lender the principal amount of the Term Loan in consecutive
monthly payments of $25,000, such installments to be due and payable on the
last day of each month of each calendar year, commencing on the thirteenth
month following the Effective Date, with a final payment on the Term Loan
Maturity Date in an amount equal to the unpaid balance of the Term Loan.
Each such installment shall be applied first to Base Rate Loans and then to
Eurodollar Rate Loans.
SECTION 3.2.2. MANDATORY PREPAYMENTS.
(a) The Term Loan shall be subject to certain mandatory prepayments
as provided by Section 10.2(m) and (if applicable) Section 10.6 hereof;
PROVIDED, HOWEVER, that, unless otherwise instructed by the Borrower to
apply such funds immediately, the Agent shall hold any payments so received
that are to be applied to repay Eurodollar Rate Loans as cash collateral
until the end of the Interest Period relating thereto, at which time such
funds shall be so applied to such Eurodollar Rate Loans. Each such
mandatory prepayment pursuant to this Section 3.2.2 shall be applied to the
remaining payments due on the Term Loan in the inverse order of maturity,
first to Base Rate Loans and then to Eurodollar Rate Loans.
(b) In addition, the Borrower shall be required to make from time to
time, mandatory prepayments of principal on the Term Loan, in the amount
equal to one hundred percent (100%) of the exercise price of any Warrants
exercised from time to time by the Warrant holder if (i) the exercise price
of any Warrants is paid in cash, and (ii) the Term Loan Lender so
instructs. Each such prepayment shall be required to be made
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concurrently with the receipt by Borrower of such exercise price in cash
and shall be applied in the manner provided in Section 3.2.2(a).
SECTION 3.2.3. OPTIONAL PREPAYMENT OF DIP TERM LOAN. Except
for the payments required by Section 3.2.1, Section 3.2.2, Section
10.2(m) and (if applicable) Section 10.6 hereof, and the conversion of
the DIP Term Loan to the Exit Term Loan pursuant to Section 3.3
hereof, the Borrower shall have no right to prepay the Term Notes as a
whole or in part before the Term Loan Maturity Date unless and until
all Revolving Credit Loans have been paid in full, all Reimbursement
Obligations have been paid or cash collateralized and all DIP
Commitments and Exit Commitments have been cancelled.
SECTION 3.3. CONVERSION OF DIP TERM LOAN INTO EXIT TERM LOAN; COMMITMENT
TO LEND EXIT TERM LOAN. Upon satisfaction of the conditions precedent set
forth Sections 9.2 and 9.3 hereof, the DIP Term Loan outstanding on the Exit
Facility Date shall automatically convert into an Exit Term Loan hereunder.
SECTION 3.4. REPAYMENT OR PREPAYMENT OF EXIT TERM LOAN. After
conversion of the DIP Term Loan into the Exit Term Loan, the provisions of
Section 3.2 shall apply MUTATIS MUTANDIS with respect to all or any portion
of the Exit Term Loan so that the Borrower may have the same payment and
prepayment rights and obligations with respect to the Exit Term Loan as it
would with respect to the DIP Term Loan.
SECTION 3.5 THE TERM LOAN NOTE.
(a) The DIP Term Loan shall be evidenced by a promissory note of the
Borrower in substantially the form of EXHIBIT G hereto (the "DIP Term Loan
Note"), dated the Effective Date and completed with appropriate insertions.
The DIP Term Loan Note shall be payable to the order of the Term Loan
Lender in a principal amount equal to $10,000,000 and representing the
obligation of the Borrower to pay to the Term Loan Lender such principal
amount or, if less, the outstanding amount of the DIP Term Loan, plus
interest accrued thereon, as set forth below.
(b) The Exit Term Loan shall be evidenced by a promissory note of the
Borrower in substantially the form of EXHIBIT H hereto (the "Exit Term Loan
Note"), dated the Exit Facility Date and completed with appropriate
insertions. The Exit Term Loan Note shall be payable to the order of the
Term Loan Lender in a principal amount equal to $10,000,000 and
representing the obligation of the Borrower to pay to the Term Loan Lender
such principal amount or, if less, the outstanding amount of the Exit Term
Loan, plus interest accrued thereon, as set forth below.
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SECTION 3.6. INTEREST ON TERM LOAN.
(a) So long as no Event of Default has occurred and is continuing,
the Borrower shall pay interest on the Term Loan as follows: (i) the Base
Rate Loans shall bear interest for the period commencing with the
respective Drawdown Dates thereof and ending on the last day of the
Interest Period with respect thereto at the rate per annum which is equal
to the sum of (A) the Base Rate PLUS (B) the Base Rate Margin as in effect
from time to time, (ii) each Eurodollar Rate Loan shall bear interest for
the period commencing with the Drawdown Date thereof and ending on the last
day of the Interest Period with respect thereto at the rate per annum which
is equal to the sum of (A) the Eurodollar Rate determined for such Interest
Period PLUS (B) the Eurodollar Rate Margin as in effect from time to time,
and (iii) the Borrower promises to pay interest on each Term Loan in
arrears on each Interest Payment Date with respect thereto.
(b) While an Event of Default is continuing, but prior to maturity,
whether by acceleration or otherwise, amounts payable with respect to the
Term Note and the Term Loan Note shall bear interest (compounded monthly
and payable at maturity) at a rate per annum which is equal to the sum of
(A) the applicable rate of interest determined by reference to Section
3.6(a) PLUS (B) 7% per annum, until such amount is paid in full (after as
well as before judgment) or until such Event of Default has been cured or
waived in writing in accordance with Section 16.4 hereof.
(c) On and after maturity, whether by acceleration or otherwise, the
Term Loan shall bear interest (compounded monthly and payable on demand) at
a rate per annum which is equal to the sum of (A) the rate of interest
applicable to a Base Rate Revolving Credit Loan when no Event of Default
has occurred and is continuing (i.e., the Base Rate plus the Base Rate
Margin then in effect) PLUS (B) 7% per annum,
PROVIDED, HOWEVER, the amount of interest payable pursuant to Section
3.6(b) which is in excess of that certain rate of interest applicable to
the Revolving Credit Loans or Unpaid Reimbursement Obligations pursuant of
Section 2.9(b) shall, except to the extent paid from the proceeds of the
Real Estate Collateral pursuant to Section 11.4(b), be subordinated and
junior in right of payment to the Borrower's obligations in respect of the
Revolving Credit Loans and Reimbursement Obligations.
(d) Notwithstanding any other provision of this Agreement, no Term
Loan shall bear interest at an Applicable Rate greater than the Maximum
Rate. If at any time the Applicable Rate shall exceed the Maximum Rate,
thereby causing the interest on the Term Loan to be
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limited to the Maximum Rate, then any subsequent reduction in the
Applicable Rate shall not reduce the rate of interest on the Term Loan
below the Maximum Rate until the aggregate amount of interest accrued on
the Term Loan equals the aggregate amount of interest which would have
accrued on the Term Loan if the Applicable Rate had at all times been in
effect.
SECTION 3.7. CONVERSION OPTIONS FOR BASE RATE AND EURODOLLAR LOANS.
SECTION 3.7.1. NOTIFICATION BY BORROWER. After the Term Loan
has been made, the provisions of Section 2.10 shall apply MUTATIS
MUTANDIS with respect to all or any portion of the Term Loan so that
the Borrower may have the same interest rate options with respect to
all or any portion of the Term Loan as it would be entitled to with
respect to the Revolving Credit Loans. The Term Loan shall bear
interest at the Base Rate unless the Borrower makes a Conversion
Request with respect to the Term Loan and such Conversion Request has
become effective.
SECTION 3.7.2. AMOUNTS, ETC. Any portion of the Term Loan
bearing interest at the Eurodollar Rate relating to any Interest
Period shall be in the amount of $1,000,000 or a whole multiple of
$100,000 in excess thereof. No Interest Period relating to the Term
Loan or any portion thereof bearing interest at the Eurodollar Rate
shall extend beyond the date on which a regularly scheduled
installment payment of the principal of the Term Loan is to be made
unless a portion of the Term Loan at least equal to such installment
payment has an Interest Period ending on such date or is then bearing
interest at the Base Rate. No more than three (3) Eurodollar Rate
Loans, comprising the Term Loan, having different Interest Periods
shall be outstanding at any time.
SECTION 4. LETTER OF CREDIT FACILITY.
SECTION 4.1. LETTER OF CREDIT COMMITMENT. Subject to the terms and
conditions hereof and the execution and delivery by the Borrower of a letter of
credit application on the Agent's customary form (a "Letter of Credit
Application"), the Agent on behalf of the Revolving Credit Banks and in reliance
upon the agreement of the Revolving Credit Banks set forth in Section 4.1.4
hereof and upon the representations and warranties of the Borrower contained
herein, agrees, in its individual capacity, to issue, extend and renew from time
to time from the date hereof until but not including the DIP Maturity Date, or,
if the Exit Facility Date occurs, the Exit Maturity Date, for the account of the
Borrower, standby and documentary letters of credit (each such letter of credit
issued hereunder, a "Letter of Credit"), in such form as may be requested by the
Borrower and agreed to by the Agent; PROVIDED, HOWEVER, that (a) at all times
prior to the Exit Facility Date, after giving effect to such request, (i) the
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sum of the Maximum Drawing Amount and any Unpaid Reimbursement Obligations shall
not exceed the lesser of (A) $3,000,000 or (B) any specific amount approved by
the Bankruptcy Court solely for Letters of Credit in the Financing Order, (ii)
the Total Revolver Outstandings shall not exceed the lesser of (A) the Total DIP
Commitment or (B) the amount approved to be borrowed by way of DIP Revolving
Credit Loans and Letters of Credit in the Financing Order and (iii) the Total
Revolver Outstandings MINUS the Cash Collateralized Letters of Credit shall not
exceed the Borrowing Base then in effect, and (b) at all times from and after
the Exit Facility Date, after giving effect to such request, (i) the sum of the
Maximum Drawing Amount and any Unpaid Reimbursement Obligations shall not exceed
$3,000,000, (ii) the Total Revolver Outstandings shall not exceed the Total Exit
Commitment, and (iii) the Total Revolver Outstandings MINUS the Cash
Collateralized Letters of Credit shall not exceed the Borrowing Base then in
effect. Upon the satisfaction of the conditions precedent set forth in Sections
9.2 and 9.3 hereof, the Letters of Credit (if any) outstanding on the Exit
Facility Date shall automatically convert into Letters of Credit deemed to be
issued under the credit facility that is provided herein to be available from
and after the Exit Facility Date. Letters of Credit issued pursuant to the
Original Credit Agreement shall constitute Letters of Credit under this
Agreement.
SECTION 4.1.1. THIS AGREEMENT TO GOVERN. Each Letter of Credit
Application shall be completed to the satisfaction of the Agent. In
the event that any provision of any Letter of Credit Application shall
be inconsistent with any provision of this Agreement, then the
provisions of this Agreement shall, to the extent of any such
inconsistency, govern.
SECTION 4.1.2. TERMS AND DURATION OF LETTERS OF CREDIT. Each
Letter of Credit issued, extended or renewed hereunder shall, among
other things, (a) provide for the payment of sight drafts for honor
thereunder when presented in accordance with the terms thereof and
when accompanied by the documents described therein and (b) have an
expiry date no later than the DIP Maturity Date or, if the Exit
Facility Date shall have occurred, the Exit Maturity Date. No later
than the date which is thirty (30) days prior to the Exit Maturity
Date, and with respect to each (if any) Letter of Credit issued on or
after the commencement of such thirty (30) day period, the Borrower
shall secure the Reimbursement Obligations with respect to all Letters
of Credit then outstanding by (i) providing to the Agent cash
collateral in an amount equal to 105% of the Maximum Drawing Amount of
all such Letters of Credit or (ii) providing to the Agent "back to
back" letters of credit, in an amount equal to 105% of such Maximum
Drawing Amount, which shall in each case be in form and substance and
issued by a bank satisfactory to the Agent in its sole and absolute
discretion. Such cash collateral may from time to time be released by
the Agent, and the amount of such
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"back to back" letters of credit may from time to time be reduced with the
agreement of the Agent, in each case in its reasonable discretion, to an
amount equal to 105% of the Maximum Drawing Amount of the Letters of Credit
secured thereby in the event that the Maximum Drawing Amount of such
Letters of Credit secured thereby is reduced, PROVIDED that no Event of
Default exists after giving effect to any such release of cash collateral
or such reduction. Each Letter of Credit so issued, extended or renewed
shall be subject to the Uniform Customs.
SECTION 4.1.3. REIMBURSEMENT OBLIGATIONS OF REVOLVING CREDIT
BANKS. Each Revolving Credit Bank severally agrees that it shall be
absolutely liable, without regard to the occurrence of any Default or
Event of Default or any other condition precedent whatsoever, to the
extent of such Revolving Credit Bank's Commitment Percentage, to
reimburse the Agent on demand for the amount of each draft paid by the
Agent under each Letter of Credit to the extent that such amount is
not reimbursed by the Borrower pursuant to Section 4.2 hereof (such
agreement for a Revolving Credit Bank being called herein the "Letter
of Credit Participation" of such Revolving Credit Bank).
SECTION 4.1.4. PARTICIPATIONS OF REVOLVING CREDIT BANKS.
Each such payment made by a Revolving Credit Bank pursuant to Section
4.1.3 hereof shall be treated as the purchase by such Revolving Credit
Bank of a participating interest in the Borrower's Reimbursement
Obligations under Section 4.2 hereof in an amount equal to such
payment. Each Revolving Credit Bank shall share in accordance with
its participating interest in any interest which accrues pursuant to
Section 4.2 hereof.
SECTION 4.2. REIMBURSEMENT OBLIGATIONS OF THE BORROWER. In order to
induce the Agent to issue, extend and renew each Letter of Credit and the
Revolving Credit Banks to participate therein, the Borrower hereby absolutely
and unconditionally agrees to reimburse or pay to the Agent, for the account of
the Agent or (as the case may be) the Revolving Credit Banks, with respect to
each Letter of Credit issued, extended or renewed by the Agent hereunder,
(a) except as otherwise expressly provided in Sections 4.2(b)
through (e), on each date that any draft presented under such Letter
of Credit is honored by the Agent, or the Agent otherwise makes a
payment with respect thereto, (i) the amount paid by the Agent under
or with respect to such Letter of Credit, and (ii) the amount of any
taxes, fees, charges or other costs and expenses whatsoever incurred
by the Agent or any Revolving Credit Bank in connection with any
payment made by the Agent under, or with respect to, such Letter of
Credit,
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(b) prior to the Exit Facility Date, upon reduction of the Total DIP
Commitment (but not the termination of such commitment) to an amount less
than the Maximum Drawing Amount, an amount equal to such difference, which
amount shall be held by the Agent for the benefit of the Agent and the
Revolving Credit Banks as cash collateral for all Reimbursement
Obligations,
(c) from and after the Exit Facility Date, upon reduction of the
Total Exit Commitment (but not the termination of such commitment) to an
amount less than the Maximum Drawing Amount, an amount equal to 105% of
such difference, which amount shall be held by the Agent for the benefit of
the Agent and the Revolving Credit Banks as cash collateral for all
Reimbursement Obligations,
(d) prior to the Exit Facility Date, upon the termination of the
Total DIP Commitment, or upon the acceleration of the Reimbursement
Obligations with respect to all Letters of Credit in accordance with
Section 11 hereof, an amount equal to 105% of the Maximum Drawing Amount,
which amount shall be held by the Agent for the benefit of the Agent and
the Revolving Credit Banks as cash collateral for all Reimbursement
Obligations, and
(e) from and after the Exit Facility Date upon the termination of the
Total Exit Commitment, or upon acceleration of the Reimbursement
Obligations with respect to all Letter of Credit in accordance with Section
11 hereof, an amount equal to 105% of the Maximum Drawing Amount, which
amount shall be held by the Agent for the benefit of the Agent and the
Revolving Credit Banks as cash collateral for all Reimbursement
Obligations.
Unless funded by a Revolving Credit Loan pursuant to Section 2.7 hereof,
each such payment shall be made to the Agent at the Agent's Head Office in
immediately available funds. Interest on any and all amounts remaining unpaid
by the Borrower under this Section 4.2 and not required to be funded by a
Revolving Credit Loan pursuant to Section 2.7 hereof at any time from the date
such amounts become due and payable (whether as stated in this Section 4.2, by
acceleration or otherwise) until payment in full (whether before or after
judgment) shall be payable to the Agent on demand at the rate specified in the
second sentence of Section 2.9(b) hereof for interest during the continuance of
an Event of Default.
SECTION 4.3. LETTER OF CREDIT PAYMENTS. If any draft shall be
presented or other demand for payment shall be made under any Letter of Credit,
the Agent shall notify the Borrower of the date and amount of the draft
presented or demand for payment and of the date and time when it expects to pay
such
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draft or honor such demand for payment. If the Borrower fails to reimburse the
Agent as provided in Section 4.2 hereof on or before the date that such draft is
paid or other payment is made by the Agent, the Agent may at any time thereafter
notify the Revolving Credit Banks of the amount of any such Unpaid Reimbursement
Obligation. No later than 3:00 p.m. Boston time on the Business Day next
following the receipt of such notice, each Revolving Credit Bank shall make
available to the Agent, at the Agent's Head Office, in immediately available
funds, such Revolving Credit Bank's Commitment Percentage of such Unpaid
Reimbursement Obligation, together with an amount equal to the product of (a)
the average, computed for the period referred to in clause (c) below, of the
weighted average interest rate paid by the Agent for federal funds acquired by
the Agent during each day included in such period, times (b) the amount equal to
such Revolving Credit Bank's Commitment Percentage of such Unpaid Reimbursement
Obligation, times (c) a fraction, the numerator of which is the number of days
that elapse from and including the date the Agent paid the draft presented for
honor or otherwise made payment to the date on which such Revolving Credit
Bank's Commitment Percentage of such Unpaid Reimbursement obligation shall
become immediately available to the Agent, and the denominator of which is 360.
The responsibility of the Agent to the Borrower and the Revolving Credit Banks
shall be only to determine that the documents (including each draft) delivered
under each Letter of Credit in connection with such presentment shall be in
conformity in all material respects with such Letter of Credit.
SECTION 4.4. OBLIGATIONS ABSOLUTE. The Borrower's obligations under
this Section 4 shall be absolute and unconditional under any and all
circumstances and irrespective of the occurrence of any Default or Event of
Default or any condition precedent whatsoever or any setoff, counterclaim or
defense to payment which the Borrower may have or have had against the Agent,
any Revolving Credit Bank or any beneficiary of a Letter of Credit. The
Borrower further agrees with the Agent and the Revolving Credit Banks that the
Agent and the Revolving Credit Banks shall not be responsible for, and the
Reimbursement Obligations shall not be affected by, among other things, the
validity or genuineness of documents or of any endorsements thereon, even if
such documents should in fact prove to be in any or all respects invalid,
fraudulent or forged, or any dispute between or among the Borrower, the
beneficiary of any Letter of Credit or any financing institution or other party
to which any Letter of Credit may be transferred or any claims or defenses
whatsoever of the Borrower against the beneficiary of any Letter of Credit or
any such transferee. Neither the Agent nor any Revolving Credit Bank shall be
liable for any error, omission, interruption or delay in transmission, dispatch
or delivery of any message or advice, however transmitted, in connection with
any Letter of Credit. The Borrower agrees that any action taken or omitted by
the Agent under or in connection with each Letter of Credit and the related
drafts and documents, if done in good faith, shall be
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binding upon the Borrower and shall not result in any liability on the part of
the Agent or any Revolving Credit Bank to the Borrower.
SECTION 4.5. RELIANCE BY ISSUER. To the extent not inconsistent with
Section 4.4 hereof, the Agent shall be entitled to rely, and shall be fully
protected in relying upon, any Letter of Credit, draft, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document believed by it to
be genuine and correct and to have been signed, sent or made by the proper
person or entity and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement unless
it shall first have received such advice or concurrence of the Majority
Revolving Credit Banks (or, where required, all of the Revolving Credit Banks)
as it reasonably deems appropriate or it shall first be indemnified to its
reasonable satisfaction by the Revolving Credit Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement in
accordance with a request of the Majority Revolving Credit Banks (or, where
required, all of the Revolving Credit Banks), and such request and any action
taken or failure to act pursuant thereto shall be binding upon the Revolving
Credit Banks and all future holders of the Notes or of a Letter of Credit
Participation.
SECTION 4.6. LETTER OF CREDIT FEES. The Borrower shall pay a fee to the
Agent, for the accounts of the Revolving Credit Banks in accordance with their
respective Commitment Percentages, in respect of each Letter of Credit (in each
case, a "Letter of Credit Fee") in an amount per annum equal to the Letter of
Credit Rate applied to the Maximum Drawing Amount of each Letter of Credit.
Such Letter of Credit Fees shall be payable pursuant hereto periodically until
each such Letter of Credit shall have been returned to the Agent or shall have
expired in accordance with its terms, and shall be payable quarterly in arrears
(except that, upon written notice from the Agent to the Borrower, such Letter of
Credit Fees shall be payable monthly in arrears) on the first Business Day of
each calendar quarter (or month, as the case may be) for the calendar quarter
(or month, as the case may be) then ended based on the average daily Maximum
Drawing Amount during such quarter (or month, as the case may be) of the
outstanding Letters of Credit, and also on the DIP Maturity Date if the Exit
Facility Date has not occurred, and on the Exit Maturity Date if the Exit
Facility Date shall have occurred. In addition, the Borrower shall, at such
time or times as such charges are customarily made by the Agent, pay fees to the
Agent for its own account in respect of each Letter of Credit in an amount equal
to the Agent's customary fees for issuance, negotiation, settlement, amendment
and processing of Letters of Credit.
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SECTION 5. CERTAIN GENERAL PROVISIONS.
SECTION 5.1. CAPITAL ADEQUACY. If after the date hereof any Bank or the
Agent determines that (a) the adoption of or any change in any banking law,
rule, regulation or guideline or the administration thereof (whether or not
having the force of law), or (b) compliance by such Bank or the Agent or its
parent bank holding company with any guideline, request or directive (whether or
not having the force of law), has the effect of reducing the return on such
Bank's or the Agent's or such holding company's capital as a consequence of such
Bank's DIP Commitment, Exit Commitment, the Loans or any Letters of Credit to a
level below that which such Bank or the Agent or such holding company could have
achieved but for such adoption, change or compliance by any amount deemed by
such Bank or (as the case may be) the Agent to be material, such Bank or (as the
case may be) the Agent may notify the Borrower thereof. The Borrower agrees to
pay such Bank or the Agent the amount of the Borrower's allocable share of the
amount of such reduction in the return on capital as and when such allocable
share of the amount of such reduction is determined, upon presentation by such
Bank or (as the case may be) the Agent of a statement in the amount and setting
forth such Bank's or (as the case may be) the Agent's calculation thereof, which
statement shall be deemed true and correct absent manifest error. Each of the
Banks and the Agent agrees to allocate shares of such reduction among the
Borrower and its other customers similarly situated on a fair and
non-discriminatory basis.
SECTION 5.2. INABILITY TO DETERMINE EURODOLLAR RATE. In the event,
prior to the commencement of any Interest Period relating to any Eurodollar Rate
Loan, the Agent shall determine that adequate and reasonable methods do not
exist for ascertaining the Eurodollar Rate that would otherwise determine the
rate of interest to be applicable to any Eurodollar Rate Loan during any
Interest Period, the Agent shall forthwith give notice of such determination
(which shall be conclusive and binding on the Borrower and the Banks) to the
Borrower and the Banks. In such event (a) any Revolving Credit Loan Request or
Conversion Request with respect to Eurodollar Rate Loans shall be automatically
withdrawn and shall be deemed a request for a Base Rate Loan, (b) each
Eurodollar Rate Loan will automatically, on the last day of the then-current
Interest Period relating thereto, become a Base Rate Loan, and (c) the
obligations of the Banks to make Eurodollar Rate Loans shall be suspended until
the Agent determines that the circumstances giving rise to such suspension no
longer exist, whereupon the Agent shall so notify the Borrower and the Banks.
SECTION 5.3. ILLEGALITY. Notwithstanding any other provisions herein,
if any present or future law, regulation, treaty or directive or any
interpretation or application thereof shall make it unlawful for any Bank to
make or maintain Eurodollar Rate Loans, such Bank shall forthwith give notice
of such
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circumstances to the Borrower and the other Banks and thereupon (a) the
commitment of such Bank to make Eurodollar Rate Loans or to convert Loans of
another Type to Eurodollar Rate Loans shall forthwith be suspended and (b) such
Bank's Loans then outstanding as Eurodollar Rate Loans, if any, shall be
converted automatically to Base Rate Loans on the last day of each Interest
Period applicable to such Eurodollar Rate Loans or within such earlier period as
may be required by law. The Borrower hereby agrees promptly to pay the Agent
for the account of such Bank, upon demand by such Bank, any additional amounts
necessary to compensate such Bank for any costs incurred by such Bank in making
any conversion in accordance with this Section 5.3, including any interest or
fees payable by such Bank to lenders of funds obtained by it in order to make or
maintain its Eurodollar Rate Loans hereunder.
SECTION 5.4. ADDITIONAL COSTS, ETC. If any present or future
applicable law, which expression, as used herein, includes statutes, rules and
regulations thereunder and interpretations thereof by any competent court or by
any governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Bank or the Agent by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:
(a) subject to any Bank or the Agent to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to this
Agreement, the other Loan Documents, the Letters of Credit, such Bank's DIP
Commitment or Exit Commitment or the Loans (other than taxes based upon or
measured by the income or profits of such Bank or the Agent), or
(b) materially change the basis of taxation (except for changes in
taxes on income or profits) of payments to any Bank of the principal of or
the interest on any Loans or any other amounts payable to any Bank or the
Agent under this Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Agreement) any special deposit,
reserve, assessment, liquidity, capital adequacy or other similar
requirements (whether or not having the force of law) against assets held
by, or deposits in or for the account of, or Loans by, or Letters of Credit
issued by, or commitments of an office of the Agent or any Bank, or
(d) impose on any Bank or the Agent any other conditions or
requirements with respect to this Agreement, the other Loan
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Documents, the Loans, the Letters of Credit, any Bank's commitment to make
Loans hereunder, or any class of loans, letters of credit or commitments of
which any of the Loans or such Bank's DIP Commitment or Exit Commitment
forms a part,
and the result of any of the foregoing is:
(i) to increase the cost to any Bank or the Agent of making, funding,
issuing, renewing, extending or maintaining any of the Loans or Letters of
Credit or such Bank's DIP Commitment or Exit Commitment, or to reduce the
amount of principal, interest, or other amounts payable to such Bank or the
Agent hereunder on account of such Loans or Letters of Credit or such DIP
Commitment or Exit Commitment, as the case may be; or
(ii) to require the Bank or the Agent to make any payment or to
forego any interest or other sum payable hereunder, the amount of which
payment or foregone interest or other sum is calculated by reference to the
gross amount of any sum receivable or deemed received by such Bank or the
Agent from the Borrower hereunder,
then, and in each such case, the Borrower will, upon ten (10) days written
notice by such Bank or (as the case may be) the Agent at any time and from time
to time requesting such additional amounts and as often as the occasion therefor
may arise, pay to such Bank or the Agent such additional amounts as will be
sufficient to compensate such Bank or the Agent for such additional cost,
reduction, payment or foregone interest or other sum.
SECTION 5.5. CERTIFICATE. A certificate setting forth any additional
amounts payable pursuant to Sections 5.1 or 5.4 and a brief explanation of such
amounts which are due, submitted by any Bank or the Agent to the Borrower, shall
be conclusive, absent manifest error, that such amounts are due and owing.
SECTION 5.6. INDEMNITY. The Borrower hereby agrees to indemnify each Bank
and to hold each Bank harmless from and against any loss, cost or expense
(including loss of anticipated profits) that such Bank may sustain or incur as a
consequence of (a) default by the Borrower in payment of the principal amount of
or any interest on any Eurodollar Rate Loans as and when due and payable,
including any such loss or expense arising from interest or fees payable by such
Bank to lenders of funds obtained by it in order to make or maintain its
Eurodollar Rate Loans, (b) default by the Borrower in making a borrowing or
conversion after the Borrower has given (or is deemed to have given) a Revolving
Credit Loan Request or a Conversion Request relating thereto in accordance with
Section 2.6, Section 2.10.1 or Section 3.7.1 hereof respectively, or (c) the
making of any payment on a Eurodollar Rate Loan or the making of any conversion
of any such Eurodollar Rate Loan to a Base Rate Loan on a day that is not the
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last day of the applicable Interest Period with respect thereto, including
interest or fees payable by such Bank to lenders of funds obtained by it in
order to make or maintain any such Loans.
SECTION 6. FEES AND PAYMENTS.
SECTION 6.1. FEES. The Borrower hereby agrees to pay the following fees
and expenses:
(a) to the Agent for its own account certain facility fees in the
amounts and at the times set forth in the Fee Letter;
(b) to the Agent for the ratable accounts of the Revolving Credit
Banks in accordance with their daily unused DIP Commitments, taking the
Settlement mechanism into account, in arrears, on the first Business Day of
each month from and after the Effective Date for the preceding month (or
portion thereof) and upon the DIP Maturity Date or any other date upon
which the Total DIP Commitment irrevocably ceases to be in effect, a
commitment fee (with respect to the period commencing on the Effective
Date) calculated at a rate per annum which is equal to one-half of one
percent (1/2%) of the average daily difference by which the Total DIP
Commitment amount exceeds the Total Revolver Outstandings during the
preceding month or portion thereof;
(c) to the Agent for the ratable accounts of the Revolving Credit
Banks in accordance with their daily unused Exit Commitments, taking the
Settlement mechanism into account, in arrears, on the first Business Day of
each month from and after the Exit Facility Date for the preceding month
(or portion thereof) and upon the Exit Maturity Date or any other date upon
which the Total Exit Commitment irrevocably ceases to be in effect, a
commitment fee (with respect to the period commencing on the Exit Facility
Date) at a rate per annum equal to the Exit Commitment Fee Rate of the
average daily difference by which the Total Exit Commitment amount exceeds
the Total Revolver Outstandings during the previous month or portion
thereof;
(d) to the Agent for the PRO RATA accounts of the Revolving Credit
Banks in accordance with their Commitment Percentages a prepayment fee (in
order to compensate the Revolving Credit Banks for the early termination of
the financing relationship hereunder, since the compensation otherwise
payable to the Revolving Credit Banks under this Agreement has been agreed
to on the contemplated basis of a long term, rather than short term,
financing relationship) in the amount of $250,000 in the event that a
Reorganization Plan shall have become effective and, in connection
therewith, for any reason, the Borrower shall have entered into working
capital financing arrangements with financial
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institutions other than the Agent and the Revolving Credit Banks, which
such prepayment fee shall be payable concurrently with the "effective date"
of such Reorganization Plan;
(e) to the Agent for the Agent's own account a monthly administrative
fee payable monthly in advance on the first Business Day of each month in
the amount of $2,500;
(f) to the Agent for the account of the Term Loan Lender a
Closing Fee in the amount of $500,000 payable on the Effective Date;
(g) if the Term Loan has not been paid in full prior to the first
anniversary of the Effective Date, to the Agent for the account of Term
Loan Lender the Additional Closing Fee. The Borrower shall pay the
Additional Closing Fee on the first anniversary of the Effective Date in an
amount equal to the Additional Closing Fee Prepayment Amount, provided that
promptly following the Additional Closing Fee Calculation Date, any amount
by which the Additional Closing Fee Prepayment Amount exceeds the
Additional Closing Fee shall be refunded by the Term Loan Lender to the
Borrower or applied to any Extension Fee, if applicable, in each case
without interest; and
(h) if the Term Loan Maturity Date is extended by the Borrower as
contemplated by the provisions of Section 9.4 hereof, to the Agent for the
account of the Term Loan Lender the Extension Fee for each such extension,
payable on each applicable Extension Date, PROVIDED that, promptly
following the earlier to occur of (i) the last day of such Extension
Period, or (ii) payment in full of the Term Loan, the Borrower shall be
entitled to a refund from the Term Loan Lender of any Extension Fee
previously paid to the extent that such Extension Fee exceeded an amount
equal to the average daily principal balance of the Term Loan outstanding
during the applicable Extension Period multiplied by 5% (pro rated for the
actual number of days in such period). Any such refund shall be without
interest and shall be credited against any further Extension Fee, if
applicable, or shall otherwise be reimbursed to the Borrower upon payment
in full of the Term Loan.
The provisions of Section 6.1 shall, to the extent applicable, survive payment
in full of the Loans and all other Obligations hereunder and the termination in
full of the Total DIP Commitment and the Total Exit Commitment.
SECTION 6.2. PAYMENTS; NO OFFSET; COMPUTATIONS. All payments to be made
by the Borrower hereunder or under any of the other Loan Documents shall be made
in Dollars in immediately available funds to the Agent for the respective
accounts of the Agent and the Banks at the Agent's Head Office without setoff or
counterclaim and free and clear of and without deduction for any taxes,
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levies, imposts, duties, charges, fees, deductions, withholdings, compulsory
loans, restrictions or conditions of any nature now or hereafter imposed or
levied by any jurisdiction or any political subdivision thereof or taxing or
other authority therein unless the Borrower is compelled by law to make such
deduction or withholding. If any such obligation is imposed upon the Borrower
with respect to any amount payable by it hereunder or under any of the other
Loan Documents, the Borrower will pay to the Agent, for the account of the Banks
or (as the case may be) the Agent, on the date on which such amount is due and
payable hereunder or under such other Loan Document, such additional amount in
Dollars as shall be necessary to enable the Banks or the Agent to receive the
same net amount which the Banks or the Agent would have received on such due
date had no such obligation been imposed upon the Borrower. The Agent shall be
entitled to charge the Operating Account, the Lock Box Account or any account of
the Borrower with the Agent for any sum due and payable by the Borrower to the
Agent or the Banks hereunder or under any of the other Loan Documents. If any
payment hereunder is required to be made on a day which is not a Business Day,
it shall be paid on the immediately succeeding Business Day, with interest and
any applicable fees adjusted accordingly. All computations of interest or of
the commitment fees or Letter of Credit Fee payable hereunder shall be made on
the basis of actual days elapsed or to elapse and on a 360-day year. All
payments of the commitment fees, the Letter of Credit Fee, the facility fees,
the prepayment fee and all other fees payable hereunder shall be non-refundable
except as expressly provided in Section 6.1.
SECTION 7. PRIORITY AND LIENS.
SECTION 7.1. SUPER-PRIORITY CLAIMS AND COLLATERAL SECURITY.
(a) The Borrower hereby represents, warrants and covenants that, upon
entry of the Financing Order until, but not including, the Exit Facility
Date, (i) the Obligations shall at all times constitute a Super-Priority
Claim having priority, pursuant to Section 364(c)(1) of the Bankruptcy
Code, subject only to the Agreed Administrative Expense Priorities, and
except that such super-priority shall not apply to the proceeds of causes
of action under Sections 544, 545, 547, 548, 549, and 550 of the Bankruptcy
Code, (ii) pursuant to Section 364(c)(2) of the Bankruptcy Code and the
Security Documents, the Obligations shall at all times be secured by a
first priority perfected Lien upon the Collateral, SUBJECT, HOWEVER, to (A)
Permitted Prior Liens and (B) the Agreed Administrative Expense Priorities,
and (iii) pursuant to Section 364(c)(3) of the Bankruptcy Code and the
Security Documents, the Obligations shall at all times also be secured by a
perfected Lien upon all other Collateral, subject only to Permitted Prior
Liens. So long as no Default or Event of Default shall have occurred and
be continuing, and
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except as provided in the definition of Escrow Account in Section 1 hereof,
the Borrower shall be permitted to pay, as and when the same become due and
payable, administrative expenses of the kind specified in 11 U.S.C. Section
503(b) incurred in the ordinary course of business of the Borrower and
compensation and reimbursement expenses allowed and payable under 11 U.S.C.
Section 330 and 11 U.S.C. Section 331. As set forth in Section 11.4
hereof, proceeds of (i) the Non-Real Estate Collateral shall first be used
to pay in full the Total Revolver Outstandings and thereafter applied to
the Term Loan, and (ii) the Real Estate Collateral shall first be used to
pay in full the Term Loan and thereafter applied to the Total Revolver
Outstandings.
(b) At all times from and after the Exit Facility Date, all
Obligations shall be secured by a first priority perfected Lien upon the
Collateral, subject only, however, to the Permitted Prior Liens, and
provided that the Obligations shall not be secured by a Lien upon certain
trust funds to be held by the Borrower in its fiduciary capacity as
disbursing agent as provided in the Reorganization Plan. As set forth in
Section 11.4 hereof, proceeds of (i) the Non-Real Estate Collateral shall
first be used to pay in full the Total Revolver Outstandings and thereafter
applied to the Term Loan, and (ii) the Real Estate Collateral shall first
be used to pay in full the Term Loan and thereafter to the Total Revolver
Outstandings.
SECTION 7.2. COLLATERAL SECURITY PERFECTION. The Borrower agrees to take
(or cause to be taken) from time to time all action that the Agent or any Bank
may reasonably request as a matter of nonbankruptcy law to perfect and protect
the Agent's and the Banks' Liens upon the Collateral and for such Liens to
obtain the priority therefor contemplated hereby, including, without limitation,
executing and delivering (and filing) such financing statements, providing such
notices and assents of third parties, the recording of the Mortgages, obtaining
such governmental approvals and providing such other instruments and documents
in recordable form as the Agent or any Bank may reasonably request.
SECTION 7.3. NO DISCHARGE; SURVIVAL OF CLAIMS. The Borrower agrees that
(a) the Obligations shall not be discharged by the entry of an order confirming
a Reorganization Plan (and the Borrower pursuant to Section 1141(d)(4) of the
Bankruptcy Code, hereby waives any such discharge), (b) the Super-Priority Claim
granted to the Agent and Banks pursuant to the Financing Order, the Liens
granted to the Agent and Banks pursuant to the Financing Order, and the Security
Documents shall be ratified and shall be confirmed and continued, unaffected in
any manner by the entry of an order confirming a Reorganization Plan and (c) the
Borrower shall not propose or support any Reorganization Plan that is not
conditioned upon the payment in full in cash, on or prior to the
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DIP Maturity Date, or if the Exit Facility Date occurs and the DIP Loans
hereunder convert to the Exit Loans as provided in Section 2.3 and Section 3.3
hereof, the Exit Maturity Date, of all of the Obligations and which does not
provide, with respect to Letters of Credit, the delivery by such date to the
Agent of all Letters of Credit for cancellation or the replacement of all
Letters of Credit by such date, and, with respect to Obligations arising
pursuant to Sections 16.1 and 16.2 hereof after such date, or the DIP Maturity
Date or Exit Maturity Date, as applicable, and thereafter for the payment in
full of all such Obligations in cash when due and payable.
SECTION 8. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Agent, the Surety, and the
Banks on the date hereof, on the Exit Facility Date, on the date of any
Revolving Credit Loan Request, on the date of each Letter of Credit Application,
on each Drawdown Date and on the date on which each Letter of Credit is issued,
extended or renewed that:
(a) The Borrower and each of its Subsidiaries is duly organized,
validly existing, and in good standing under the laws of its jurisdiction
of incorporation and is duly qualified and in good standing in every other
jurisdiction where the failure to be so qualified would have a Materially
Adverse Effect, and the execution, delivery and performance by each of the
Borrower and its Subsidiaries of each of the Loan Documents to which it is
a party (i) are within its corporate authority, (ii) upon entry of the
Financing Order will have been duly authorized, and (iii) do not conflict
with or contravene its Charter Documents.
(b) Upon entry of the Financing Order or, as the case may be, the
Confirmation Order, and the execution and delivery of each of the Loan
Documents by the respective parties thereto, each such Loan Document shall
constitute the legal, valid and binding obligation of the Borrower and each
of its Subsidiaries party thereto, enforceable in accordance with its
terms.
(c) No Affiliate of the Borrower or its Subsidiaries is a debtor in
the Case or a debtor in any other bankruptcy, insolvency, liquidation,
reorganization, dissolution of similar case or proceeding.
(d) Each of the Borrower and its Subsidiaries has good and marketable
title to all its material properties, subject only to Permitted Liens, and
possesses assets, including intellectual properties, franchises and
Consents, adequate for the conduct of its business as now conducted,
without known material conflict with any rights of others. Each of the
Borrower and its Subsidiaries maintains insurance from financially
responsible insurers, copies of the policies for which have previously
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been delivered to the Agent and the Banks, covering such risks and in such
amounts and with such deductibles as are customary in the Borrower's and
its Subsidiaries' businesses and are adequate, and the Borrower and its
Subsidiaries have caused all insurers with respect to such insurance to
name the Agent as loss payee and additional insured under all such
insurance, with the Agent to receive from the insurers at least thirty (30)
days prior written notice of cancellation of any insurance.
(e) The Borrower's fiscal year and the fiscal year of each of its
Subsidiaries is the 12 month period ending on the Saturday closest to
January 31 of each year. Each of the fiscal quarters of such fiscal year
consists of a period of thirteen (13) fiscal weeks, divided into three (3)
fiscal months of 4, 5, and 4 fiscal weeks, respectively (in that order).
The Borrower has provided to the Agent, the Surety and the Banks its
audited consolidated Financials as at February 1, 1997, and for the fiscal
year then ended, and its unaudited monthly Financials as at the end of and
for each fiscal month thereafter through August 2, 1997. Such Financials
fairly present in all material respects the position of the Borrower as at
such dates and for such periods in accordance with GAAP consistently
applied (except that unaudited Financials are subject to year-end audit
adjustments and the provision of footnotes). The Borrower has also
provided to the Agent, the Surety and the Banks its annual and monthly
forecasts of the operations of the Borrower and such other financial
projections as the Agent and the Banks have reasonably requested, in each
case for the period from June 5, 1997, through January 30, 1999, and such
forecasts and projection have been prepared in good faith based upon
assumptions believed by the Borrower to be reasonable at the time of
preparation (it being understood that such projections are not a guaranty
of future performance and that actual results may differ, perhaps
materially, from the such projections). No information that has been
provided by the Borrower to the Agent, the Surety or any Bank contains any
material misstatement of fact or omits to state a material fact necessary
to make the statements contained therein not misleading in light of the
circumstances in which made.
(f) (i) Prior to the occurrence of the Exit Facility Date, since the
end of the fiscal periods covered by the Financials dated February 1, 1997
there has occurred no condition or event which would have a Materially
Adverse Effect, and (ii) from and after the Exit Facility Date, since the
delivery of the Financials reflecting the Reorganization Plan approved by
the Agent in connection with the Exit Facility Date, there has occurred no
condition or event which would have a Materially Adverse Effect, other than
those expressly contemplated by such Reorganization Plan;
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(g) There are no legal or other proceedings or investigations pending
or threatened against the Borrower or any of its Subsidiaries before any
court, tribunal or regulatory authority which has not been resolved or
fully reserved for under the Reorganization Plan, if the Exit Facility Date
shall have occurred or which would, if adversely determined, alone or
together, have a Materially Adverse Effect.
(h) The Borrower (i) has from and after the Exit Facility Date paid
all taxes relating to the period prior to the commencement of the Case
(except as shall be deferred pursuant to the terms of the Reorganization
Plan) and (ii) has paid all taxes relating to the period subsequent to the
commencement of the Case, in each case as are due and payable (except those
being contested in good faith by appropriate proceedings and for which
adequate reserves have been taken) and has funded all employee payrolls
(including all required withholdings) as and when required.
(i) Except for entry of the Financing Order, or (with respect to the
Exit Facility Date) the Confirmation Order, the execution, delivery,
performance of its obligations, and exercise of its rights under the Loan
Documents by the Borrower, including borrowing under this Agreement and the
obtaining of Letters of Credit (i) do not require any Consents which have
not been obtained; and (ii) are not and will not be in conflict with or
prohibited or prevented by (A) any Requirement of Law, or (B) any Charter
Document, corporate minute or resolution, or any provision of any
post-petition instrument, post-petition agreement or assumed unexpired
lease or executory contract, or (with respect to all periods from and after
the Exit Facility Date) any other instrument, agreement, or contract, in
each case binding on it or affecting the property of the Borrower.
(j) The Borrower and each of its Subsidiaries is not in violation of
(i) any Charter Document, corporate minute or resolution, (ii) any
post-petition instrument, post-petition agreement or assumed unexpired
lease or executory contract, or with (with respect to all periods from and
after the Exit Facility Date) any other instrument, agreement, or contract,
in each case binding on it or affecting its property, in any such case in a
manner which could have a Materially Adverse Effect or (iii) any
Requirement of Law, in a manner which could have a Materially Adverse
Effect, including, without limitation, all applicable federal and state tax
laws, ERISA, OSHA and Environmental Laws. Neither the Borrower nor any of
its Subsidiaries is in violation of any collective bargaining agreement to
which such Person is a party in a manner which could have a Materially
Adverse Effect.
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(k) With respect to all periods prior to the Exit Facility Date, in
view of the execution and delivery of the Loan Documents executed
previously and upon execution and delivery of this Agreement and the other
Loan Documents to be executed on the Effective Date and the entry of the
Financing Order, the Agent and the Banks shall have first-priority
perfected Liens in the Collateral, subject only to (i) Permitted Prior
Liens and (ii) Agreed Administrative Expense Priorities, with no financing
statements, mortgages or similar filings on record anywhere which conflict
with such first-priority Liens.
(l) With respect to all periods from and after the Exit Facility
Date, upon execution and delivery of this Agreement and the other Loan
Documents requested hereby, and upon the recording in the appropriate
recording offices of the applicable financing statements and the Mortgages
being executed by the Borrower and delivered to the Agent and the Banks
and, together with the Confirmation Order, appropriately recorded in
connection herewith, the Agent and the Banks shall have first priority
perfected Liens in the Collateral, subject only to Permitted Prior Liens,
with no financing statements, mortgages or similar filings on record
anywhere which conflict with such first-priority Liens.
(m) There are no Liens on any assets of any of the Borrower or its
Subsidiaries other than Permitted Liens, and there is no Indebtedness of
the Borrower or its Subsidiaries other than Indebtedness permitted by this
Agreement.
(n) Except as set forth on SCHEDULE 8(n) attached hereto, which such
Schedule may be updated from time to time in accordance with the provisions
of Section 10.1(k) hereof, the Borrower has no Subsidiaries and is not a
party to any partnership or joint venture. As of the Effective Date, no
Subsidiary of the Borrower has any assets.
(o) SCHEDULES 2.12 and 2.14 attached hereto set forth the account
numbers and locations of all bank accounts and investment accounts of the
Borrower and its Subsidiaries and accurately designate which such accounts
are payroll accounts and sales tax trust accounts and which are depository
accounts.
(p) SCHEDULE 8(p) attached hereto sets forth all retail stores,
distribution centers and all other locations at which assets, including
inventory, of the Borrower and its Subsidiaries are located. The assets of
the Borrower and its Subsidiaries are in the amounts and of the quality
previously represented by the Borrower to the Agent.
(q) SCHEDULE 8(q) attached hereto sets forth all patents, trademarks,
tradenames, service marks, registered copyrights, material
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Consents, franchises, and applications for the foregoing of the Borrower
and its Subsidiaries, or which the Borrower or its Subsidiaries has the
right to use.
(r) SCHEDULE 8(r) attached hereto sets forth all Real Estate Leases.
True, correct and complete copies of the Real Estate Leases have been
delivered to the Term Loan Lender or the Surety prior to the date hereof.
(s) The proceeds of the Loans shall be used solely for working
capital and general corporate purposes and to finance a portion of the
Borrower's Reorganization Plan. The Borrower will obtain Letters of Credit
solely for general corporate purposes. No portion of any Loan is to be
used, and no portion of any Letter of Credit is to be obtained, for the
purpose of purchasing or carrying any "margin security" or "margin stock"
as such terms are used in Regulation U and X of the Board of Governors of
the Federal Reserve System, 12 C.F.R. Parts 221 and 224.
(t) On and after the Exit Facility Date, there are no pre-petition or
administrative claims or Liens with respect to the Borrower or any of its
assets other than those discharged on or before the consummation of the
Reorganization Plan or those expressly contemplated by the Reorganization
Plan to survive the consummation thereof.
(u) For the period beginning on the Effective Date and ending on the
Exit Facility Date, the Financing Order has been entered, has not been
reversed, modified, amended or stayed, and remains in full force and
effect.
(v) On and after the Exit Facility Date, the Reorganization Plan,
complying with the provisions of Section 9.2.7, has become effective and
has been consummated in accordance with the terms thereof; the Confirmation
Order has been entered, has not been reversed, modified, amended or stayed
(except for modifications consented to or approved by the Agent in
writing), and remains in full force and effect; except as otherwise agreed
in writing by the Agent, all appeal periods relating thereto have expired;
and, except as otherwise agreed in writing by the Agent, no appeals
therefrom are outstanding.
(w) On the date hereof the Cure Payment Reserve is approximately
$1,100,000. The Cure Payment Reserve shall be at all times the number from
time to time set forth as such in each Borrowing Base Report.
(x) With respect to the Real Estate Leases, and subject to any
provisions of Section 10.2(m) and Section 10.6 hereof (as applicable) after
the Effective
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Date, (i) each Real Estate Lease is valid and in full force and effect, and
the Borrower is the lessee under each Real Estate Lease and is in
possession of all of the premises demised by each Real Estate Lease; (ii)
none of the Real Estate Leases has been amended, modified, or supplemented
except by written instrument which has heretofore been delivered to the
Term Loan Lender or the Surety and except as may be expressly permitted
herein after the Effective Date; (iii) except as has heretofore been
disclosed in writing to the Term Loan Lender or the Surety, the Borrower
has no knowledge as of the date hereof or as of the Effective Date of any
failure, breach, default, or event of default by the lessor under any of
the Real Estate Leases in the performance of any of its material
obligations under such Real Estate Lease which such failure, breach,
default, or event of default has resulted or which in the reasonable
judgment of the Term Loan Lender would be expected to result in any
material adverse effect upon any of the Borrower's leasehold interests
under any such Real Estate Lease or the value of any such interest; (iv)
except with respect to the Borrower's failure to pay amounts owing under
the Real Estate Leases as of the Effective Date which in the aggregate do
not exceed the amount of the Cure Payment Reserve and which will have been
paid in full as of the Exit Facility Date (or such later date as may be
agreed upon in writing by the Borrower and the applicable lessor with the
written consent of the Majority Banks), and except with respect to any
defaults of the types referred to in Section 365(e)(1) of the Bankruptcy
Code existing as of the Effective Date, there is no existing breach,
default, or event of default on the part of the Borrower under any of the
Real Estate Leases which would (A) result in the lessor under any Real
Estate Lease having the right: (x) to terminate or cancel any such Real
Estate Lease; or (y) to accelerate the Borrower's monetary obligations
thereunder; or (B) in the reasonable judgment of the Term Loan Lender be
expected to result in any material adverse effect upon any of the
Borrower's leasehold interests under any such Real Estate Lease or the
value of any such interest; (v) the Borrower has not assigned, transferred,
pledged, mortgaged, or otherwise hypothecated any of the Real Estate
Collateral or any interest therein, other than to the Agent for the benefit
of the Banks and the Agent and to any holders of Permitted Liens therein;
(vi) except for licenses and subleases listed on SCHEDULE 8(x) attached
hereto and except for licenses to licensees of merchandise departments in
its retail stores expressly permitted by Section 10.2(p)(iv) hereof, the
Borrower has not sublet or licensed any of the premises demised under any
of the Real Estate Leases; and (vii) as of the date hereof and as of the
Effective Date, there has been no eminent domain proceeding, fire or
casualty or other event not constituting a failure to perform, breach,
default, or event of default by the Borrower or the lessor under any Real
Estate Lease which, either presently or with the passage of time or giving
of
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notice, or both, in each such case, would entitle the lessor under any Real
Estate Lease to terminate or cancel such Real Estate Lease.
SECTION 9. CONDITIONS PRECEDENT.
SECTION 9.1. TO EFFECTIVE DATE OF DIP TERM LOAN. The obligation of the
Term Loan Lender to make the DIP Term Loan and for the Effective Date to occur
is subject to the satisfaction of the following conditions precedent:
SECTION 9.1.1. LOAN DOCUMENTS. Each of this Agreement and the DIP
Notes shall have been duly executed and delivered by the respective parties
thereto, shall be in full force and effect and shall be in form and
substance satisfactory to the Agent and each of the Banks.
SECTION 9.1.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the
Banks and the Surety shall have received from the Borrower a copy,
certified by a duly authorized officer of the Borrower to be true and
complete on the Effective Date, of each of its Charter Documents as in
effect on such date, and a legal existence and good standing certificate
issued by the Borrower's state of incorporation as of a recent date.
SECTION 9.1.3. CORPORATE ACTION. All corporate action necessary for
the valid execution, delivery and performance by the Borrower of this
Agreement and the other Loan Documents to which it is or is to become a
party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Agent and the Banks shall have been provided to the
Agent, the Surety and each of the Banks.
SECTION 9.1.4. INCUMBENCY CERTIFICATE. Each of the Banks and the
Surety shall have received from the Borrower an incumbency certificate,
dated as of the Effective Date, signed by a duly authorized officer of the
Borrower and giving the name and bearing a specimen signature of each
individual who shall be authorized: (i) to sign, in the name and on behalf
of the Borrower each of the Loan Documents to which the Borrower is or is
to become a party; (ii) to make Revolving Credit Loan Requests and
Conversion Requests and to apply for Letters of Credit; and (iii) to give
notices and to take other action on its behalf under the Loan Documents.
SECTION 9.1.5. PERFECTION CERTIFICATE AND TITLE SEARCH RESULTS. The
Agent shall have received from the Borrower an executed Perfection
Certificate stating such changes that have occurred since June 4, 1996,
that need to be reflected in such certificate. The Agent, the Surety and
the Term Loan Lender shall also have received the results of title searches
with respect to the Real Estate Collateral listed on SCHEDULE 9.1.5
attached hereto indicating in each case no Liens other than
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Permitted Liens and otherwise in form and substance satisfactory to the
Agent, the Surety and the Term Loan Lender.
SECTION 9.1.6. FINANCING ORDER. The Bankruptcy Court shall
have entered an order in the Case (together with such Court's
financing orders dated June 3, 1996, and June 13, 1996, in the Case,
the "Financing Order") satisfactory in form and substance to the
Agent, the Surety and the Banks approving the transactions
contemplated herein and including, specifically but without limiting
the foregoing, (i) the grant to the Banks and the Agent of
super-priority status and a first-priority perfected Lien upon the
Collateral, subject to the matters referred to in Section 7.1 hereof,
pursuant to Section 364(c)(1), (2) and (3) of the Bankruptcy Code and
(ii) the grant to the Agent of limited relief from the automatic stay
of Section 362(a) of the Bankruptcy Code for the purpose of enabling
the Agent to make all filings and recordings and take all other
actions considered advisable by the Agent to protect, perfect, or
insure the priority of its security interest. The Financing Order
shall have authorized extensions of credit in the full amount of the
DIP Term Loan or otherwise in an amount satisfactory to the Banks and
the Agent, shall be in full force and effect, and (except for
modifications consented to or approved by the Agent in writing) shall
not have been reversed, modified, amended, or stayed.
SECTION 9.1.7. BORROWING BASE REPORT. The Agent shall have received
from the Borrower the most recently required Borrowing Base Report.
SECTION 9.1.8. OPINION OF COUNSEL. Each of the Banks, the
Agent and the Surety shall have received a favorable legal opinion
addressed to the Banks, the Agent and the Surety, dated as of the
Effective Date, in form and substance satisfactory to the Banks, the
Agent and the Surety, from Ryan, Swanson & Cleveland, counsel to the
Borrower.
SECTION 9.1.9. PAYMENT OF FEES. The Borrower shall have paid to
the Agent for the account of the Term Loan Lender the Closing Fee as
provided in Section 6.1(f), together with all other fees and expense
reimbursements due and payable to the Agent or any Bank and all fees
and disbursements of the Agent's Special Counsel and of counsel to the
Surety for which the Borrower has been invoiced prior to the Effective
Date.
SECTION 9.1.10. LOAN REQUEST; DISBURSEMENT INSTRUCTIONS. The
Agent shall have received a loan request in respect of the DIP Term
Loan and disbursement instructions from the Borrower, indicating,
among other items, that the proceeds of the DIP Term Loan are to be
paid on the Effective Date.
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SECTION 9.1.11. PROJECTIONS AND OTHER INFORMATION; QUALITY OF
ASSETS AND INVENTORY. The Agent shall have received and be satisfied
with all revisions, if any, made to the two-year financial projections
dated July 28, 1997 of the Borrower previously delivered to the Agent
and the Surety and all other information (financial or otherwise)
requested by the Agent and the Surety shall be in all respects
satisfactory to the Agent and the Surety. The Agent and the Surety
shall be satisfied that the assets of the Borrower and its
Subsidiaries are in the amounts and of the quality previously
represented by the Borrower to the Agent and the Surety, and the Agent
and the Surety shall have received such valuations, credit and
background checks and other reports, material and information
concerning such assets as shall satisfy the Agent and the Surety in
their sole discretion. In addition, the Agent and the Surety shall be
satisfied that the inventory of the Borrower is located at such places
and is in the amounts and of the quality and value previously
represented by the Borrower to the Agent and the Surety and the Agent
and the Surety shall have received such reports, material and other
information concerning the inventory and the Borrower's suppliers as
shall satisfy the Agent and the Surety in their sole discretion.
SECTION 9.1.12. NO MATERIAL ADVERSE CHANGE. The Agent shall be
satisfied that any changes to the Financials previously delivered to
the Agent, and any other events or circumstances that may have arisen
since the date of such Financials, would not be likely to have a
Materially Adverse Effect.
SECTION 9.1.13. PURCHASE AND GUARANTY AGREEMENT. The Borrower
shall have executed and delivered to the parties to the Purchase and
Guaranty Agreement the Borrower's acknowledgement and agreement
thereto. All of the conditions precedent set forth in Purchase and
Guaranty Agreement shall have been satisfied, and the Purchase and
Guaranty Agreement shall have become effective.
SECTION 9.2. TO THE OCCURRENCE OF THE EXIT FACILITY DATE. The Banks shall
have no obligation to make any Loan on or after the DIP Maturity Date, the Agent
will not have any obligation to issue, extend or renew any Letter of Credit on
or after the DIP Maturity Date, the DIP Loans outstanding on the DIP Maturity
Date will not convert into Exit Loans as set forth in Section 2.3(a), and
Section 3.3 hereof, and the Obligations shall become due and payable on the DIP
Maturity Date unless each of the following conditions precedent are satisfied:
SECTION 9.2.1. LOAN DOCUMENTS Each of the Mortgages and the
other Security Documents, the Exit Notes and Ratification Certificate
and any other Loan Documents not previously executed shall have been
duly
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executed and delivered by the respective parties thereto, shall be in full
force and effect and shall be in form and substance satisfactory to the
Agent and each of the Banks.
SECTION 9.2.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of
the Banks and the Surety shall have received from the Borrower a copy,
certified by a duly authorized officer of the Borrower to be true and
complete on the Exit Facility Date, of each of its Charter Documents
as amended on such date pursuant to the Reorganization Plan with the
consent of the Agent and in effect on such date, and a legal existence
and good standing certificate issued by the Borrower's state of
incorporation as of a recent date.
SECTION 9.2.3. CORPORATE ACTION. All corporate action necessary
for the valid execution, delivery and performance by the Borrower of
the Loan Documents to which it is or is to become a party shall have
been duly and effectively taken, and evidence thereof satisfactory to
the Agent shall have been provided to the Agent, the Surety and each
of the Banks.
SECTION 9.2.4. INCUMBENCY CERTIFICATE. Each of the Banks and
the Surety shall have received from the Borrower an incumbency
certificate, dated as of the Exit Facility Date, signed by a duly
authorized officer of the Borrower and giving the name and bearing a
specimen signature of each individual who shall be authorized: (i) to
sign, in the name and on behalf of the Borrower each of the Loan
Documents to which the Borrower is or is to become a party; (ii) to
make Revolving Credit Loan Requests and Conversion Requests and to
apply for Letters of Credit; and (iii) to give notices and to take
other action on its behalf under the Loan Documents.
SECTION 9.2.5. VALIDITY OF LIENS. The Mortgages, together with
the Confirmation Order, and the other Security Documents shall be
effective to create in favor of the Agent for the benefit of the Banks
a legal, valid and enforceable security interest in and Lien upon the
Collateral having such priority as is contemplated by this Agreement.
All filings, recordings, deliveries of instruments and other actions
and arrangements necessary or desirable in the opinion of the Agent to
protect and preserve such security interests shall have been duly
effected. The Agent shall have received evidence thereof in form and
substance satisfactory to the Agent.
SECTION 9.2.6. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS.
The Agent shall have received from the Borrower an updated Perfection
Certificate and the results of updated Lien and title searches,
including UCC, PTO, and tax lien searches with respect to the
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Collateral, and title searches with respect to the Real Estate Collateral,
indicating in each case no Liens other than Permitted Liens and otherwise
in form and substance satisfactory to the Agent and the Surety.
SECTION 9.2.7. REORGANIZATION PLAN AND CONFIRMATION ORDER.
(a) The final terms of the Reorganization Plan to be consummated
and the order of the Bankruptcy Court approving such Reorganization
Plan (the "Confirmation Order") shall be satisfactory to the Agent and
the Surety in all respects including, without limitation, the
requirement that, except as approved by the Agent and the Surety, all
prepetition claims against and all interests in the Borrower shall be
discharged and/or extinguished pursuant to the Reorganization Plan and
that no Obligations hereunder or Liens in favor of the Agent or the
Banks shall be discharged until all such Obligations shall be paid in
full in cash and that all such claims and Liens shall survive the
discharge of the Borrower under Section 1141 of the Bankruptcy Code.
The Bankruptcy Court shall have approved any amendments or
modifications to the Reorganization Plan or the Confirmation Order and
entered any and all related orders requested or approved by the Agent
and the Surety in connection therewith, and no other amendments or
modifications thereto shall have occurred. All conditions precedent
to the consummation of the Reorganization Plan shall have been met (or
the waiver thereof shall have been consented to by the Agent and the
Surety) and the substantive consummation of the Reorganization Plan
shall have occurred or shall be scheduled to occur but for the initial
Exit Loans to be made on the Exit Facility Date. The Agent and the
Surety shall be satisfied with the equity ownership of the Borrower,
the composition of the Borrower's board of directors, and the key
executive and financial management of the Borrower. The Confirmation
Order shall not have been reversed, modified, amended, or stayed,
shall be in full force and effect, and, unless otherwise agreed by the
Agent and the Surety, all appeal periods relating to the Confirmation
Order shall have expired, and, unless otherwise agreed by the Agent
and the Surety, no appeals from the Confirmation Order shall be
outstanding. Except as consented to by the Agent and the Surety, or
set forth in Section 9.2.7(b), the Bankruptcy Court's retention of
jurisdiction under the Confirmation Order shall not govern the
enforcement of the Loan Document or Security Documents from and after
the Exit Facility Date, or any rights or remedies relating thereto.
With respect to provisions of this Agreement which permit matters
provided for in the Reorganization Plan, such permission is granted
only to the extent such matters are clearly disclosed and expressly
provided for in the Reorganization Plan and only to the extent
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the Reorganization Plan is expressly approved in writing by the Agent and
the Surety on or prior to the Exit Facility Date.
(b) The Reorganization Plan that has been confirmed and the
Confirmation Order shall also include, at a minimum, the following:
(i) a provision that in any future bankruptcy case in which the
Borrower is a debtor, the Agent shall have the right after an Event of
Default hereunder and otherwise in compliance herewith to cause the
sale or other disposition of the Real Estate Collateral by directing
the Borrower or any trustee appointed in such a case to assume, assign
and sell any or all of such Real Estate Collateral pursuant to
sections 363 and 365 of the Bankruptcy Code after appropriate notice
and a hearing, with the Agent's first priority Lien and security
interest to attach to the proceeds of such sale; (ii) a provision that
on the effective date of the Reorganization Plan, the Borrower shall
issue to the Term Loan Lender or its nominee, (A) the Warrants, which
will include the right to acquire up to twenty percent (on a fully
diluted basis as set forth therein) of each class of equity securities
of the reorganized Borrower for an exercise price based upon a total
equity valuation for the Borrower of $20,000,000, subject to
adjustment as set forth therein, and (B) shares (the "Special Shares")
of a special class of common stock of the reorganized Borrower equal
to a nominal percentage of the total common stock of the reorganized
Borrower which shall entitle the holders of such Special Shares to the
same rights as all holders of all other shares of common stock of the
reorganized Borrower and, in addition thereto, the special voting
rights set forth in Article IV of the Amended and Restated Certificate
of Incorporation of the Borrower attached hereto as EXHIBIT I; (iii) a
provision that on the effective date of the Reorganization Plan, all
of the Real Estate Leases are assumed; and (iv) (with respect to the
Confirmation Order only) a finding that all conditions to the
assumption of the Real Estate Leases have been satisfied as required
by Section 365(b) of the Bankruptcy Code.
SECTION 9.2.8. LANDLORD LIEN WAIVERS; ETC. The Borrower shall
have used its best efforts to obtain and deliver to the Agent Landlord
Waivers with respect to all leaseholds of Real Estate on which
inventory will be located, and the Borrower shall have delivered with
respect to all such leases without such Landlord Waivers which
constitute Specified Leases an officer's certificate of the Borrower
stating the current monthly rental obligations with respect to each
such lease and a calculation in reasonable detail of the maximum
potential claim of such nonwaiving landlord. The Borrower shall have
obtained and delivered to the Agent a waiver of all claims against the
Collateral in form and substance satisfactory to the Agent from
Assembly with respect to the Borrower's distribution facility located
in Kent, Washington and from any and all
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"inventory consolidators" and other Persons in possession of inventory of
the Borrower in a similar capacity.
SECTION 9.2.9. CERTIFICATES OF INSURANCE. The Agent shall
have received (to the extent not previously delivered on the Effective
Date) (i) a certificate of insurance from an independent insurance
broker dated as of the Exit Facility Date, identifying insurers, types
of insurance, insurance limits, and policy terms, and otherwise
describing the insurance obtained in accordance with the provisions of
this Agreement and the Security Agreement, naming the Agent as loss
payee and additional insured, as applicable, and (ii) certified copies
of all policies evidencing such insurance (or certificates therefore
signed by the insurer or an agent authorized to bind the insurer).
SECTION 9.2.10. BORROWING BASE REPORT. The Agent shall have
received from the Borrower a Borrowing Base Report dated as of the
Exit Facility Date.
SECTION 9.2.11. OPINION OF COUNSEL. Each of the Banks, the
Surety and the Agent shall have received a favorable legal opinion
addressed to the Banks, the Surety and the Agent, dated as of the Exit
Facility Date, in form and substance satisfactory to the Banks, the
Surety and the Agent, from Ryan, Swanson & Cleveland, counsel to the
Borrower.
SECTION 9.2.12. PAYMENT OF FEES. The Borrower shall have paid
to the Banks or the Agent, as appropriate, the initial portion of all
facility fees payable on the Exit Facility Date pursuant to the terms
of the Fee Letter as provided in Section 6.1(a) hereof, together with
all other fees and expense reimbursements due and payable to the Agent
or any Bank, and all fees and disbursements of the Agent's Special
Counsel, and of counsel to the Surety for which the Borrower has been
invoiced prior to the Exit Facility Date.
SECTION 9.2.13. AVAILABLE CASH AND BORROWING CAPACITY; AGENCY
ACCOUNT AGREEMENTS. After giving effect to all payments required to
be made in accordance with the Reorganization Plan and all borrowings
hereunder related thereto, the Borrower shall have cash and Exit Loan
borrowing availability (giving effect to the Borrowing Base
limitations hereof) of not less than $500,000. The Agent shall have
received the Agency Account Agreements executed by each of the
depository banks (other than with respect to payroll and sales tax
trust accounts) listed on SCHEDULE 2.12 hereto; and the Agent shall
have received all other documentation required by Section 2.12 hereof.
The Lock Box Agreement and the arrangements and documentation referred
to in Sections 2.12 and 2.14 hereof shall be in full force and effect.
The Agent must be satisfied that
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all cash, checks, and other proceeds of Collateral are being deposited
and handled in accordance with the procedures provided in Sections 2.12
and 2.14 hereof and shall otherwise be satisfied with the Borrower's cash
management system.
SECTION 9.2.14. POST-CONFIRMATION CAPITAL STRUCTURE AND LIABILITIES.
The Agent shall be satisfied with all liabilities (including contingent
liabilities) and post-confirmation litigation risks that are to survive the
consummation of the Reorganization Plan and with the adequacy of
appropriate accounting reserves therefor. The Agent shall be satisfied
with the financial condition, capital structure, corporate structure,
assets, liabilities and financial projections (including cash flow) of the
Borrower and its Subsidiaries and the terms of all capital stock and
Indebtedness. No event or circumstances shall have arisen that would in
the reasonable opinion of the Agent or any Bank have a Materially Adverse
Effect.
SECTION 9.2.15. EXIT TO OCCUR CONCURRENT WITH DIP MATURITY DATE. The
Exit Facility Date must occur, if at all, on the DIP Maturity Date. The
Effective Date must have occurred previously, all conditions precedent set
forth in Section 9.1 hereof shall have been and remain satisfied, and the
Total DIP Commitment shall not have been terminated (whether by the Agent
or the Banks in accordance with the provisions of Section 11 or by the
Borrower in accordance with the provisions of Section 2.5 or otherwise),
such that there is a conversion of outstanding DIP Loans to Exit Loans on
the Exit Facility Date.
SECTION 9.2.16. WARRANT DOCUMENTS. The Warrant Documents shall have
been executed and delivered in favor of the Term Loan Lender or its
nominee, and the Special Shares shall have been issued to the Term Loan
Lender or its nominee.
SECTION 9.2.17. MANAGEMENT CONTRACTS. The management contracts of
Alan Schlesinger and Loren Rothschild with the Borrower shall have been
extended until the end of fiscal year 2001, upon terms acceptable to the
Term Loan Lender and the Surety.
SECTION 9.2.18. CURE PAYMENTS. All conditions to assumption of the
Real Estate Leases shall have been satisfied, including the making of any
cure payments on the Exit Facility Date (or such later date as may be
agreed upon in writing by the Borrower and the applicable lessor with the
written consent of the Majority Banks), all as required by Section 365(b)
of the Bankruptcy Code.
SECTION 9.2.19. TITLE INSURANCE. The Agent shall have received
a Title Policy with respect to the Mortgages covering the Real Estate
Leases
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listed on SCHEDULE 9.2.19 (or commitments to issue such policy, with all
conditions to issuance of the title policy deleted by an authorized agent
of the title insurance company) together with proof of payment (or
provision therefor) of all fees and premiums for such policy.
SECTION 9.3. TO EACH LOAN AND ISSUANCE, EXTENSION OR RENEWAL OF LETTERS OF
CREDIT. The obligation of the Banks to make any Loan or of the Agent to issue,
extend or renew any Letter of Credit and the conversion of the DIP Loans to Exit
Loans as set forth in Section 2.4(a) and Section 3.3 hereof, is subject to the
satisfaction of the following further conditions precedent:
(a) Each of the representations and warranties of the Borrower
and its Subsidiaries to the Agent and the Banks herein or in any of
the other Loan Documents or any document, certificate or other paper
or notice in connection herewith shall be true and correct in all
material respects on the date of such extension of credit, except to
the extent that such representations and warranties expressly relate
to a prior date, in which case they shall be true and correct in all
materials respects as of such earlier date. Each request by the
Borrower for, and acceptance by the Borrower of, each extension of
credit shall be deemed to be a representation and warranty by the
Borrower that the applicable conditions precedent in Section 9 have
been satisfied and that, after giving effect to such extension of
credit, the Borrower shall continue to be in compliance with the
provisions hereof relating to the Borrowing Base restrictions on the
Total Revolver Outstandings.
(b) No Default or Event of Default shall have occurred and be
continuing or shall result from such extension of credit.
(c) All proceedings in connection with the transactions contemplated
hereby shall be in form and substance reasonably satisfactory to the Agent,
the Surety and the Banks, and the Agent, the Surety and the Banks shall
have received all information and documents as they shall have reasonably
requested. No change shall have occurred in any law or regulation or in
the interpretation thereof that in the reasonable opinion of the Agent or
any Bank would make it unlawful for such Bank to make such Loan or the
Agent to issue, extend or renew such Letter of Credit.
(d) With respect to DIP Loans and Letters of Credit to be issued,
extended or renewed prior to the DIP Maturity Date only, the Financing
Order shall be in full force and effect and (except for modifications
consented to or approved by the Agent and the Surety in writing) shall not
have been reversed, modified, amended or stayed. If the Financing Order is
the subject of a pending appeal in any respect, none of such
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Financing Order, the making of the DIP Loans, the issuance, extension or
renewal of any Letters of Credit prior to the Exit Facility Date, or the
performance by the Borrower of any of its obligations under any of the Loan
Documents shall be the subject of a presently effective stay pending
appeal. The Borrower, the Agent and the Banks shall be entitled to rely in
good faith upon the Financing Order notwithstanding objection thereto or
appeal therefrom by any interested party. The Borrower, the Agent and the
Banks shall be permitted and required to perform their respective
obligations in compliance with this Agreement notwithstanding any such
objection or appeal unless the Financing Order has been stayed by a court
of competent jurisdiction.
(e) Except as otherwise provided in Section 2.7 hereof, the Agent
shall have received a Revolving Credit Loan Request or Letter of Credit
Application with respect to the Loan or Letter of Credit requested. The
Agent shall have received the most recent Borrowing Base Report required
hereunder as provided in Section 10.1(a)(iv).
(f) From and after the Exit Facility Date only, the Confirmation
Order shall be in full force and effect, shall not have been reversed,
modified or amended in any material respect (except for modifications
consented to or approved by the Agent and the Surety in writing), shall not
(unless otherwise agreed by the Agent) be subject to an unexpired appeals
period, and shall not (unless otherwise agreed by the Agent) be the subject
of any pending appeal.
(g) All fees and expense reimbursements due and payable to the Agent,
the Surety or any Bank hereunder shall have been paid to the Agent or (as
the case may be), the Surety or such Bank.
(h) No suit or action against any Bank, the Agent or the Surety shall
have been commenced by any official committee in the Case or any other
Person (exclusive of the Borrower, any Subsidiaries of the Borrower) which
suit or action asserts any claim or legal or equitable remedy contemplating
subordination of any claim or Lien of any of the Banks or the Agent.
SECTION 9.4. TO EACH EXTENSION OF THE TERM LOAN MATURITY DATE. The Term
Loan Maturity Date may be extended by Borrower for two (2) consecutive one
year periods subject to the satisfaction, for each such extension, of the
following conditions precedent:
(a) The Borrower shall have made a request in writing for such
extension to the Term Loan Lender and the Surety. The Term Loan Lender and
the Surety shall have been satisfied with the Collateral values supporting
the Term Loan as determined by each of the Term Loan Lender and the Surety,
based on Collateral audits, appraisals and other information obtained by
the Term
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Loan Lender or the Surety in connection with any such extension request.
The Term Loan Lender and the Surety shall have made such determination
regarding collateral values based upon standards and procedures that do not
vary unreasonably from the general standards and procedures used in
connection with the Term Loan Lender's original decision to make, and the
Surety's original decision to act as surety for, the Term Loan. If the
Term Loan Lender and the Surety are so satisfied, they shall have so
indicated in writing to the Borrower by the later to occur of (i) 60 days
following receipt by the Term Loan Lender and the Surety of such request,
or (ii) 90 days prior to the then scheduled Term Loan Maturity Date, but in
no event beyond the date of the then scheduled Term Loan Maturity Date.
(b) Each of the representations and warranties of the Borrower and
its Subsidiaries to the Agent and the Banks herein or in any of the other
Loan Documents or any document, certificate or other paper or notice in
connection herewith shall be true and correct in all material respects on
the date of such proposed extension, except to the extent that such
representations and warranties expressly relate to a prior date, in which
case they shall be true and correct in all materials respects as of such
earlier date.
(c) No Default or Event of Default shall have occurred and be
continuing or shall result from such proposed extension.
(d) The Exit Maturity Date is extended for at least the same period.
(e) All fees due and payable to the Agent, the Surety or any Bank
hereunder shall have been paid to the Agent or (as the case may be), the
Surety or such Bank.
SECTION 10. COVENANTS.
SECTION 10.1. AFFIRMATIVE COVENANTS. The Borrower agrees that so long as
there are any Loans or Letters of Credit outstanding and until the termination
of the Total DIP Commitment or, if the Exit Facility Date occurs, the Total Exit
Commitment and the payment and satisfaction in full in cash of all of the
Obligations, the Borrower will, and where applicable the Borrower will cause
each of its Subsidiaries to, comply with its obligations as set forth throughout
this Agreement and to:
(a) furnish the Agent, the Banks and (unless otherwise indicated) the
Surety:
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(i) as soon as available but in any event within ninety-five
(95) days after the close of each fiscal year, (A) its audited
consolidated Financials for such fiscal year, together with the
unqualified audit opinion letter with respect thereto of the
Borrower's accountants (other than, with respect only to periods prior
to the Exit Facility Date, such accountants' customary qualification
consistent with past practice with respect to the Borrower's ability
during the pendency of the Case to continue as a going concern),
together with a statement from such accountants as to the absence, to
their knowledge, of any Event of Default, and (B) its unaudited
consolidating Financials for such fiscal year; with such accountants
at all times to be one of the national, independent certified public
accounting firms presently referred to as the "Big Six" or such other
independent certified public accounting firm of recognized standing as
shall have been approved by the Agent;
(ii) as soon as available but in any event within thirty-five
(35) days after the end of each fiscal month and within fifty (50)
days after the end of each fiscal quarter, (A) its unaudited
consolidated and consolidating Financials for such period, and (B)
prior to the Exit Facility Date, an itemized accounting of all amounts
paid or credited to the Escrow Account during each such monthly or
quarterly period, in each case certified by its chief financial
officer;
(iii) together with its Financials described in clauses (i) and
(ii) above, a certificate of the Borrower in the form attached hereto
as EXHIBIT J (the "Compliance Certificate") setting forth computations
demonstrating compliance with the Borrower's and its Subsidiaries
financial covenants set forth herein, containing (in the case of the
Financials described in clause (i) above) computations in reasonable
detail of the Applicable Pricing as to be determined on the applicable
Adjustment Date pertaining to such Financials, and in each case
describing and evidencing in reasonable detail any and all applicable
reconciliations to reflect changes in GAAP since February 1, 1997 and
the differences between GAAP and the accounting principles, methods,
interpretations, and procedures utilized by the Borrower in
determining compliance with Section 10.2(b), Section 10.2(c), Section
10.3, and Section 10.4 hereof, and certifying that no Default or Event
of Default has occurred, or if it has, describing the actions taken by
the Borrower and its Subsidiaries with respect thereto;
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(iv) on Tuesday of each week (or, if such Tuesday is not a
Business Day, on the first Business Day thereafter), to the Agent and
the Banks, and (only if requested by the Surety) the Surety, and at
such other time as the Agent, any Bank or the Surety may reasonably
request, a Borrowing Base Report with respect to the prior business
week (including and ending on the immediately preceding Saturday) or
such other applicable period together with, in the case of any
Borrowing Base Report delivered immediately following the end of any
fiscal month, such specific inventory pledges or collateral
designations as of the end of such month as the Agent, any Bank or the
Surety may have reasonably requested;
(v) promptly upon the filing thereof copies of all material
pleadings, notices, orders and other papers filed in the Case;
(vi) prior to the commencement of each fiscal year of the
Borrower, the Borrower's updated forecasts and projections of future
financial performance from and including such fiscal year through the
last day of the Borrower's fiscal year ending on or about January 29,
2000 or any subsequent fiscal year in which the Exit Maturity Date is
scheduled to occur;
(vii) within five (5) days after the filing or mailing thereof,
copies of all materials of a financial nature filed with the
Securities and Exchange Commission or sent to the stockholders of the
Borrower;
(viii) promptly following receipt thereof by the Borrower,
copies of all accountants management letters (if any) and related
recommendations (if any) received by the Borrower; and
(ix) from time to time such other information concerning the
Borrower, its Subsidiaries, if any, or the Case as the Agent, any Bank
or the Surety may reasonably request.
(b) keep true and accurate books of account in accordance with GAAP,
subject to year-end audit adjustments in the case of monthly and quarterly
Financials (other than those delivered with respect to the Borrower's full
fiscal year), maintain its current fiscal year and its current fiscal
quarters, and permit the Banks and the Surety through the Agent or any of
the Banks' and the Surety's other designated representatives to inspect the
Borrower's or its Subsidiaries' premises during normal business hours, to
examine and be advised as to the Borrower's and its Subsidiaries' business
records upon the request of the Agent, the Surety, or any Bank, permit from
time to time, at the
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Borrower's expense to the extent provided in Section 16.1 hereof, the
Agent's commercial finance examiners, independent collateral auditors
(absent the continuance of a Default, independent collateral audits not to
exceed three (3) times in any twelve-month period) and examiners, and
independent appraisers (absent the continuance of a Default, independent
appraisals not to exceed two (2) times in any twelve-month period) to
conduct periodic commercial financial examinations, collateral audits
conducted by The Asset Support Group or other auditors acceptable to the
Agent, liquidation analyses conducted by Gordon Brothers, Inc. or other
liquidation specialists chosen by and acceptable to the Agent and
appraisals of Real Estate by appraisers or brokers chosen by and approved
by the Term Loan Lender from time to time, in each case at the Borrower's
expense subject to Section 16.1 hereof, in each case in order to review and
verify the components of the Borrowing Base, and examinations, collateral
audits and liquidation analyses of the inventory components included in the
Borrower Base, which appraisals, audits, examinations, and analyses may
relate to appropriate adjustments in the Borrowing Base formula, advance
rates, and components and may indicate whether the information set forth in
the Borrowing Base Report most recently delivered is accurate and complete
in all materials respects based upon a review by such applicable Persons of
the inventory (including verification as to value, location, type and
appropriate shrink reserves), as well as audits, examinations, appraisals
and liquidation analyses of all other assets of the Borrower and its
Subsidiaries and all systems and procedures of the Borrower and its
Subsidiaries, including those related to cash management, and permit the
Agent and, if accompanied by a representative of the Agent, the Banks or
the Surety to communicate directly with the Borrower's independent
certified public accountants concerning the business, financial condition
and other affairs of the Borrower and its Subsidiaries;
(c) (i) maintain its and its Subsidiaries' corporate existence,
business and assets, (ii) keep its and its Subsidiaries' business and
assets adequately insured with insurers, types of insurance, insurance
limits and policy limits satisfactory to the Agent, with the Agent to be
named as loss payee and additional insured under all insurance and the
Agent entitled to receive from each insurer at least thirty (30) days prior
written notice of cancellation of any insurance, (iii) maintain its and its
Subsidiaries' chief executive offices in the United States, (iv) continue
and cause each of its Subsidiaries' to continue to engage in the same
respective businesses now conducted by them, (v) fund its payroll and that
of its Subsidiaries (including all withholdings) as and when required, and
(vi) prior to the Exit Facility Date, pay all post-petition taxes as and
when due and payable, except where contested in good faith by appropriate
proceedings for which adequate reserves have been
<PAGE>
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taken, and, on and after the Exit Facility Date, pay all taxes as and
when due and payable, after taking into account the deferral of any
priority tax claims under the Reorganization Plan and except where
contested in good faith by appropriate proceedings for which adequate
reserves have been taken, and (vii) comply with all other Requirements of
Law, including ERISA, OSHA and Environmental Laws where the failure so to
comply could have a Materially Adverse Effect;
(d) notify the Agent, the Surety and the Banks promptly in writing of
(i) the occurrence of any Default or Event of Default, (ii) any
noncompliance with ERISA, OSHA or any Environmental Law or proceeding in
respect thereof which could have a Materially Adverse Effect, (iii) any
change of address, (iv) any threatened or pending litigation or similar
proceeding affecting the Borrower or any of its Subsidiaries which if
adversely determined could have a Materially Adverse Effect, or any
material change in any such litigation or proceeding previously reported,
(v) any notice which the Borrower or any of its Subsidiaries has received
under any material supply or other contract terminating or threatening to
terminate the provisions of supply or the provisions of other goods or
services or otherwise claiming a default thereunder and (vi) any material
post-petition or post-Exit Facility Date claims against any assets or
properties of the Borrower or any of its Subsidiaries constituting
Collateral;
(e) use the proceeds of the Loans solely to provide additional funds
for working capital requirements and general corporate purposes and to
finance a portion of the Borrower's Reorganization Plan, and use Letters of
Credit solely for working capital and general corporate purposes approved
by the Revolving Credit Banks for Letters of Credit. The proceeds of the
Loans and Letters of Credit shall not be used for the carrying of "margin
security" or "margin stock" within the meaning of Regulations U and X of
the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221
and 224;
(f) unless otherwise directed or approved by the Agent in writing,
cause all cash, checks and other payments or proceeds on or of Non-Real
Estate Collateral held or received by it (other than cash permitted to be
held overnight at the Borrower's stores by the provisions of Section 2.12
or, as applicable, Section 2.14 hereof), immediately upon receipt and in
the identical form received, to be paid directly into the Lock Box Account
or a deposit account which is subject to an Agency Account Agreement, or
(to the extent permitted by Section 2.14 hereof) a deposit account which is
set forth on SCHEDULE 2.14 hereto, in each case in accordance with the
requirements of Sections 2.12 or, as applicable 2.14 hereof.
Notwithstanding anything to the contrary, the Operating Account and the
Lock Box Account shall at all
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times be maintained with the Agent or another financial institution
acceptable to the Agent, and, except as may be agreed by the Agent, the
Borrower shall not maintain any other deposit accounts, except for (A) the
deposit accounts described in Section 2.12 hereof for which an Agency
Account Agreement is in effect as provided in Section 2.12 hereof, (B) the
payroll accounts (whether for payroll or for applicable withholding tax)
and sales tax accounts designated as such on SCHEDULE 2.12 hereto and (C)
prior to the date which is 90 days after the Exit Facility Date, the
Seafirst Account and the other deposit accounts described in Section 2.14
hereof; nor shall the Borrower maintain investment accounts except as
permitted by Section 10.2 hereof; pursuant to the Agency Account Agreements
the Borrower shall, except as may be agreed by the Agent, cause all such
funds as are from time to time in its deposit accounts (other than funds in
its payroll and tax accounts to the extent otherwise permitted by Section
10.2(k)(iii) hereof, and other than the relevant amounts otherwise allowed
to remain in its deposit accounts as at the end of any day as provided in
Section 2.12 or, as applicable, Section 2.14 hereof) to be swept daily from
all such applicable accounts to the Lock Box Account (whether directly or,
to the extent permitted by Section 2.14, as applicable, through Seafirst);
and otherwise maintain at all times cash management systems satisfactory to
the Agent;
(g) notify the Agent, the Surety and the Banks prior to rejecting any
Real Estate Lease or other contract in the Case or making any motion in the
Case to reject any Real Estate Lease or any contract, setting forth in such
notice the reasons why such rejection (i) will be in the best interests of
the Borrower and (ii) will not have a Materially Adverse Effect, and avoid
proceeding with such rejection if in the reasonable opinion of the Agent,
the Surety or any Bank such rejection will have a Materially Adverse
Effect; and
(h) pay or cause to be paid punctually the principal and interest on
the Loans, all Reimbursement Obligations, all facility fees, commitment
fees, Letters of Credit fees, administrative fees and all fees and expenses
of any consultants, appraisers and advisors retained by the Agent or the
Surety in connection herewith, subject to Section 16.1 hereof, in each case
in accordance with the terms of this Agreement and the other Loan
Documents;
(i) keep its inventory only at Permitted Inventory Locations, unless
the Agent shall have been given thirty (30) days prior written notice of
each new store and other inventory locations and shall have taken all steps
necessary or advisable to perfect a security interest in such inventory or
such location in favor of the Agent for the benefit of the Banks shall have
been taken, and give the Agent, the Surety and the
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Banks prior written notice of all store or other retail outlet closings in
accordance with Section 10.2(m) hereof;
(j) if the Borrower shall ever have, acquire or create any Subsidiary
(other than the one Subsidiary existing on the Effective Date) it shall
immediately (A) notify the Agent, the Surety and the Banks thereof, (B)
take all steps as may be necessary or advisable in the opinion of the Agent
to pledge to the Agent for the benefit of the Banks all of the capital
stock of such Subsidiary pursuant to a stock pledge agreement in form and
substance satisfactory to the Agent and the Banks, which such stock pledge
agreement shall be a Security Document hereunder, (C) cause such Subsidiary
to guaranty all of the Obligations hereunder pursuant to a guaranty in form
and substance satisfactory to the Agent and the Banks, which such guaranty
shall be a Security Document hereunder, (D) cause such Subsidiary to take
all steps as may be necessary or advisable in the opinion of the Agent to
grant to the Agent for the benefit of the Banks a first priority security
interest in all of its assets as collateral security for such guaranty,
pursuant to security documents, mortgages, pledges and other documents in
form and substance satisfactory to the Agent, each of which documents shall
be Security Documents hereunder, and, (E) deliver to the Agent and the
Banks an updated SCHEDULE 8(n) adding such new Subsidiary thereto;
(k) with respect to the Real Estate Leases, and subject to the
provisions of Section 10.2(m) and Section 10.6 hereof (as applicable) after
the Effective Date, (i) comply with all material requirements and perform
all material obligations under each Real Estate Lease if the failure to
comply or perform would (A) result in the lessor under any Real Estate
Lease having the right: (x) to terminate or cancel any such Real Estate
Lease; or (y) to accelerate the Borrower's monetary obligations thereunder;
or (B) in the reasonable judgment of the Term Loan Lender, be expected to
result in any material adverse effect upon any of the Borrower's leasehold
interests under any such Real Estate Lease or the value of any such
interest, (ii) comply with all material Requirements of Law if the failure
to comply would (A) result in the lessor under any Real Estate Lease having
the right: (x) to terminate or cancel any such Real Estate Lease; or (y) to
accelerate the Borrower's monetary obligations thereunder; or (B) in the
reasonable judgment of the Term Loan Lender, be expected to result in any
material adverse effect upon any of the Borrower's leasehold interests
under any such Real Estate Lease or the value of any such interest, (iii)
to the extent permitted under each Real Estate Lease and, if not so
permitted, use its reasonable best efforts to, designate the Agent as a
party to receive all notices and other communications from the lessor under
each Real Estate Lease, except routine invoices for and notices of
non-delinquent rent and other
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charges, or routine operational matters; (iv) transmit in any event to the
Agent promptly upon receipt, by facsimile (with a copy by overnight
delivery) and otherwise as provided in Section 16.3 hereof, a complete copy
of each and every notice or other communication from the lessor under each
Real Estate Lease received by the Borrower, except routine invoices for and
notices of non-delinquent rent and other charges, or routine operational
matters; (v) exercise in a timely manner each and every renewal or
extension option contained in each and every Real Estate Lease, except as
may otherwise be agreed in writing by the Term Loan Lender in its sole
discretion; and (vi) except with respect to repair and maintenance
responsibilities which are assumed by the lessor the Borrower is being
required by the Term Loan Leunder the applicable Real Estate Lease, keep
the Real Estate Collateral relating thereto in good and workable order and
condition; and
(l) if there shall occur any default under any term, covenant or
provision of any Real Estate Lease for which there is an applicable cure
period, and if the Term Loan Lender shall give notice to the Borrower that
nder to cure such default, then the Borrower shall cure such default before
the expiration of five Business Days from the date on which the Agent or
the Term Loan Lender gives notice to the Borrower to cure such default, or
before two Business Days prior the expiration of such cure period, if
earlier; EXCLUDING, HOWEVER, from the operation of this paragraph (l), any
default under such Real Estate Lease (i) which would not (A) result in the
lessor under any Real Estate Lease having the right: (x) to terminate or
cancel any such Real Estate Lease; or (y) to accelerate the Borrower's
monetary obligations thereunder; or (B) in the reasonable judgment of the
Term Loan Lender, be expected to result in any material adverse effect upon
any of the Borrower's leasehold interests under any such Real Estate Lease
or the value of any such interest and (ii) for which the Borrower is taking
all reasonable steps to effect a cure thereof.
SECTION 10.2. NEGATIVE COVENANTS. The Borrower agrees that so long as
there are any Loans or Letters of Credit outstanding and until the termination
of the Total DIP Commitment or, if the Exit Facility Date occurs, the Total Exit
Commitment, and the payment and satisfaction in full of all the Obligations, the
Borrower will not, and the Borrower will not cause or permit any of its
Subsidiaries to:
(a) seek, or consent to (i) any modification, stay, vacation or
amendment (other than modifications consented to or approved by the Agent
in writing) to the Financing Order or the Confirmation Order; (ii) a
priority claim for any administrative expense or an unsecured claim against
the Borrower (now existing or hereafter arising of any kind or
<PAGE>
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nature whatsoever, including without limitation any administrative expense
of the kind specified in Section 503(b), 506(c) or 507(b) of the Bankruptcy
Code) equal or superior to the priority claim of the Agent and the Banks in
respect of the Obligations, in an aggregate amount (taken together with all
other such claims) in excess of $100,000, except for Agreed Administrative
Expense Priorities and the proceeds of causes of action under Sections 544
through 550 of the Bankruptcy Code; (iii) a priority claim pursuant to
Section 364 of the Bankruptcy Code equal to or superior to the priority
claim of the Agent and the Banks in respect of the Obligations in an
aggregate amount (taken together with all other such claims) in excess of
$100,000; and (iv) any Lien on any Collateral, having a priority equal or
superior to the Liens in favor of the Agent for the benefit of the Banks in
respect of the Obligations, except for Permitted Prior Liens or as
permitted under Section 7.1 hereof; or suffer or permit to exist any of the
matters referred to in the foregoing clauses (i), (ii), (iii), or (iv)
which matters, in the case only of priority claims referred to in clauses
(ii) or (iii), are allowed as such by the Bankruptcy Court;
(b) create, incur, assume, or permit to exist any Indebtedness of the
Borrower or its Subsidiaries other than (i) Indebtedness to the Agent the
Banks and the Surety arising under the Loan Documents, (ii) current
liabilities of the Borrower or its Subsidiaries not incurred through the
borrowing of money or the obtaining of credit except credit on an open
account customarily extended, (iii) Indebtedness in respect of taxes or
other governmental charges not yet due and payable or, if due, being
contested in good faith and by appropriate proceedings and for which
adequate reserves have been taken; (iv) Indebtedness in existence on the
Filing Date, and additional Indebtedness in existence on the Effective Date
which additional Indebtedness is listed and described in reasonable detail
on SCHEDULE 10.2(b) hereto, so long as all such Indebtedness (whether in
existence on the Filing Date or the Effective Date) is discharged upon the
consummation of the Reorganization Plan except as otherwise expressly
contemplated by the Reorganization Plan, (v) purchase money Indebtedness
incurred after June 4, 1996 in respect of (A) the acquisition of property
(other than inventory) or (B) obligations under Capitalized Leases not at
any time to exceed, in the aggregate for purposes of this clause (v), an
amount equal to 50% of the amount of Capital Expenditures permitted
pursuant to Section 10.3(a) since June 4, 1996, and any refinancings
thereof (not exceeding the amount refinanced) on terms no less favorable to
the Borrower, the parties agreeing that, solely for purposes of this
Section 10.2(b), obligations under new Real Estate leases in respect of new
store locations that are entered into after June 4, 1996 shall, solely to
the extent such obligations are reasonably attributable to the applicable
Real Estate (and not to
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furniture, fixtures, equipment, leasehold improvements, or other personal
property) (such qualifying obligations, if any, under such new store Real
Estate leases being referred to as the "Special Lease Obligations") shall
be deemed to be obligations in respect of operating leases, notwithstanding
whether such obligations would be treated as Capitalized Lease obligations
or operating lease obligations under GAAP, (vi) the existing lease guaranty
referred to in Section 10.2(i) below, and (vii) unsecured Indebtedness in
respect of the presently-existing limited recourse arrangements under the
Store Credit Card Program with respect to not more than 50% of the amount
from time to time of the bad debts of credit card customers of the Borrower
for purchases made under the Store Credit Card Program;
(c) create or incur, assume, or permit to exist any Liens on any of
the property or assets of the Borrower or its Subsidiaries except
(collectively, "Permitted Liens") (i) Liens securing the Obligations; (ii)
those Permitted Prior Liens listed and described in reasonable detail on
SCHEDULE 10.2(c) hereto, so long as such Permitted Prior Liens are
discharged upon the consummation of the Reorganization Plan except as
otherwise expressly contemplated by the Reorganization Plan; (iii) Liens
securing taxes or other governmental charges not yet due; (iv) deposits or
pledges made in connection with social security obligations; (v) Liens of
carriers, warehousemen, mechanics and materialmen, less than 120 days old
and in respect of obligations not yet due; (vi) easements, rights-of-way,
zoning restrictions and similar minor Liens which individually and in the
aggregate do not have a Materially Adverse Effect; (vii) statutory or
common law (but not consensual or contractual) landlord's Liens relating to
leases of real property; and (viii) purchase money security interests in
property securing purchase money Indebtedness permitted by Section
10.2(b)(v), covering only the property so acquired, and Liens under
Capitalized Leases permitted by Section 10.2(b)(v) and Liens in respect of
Special Lease Obligations otherwise permitted by this Agreement (in each
case covering only the property leased thereunder);
(d) create, form or permit to exist any Subsidiaries other than the
one Subsidiary set forth on SCHEDULE 8(n) attached hereto, it being
understood that, the provisions of Section 10.1(k) hereof shall not be
construed to permit any other Subsidiaries at any time to exist, or permit
to exist any investments other than investments in (i) marketable
obligations of the United States maturing within one (1) year, (ii)
certificates of deposit, bankers' acceptances and time and demand deposits
of United States banks having total assets in excess of $1,000,000,000,
(iii) investments in the Borrower's Subsidiary made prior to the Filing
Date, (iv) investments in mutual funds investing solely in the investments
permitted in clauses (i) and (ii) above, (v) such other investments as the
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Agent and the Banks may from time to time approve in writing; PROVIDED,
HOWEVER, that (A) in each such case referred to in this Section 10.2(d),
arrangements have been made to the satisfaction of the Agent and the Banks
for the perfection and protection and the preservation of the priority of
the Agent's and the Banks' Lien therein and (B) in the case of any
investments referred to in clause (i), (ii) or (iv) of this Section 10.2(d)
which do not consist of cash collateral expressly required to be delivered
and which, in fact, have been delivered to the Agent hereunder, such
investments are made only at a time when Total Revolver Outstandings are
zero (other than Letters of Credit with respect to which the Agent has
received cash collateral in the amount of 105% of the Maximum Drawing
Amount);
(e) declare, make or pay any dividends or distributions on or in
respect of its capital stock of any nature whatsoever, other than (i)
dividends payable solely in shares of common stock, (ii) distributions by a
wholly-owned Subsidiary to the Borrower, and (iii) warrants or options to
acquire stock as contemplated by the Reorganization Plan, and any stock
issued thereunder or pursuant to the exercise thereof;
(f) be or become party to a merger or consolidation, or effect any
disposition of assets (other than (x) sales of inventory in the ordinary
course and, (y) so long as no Default or Event of Default has occurred and
is continuing, and none would exist after giving effect to the transactions
proposed to be effected, dispositions of (or abandonments or losses in
respect of) leasehold improvements in connection with store closings only
as provided in subparagraph (m) hereof and dispositions of obsolete
fixtures and equipment no longer used or useful in the Borrower's business
up to an aggregate amount sold (or otherwise disposed of) in any twelve
(12) month period of $100,000 in gross cash proceeds); or purchase, lease
or otherwise acquire any stock or assets other than purchases of equipment
or inventory in the ordinary course and Capital Expenditures (but not
acquisitions of a division or business unit or line of business from
another Person) permitted under Section 10.3(a) hereof;
(g) pay, prepay, redeem or repurchase any of the Indebtedness for
borrowed money in existence on the Filing Date except (A) as provided in
the Reorganization Plan, (B) for cure payments on unexpired leases and
executory contracts, which are not financial accommodations, assumed by the
Borrower after the Filing Date, (C) other payments on such Indebtedness not
to exceed $100,000 in the aggregate, and (D) other such payments referred
to in Section 11.1(a)(xii) as permitted thereunder; or amend or modify the
terms thereof except as provided in the Reorganization Plan;
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(h) after the occurrence and during the continuance of an Event of
Default, deposit or otherwise credit any amounts to the Escrow Account
without the express prior written consent of the Agent;
(i) enter into or be or become obligated under or with respect to any
guaranty or similar undertaking with respect to the Indebtedness of any
other Person, other than the Borrower's guaranty in effect on the Effective
Date of the obligations of Assembly as lessee under the existing lease of
the Borrower's distribution center located at Kent, Washington with
RREEF-IV, Inc., a Delaware corporation, as lessor;
(j) except for matters expressly provided in the Reorganization Plan,
and employee discounts for merchandise in accordance with past practices,
engage in any transaction with any executive officer, director or
shareholder of the Borrower or its Subsidiaries on terms more favorable to
such other Person than the Borrower or such Subsidiary could obtain from
third parties, or pay, or enter into any agreement requiring it to pay
salary or bonus or other compensation payments to any executive officer,
director or shareholder of the Borrower or any of its Subsidiaries in an
amount in excess of reasonable compensation commensurate with historical
and customary levels of the Borrower or such Subsidiary, as the case may be
(including reasonable seasonal and periodic increases, raises, and bonuses)
(it being agreed that certain arrangements described to the Agent in
writing prior to the execution and delivery by the Agent of this Agreement
are in compliance with this paragraph (j) of Section 10.2);
(k) except as may be agreed by the Agent (i) establish or permit to
exist any bank accounts other than those listed on SCHEDULES 2.12 and 2.14
and at the time of reference thereto permitted by Sections 2.12 and 2.14
hereof without the Agent's prior written consent, (ii) violate any Agency
Account Agreement, or the Lock Box Agreement, or (iii) deposit in any
payroll or sales tax trust accounts designated as such on SCHEDULE 2.12 and
2.14 hereto any amounts in excess of amounts necessary to pay payroll
(including applicable withholding tax) or sales tax obligations as and when
required, as the case may be, from such accounts;
(l) permit, during any of the periods in the table set forth below,
the aggregate number of stores or other retail outlets of the Borrower to
exceed the maximum number of stores and retail outlets permitted for such
period set forth opposite such period in the table below:
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Period Maximum Number
------ --------------
February 2, 1997 - January 31, 1998 38
February 1, 1998 - January 30, 1999 42
January 31, 1999 - February 27, 2000 46
(m) effect any closing of any store or other retail outlet covered by
a Real Estate Lease, or fail to renew, or to exercise any option to extend
the term of, any Real Estate Lease; PROVIDED, HOWEVER, that the Borrower
may do so if the following conditions are met:
(i) the cumulative number of such closings and failures to renew
or extend does not exceed four or such greater number to which the
Agent, acting on instructions solely of the Majority Revolving Credit
Banks, shall have consented,
(ii) either:
(A) the Borrower shall have received compensation in cash
for such closing or failure to renew or extend of not less than
the amount (the "Specified Amount") set forth opposite such store
on SCHEDULE 10.2(m) which is not attached hereto but which has
been previously delivered to the Agent and the Term Loan Lender,
and such amount of compensation shall have been used to prepay
the Term Loan for application as provided in Section 3.2.2
hereof, or
(B) if such amount of cash compensation is less than the
Specified Amount or no such cash compensation is paid to the
Borrower, the Term Loan shall have been or shall be concurrently
prepaid in an amount at least equal to the Specified Amount for
application as provided in Section 3.2.2 hereof and the Agent,
acting upon the instructions solely of the Majority Revolving
Credit Banks, shall have so consented to such prepayment, and
(iii) no Default or Event of Default shall have occurred and
be continuing, and none would result from (or exist after giving
effect to) the transactions proposed to be effected.
(n) amend its Charter Documents, or permit any of its Subsidiaries to
amend its Charter Documents, in either case except in a manner which would
not (i) alter or amend the rights of the holders of the Special Shares
without the approval of such holders in accordance with the Charter
Documents of the Borrower; or (ii) be reasonably likely
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to have a Materially Adverse Effect or except as provided in the
Reorganization Plan;
(o) permit to be amended or modified the Store Credit Card Program
Documents or the other documents referred to in Section 9.1.18 in any
manner adverse to the rights and interests of the Agents and the Banks; or
(p) with respect to the Real Estate Leases, and subject to any
provisions of Section 10.2(m) and Section 10.6 hereof (as applicable) after
the Effective Date, (i) transmit any communication to the lessor under any
Real Estate Lease without the approval of the Term Loan Lender (which shall
be deemed given if the Term Loan Lender or the Surety fails to object to
such communication within two Business Days after receipt of a copy of the
proposed communication in accordance with Section 16.3 hereof) if such
communication relates to or involves (A) any actual or alleged breach,
default, or event of default under the subject Real Estate Lease, (B) any
actual or proposed renewal, extension, termination, cancellation, or other
change in the term of the subject Real Estate Lease, (C) any actual or
proposed modification to or waiver of any material provision of the subject
Real Estate Lease, or (D) any other matter that would result in the lessor
under any Real Estate Lease having the right: (x) to terminate or cancel
any such Real Estate Lease; or (y) to accelerate the Borrower's monetary
obligations thereunder; or which in the reasonable judgment of the Term
Loan Lender would be expected to result in any material adverse effect upon
any of the Borrower's leasehold interests under any such Real Estate Lease,
or the value of any such interest, (ii) terminate or cancel, or agree to
terminate or cancel, any Real Estate Lease, or settle, compromise, or
adjust, or agree to settle, compromise, or adjust, any claim (other than
the Hickel Litigation) involving an amount in excess of two months' rent
which the Borrower may have against the lessor under any Real Estate Lease
or in connection with any of the Real Estate Collateral (including, without
limitation, any claim based upon any alleged default by any lessor or upon
any casualty or eminent domain proceeding), without the prior written
consent of the Term Loan Lender, (iii) amend, modify, or supplement, or
agree to amend, modify, or supplement, any Real Estate Lease without the
prior written consent of the Term Loan Lender, unless such amendment,
modification, or supplement is minor or immaterial or of an administrative
or operational nature and would not in the reasonable judgment of the Term
Loan Lender adversely affect the value of the Borrower's leasehold
interest; (iv) assign any Real Estate Lease or sublet or license any
portion of the premises without the prior written consent of the Term Loan
Lender, other than to the Banks, to any holders of Peritted Liens therein,
or licenses to licensees of merchandise departments in the
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Borrower's retail stores if any such license does not effect any form of
leasehold interest in any portion of the premises demised to the Borrower
under any of the Real Estate Leases or if any such license does effect such
an interest, such interest is terminable on no more than 60 days notice
(which notice the Surety shall be authorized to give in the Surety Power of
Attorney upon an Event of Default or the other conditions set forth
therein), or on any sale, or other disposition of the Real Estate Lease;
(v) make any material structural alteration to any of the premises demised
by any of the Real Estate Leases which is not contemplated or provided for
by such Real Estate Lease, or remove any material constituent of the Real
Estate Collateral from its present location, in either case without the
prior written consent of the Term Loan Lender, if such alteration or
removal would (A) result in the lessor under any Real Estate Lease having
the right: (x) to terminate or cancel any such Real Estate Lease; or (y) to
accelerate the Borrower's monetary obligations thereunder; or (B) in the
reasonable judgment of the Term Loan Lender, be expected to result in any
material adverse effect upon any of the Borrower's leasehold interests
under any such Real Estate Lease or the value of any Real Estate
Collateral; or (vi) pledge, mortgage, or otherwise hypothecate any of the
Real Estate Collateral other than to the Banks and to any holders of
Permitted Liens therein.
SECTION 10.3. FINANCIAL COVENANTS. The Borrower agrees that so long as
there are any Loans or Letters of Credit outstanding and until the termination
of the Total DIP Commitment or, if the Exit Facility Date occurs, the Total Exit
Commitment and the payment and satisfaction in full in cash of all of the
Obligations, and subject to the provisions of Section 10.4 hereof regarding
application and interpretation of the financial covenants contained in this
Section 10.3, the Borrower will not, and will not permit any of its Subsidiaries
to:
(a) Make Capital Expenditures in any period described in the table
below that exceed, in the aggregate, the amount set forth opposite such
period in such table:
Period Amount
------ ------
February 2, 1997 - January 31, 1998 $2,500,000
February 1, 1998 - January 30, 1999 $6,500,000
January 31, 1999 - February 5, 2000 $5,500,000
February 6, 2000 - February 27, 2000 $1,000,000
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If during any of the periods set forth in the table above (other than the
period from February 6, 2000 through February 27, 2000) the amount of
Capital Expenditures permitted by the table for that period is not
utilized, then thirty-three percent (33%) of such unutilized amount may be
utilized in (but only in) the next succeeding period, where it shall be
deemed to be utilized last, and may not be utilized in any subsequent
period.
(b) Permit at any time prior to the Exit Facility Date, Consolidated
EBITDA, determined on a cumulative basis for the period beginning on
February 4, 1996 and ending on any of the dates set forth in the table
below, to be less than the amount set forth opposite such date in such
table:
Minimum Cumulative
Consolidated EBITDA
Date Since February 4, 1996
---- ----------------------
October 4, 1997 $7,000,000
November 1, 1997 $7,300,000
November 29, 1997 $8,100,000
January 3, 1998 $14,000,000
January 31, 1998 $12,500,000
(c) Permit, prior to the Exit Facility Date as at any of the dates
set forth in the table below, the amount of the Borrower's inventory,
valued at Book Value (i) to be less than the minimum amount set forth
opposite such date in such table, or (ii) to exceed the maximum amount set
forth opposite such date in such table:
Date Minimum Amount Maximum Amount
---- -------------- --------------
August 30, 1997 $38,000,000 $46,500,000
October 4, 1997 $43,000,000 $52,500,000
November 1, 1997 $48,100,000 $58,700,000
November 29, 1997 $51,800,000 $63,300,000
January 3, 1998 $35,200,000 $43,100,000
January 31, 1998 $35,400,000 $43,300,000
(d) Permit, from and after the Exit Facility Date as at the end of
any of the fiscal quarters ending on the dates set forth in the table
below, the amount of the Borrower's inventory, valued at Book Value (i) to
be less than the minimum amount set forth opposite such date in such table,
or (ii) to exceed the maximum amount set forth opposite such date in such
table:
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Date Minimum Amount Maximum Amount
---- -------------- --------------
November 1, 1997 $48,100,000 $58,700,000
January 31, 1998 $35,400,000 $43,300,000
May 2, 1998 $39,700,000 $48,100,000
August 1, 1998 $42,600,000 $51,500,000
October 31, 1998 $51,600,000 $62,400,000
January 30, 1999 $35,000,000 $46,700,000
May 1, 1999 $40,400,000 $49,000,000
July 31, 1999 $43,400,000 $52,500,000
November 6, 1999 $52,600,000 $63,600,000
February 5, 2000 $39,300,000 $47,600,000
(e) Permit, from and after the Exit Facility Date as at the end
of any of the fiscal quarters ending on the dates set forth in the
table below for the period of four consecutive fiscal quarters then
ended (or such shorter period as has elapsed since February 3, 1996),
the Debt Service Coverage Ratio as determined for such period then
ended to be less than the ratio set forth opposite such date in such
table:
Date Minimum Ratio
---- -------------
November 1, 1997 1.00 to 1.00
January 31, 1998 1.00 to 1.00
May 2, 1998 1.00 to 1.00
August 1, 1998 1.05 to 1.00
October 31, 1998 1.10 to 1.00
January 30, 1999 1.15 to 1.00
May 1, 1999 1.20 to 1.00
July 31, 1999 1.20 to 1.00
November 6, 1999 1.25 to 1.00
February 5, 2000 1.25 to 1.00
SECTION 10.4. APPLICATION OF FINANCIAL COVENANTS.
(a) During the period prior to the Exit Facility Date, the Borrower shall
comply with the financial covenants set forth in Sections 10.3(a), (b) and (c).
During the period from and after the Exit Facility Date the Borrower shall
comply with the financial covenants set forth in Sections 10.3(a), (d) and (e).
(b) The parties agree that, solely for purposes of application and
interpretation of the covenants contained in Section 10.3 hereof, (i) the
Special Lease Obligations shall be deemed to be obligations in respect of
operating leases, notwithstanding whether such obligations would be treated as
Capitalized Lease obligations or operating lease obligations under GAAP; and
(ii) each of
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the applicable defined terms utilized in, and the other applicable financial
components of, such covenants shall be determined and calculated accordingly,
but only for such limited purposes of Section 10.3, as aforesaid.
(c) If the Borrower notifies the Agent that the Borrower wishes or is
required to modify its accounting principles to reflect from the Exit Facility
Date "fresh start" accounting, the Borrower, the Revolving Credit Banks and the
Agent agree to negotiate in good faith an amendment to this Agreement providing
for appropriate adjustments to the financial covenants set forth in Section
10.3, as well as to the financial performance tests used in the determination of
the Applicable Pricing hereunder. In the event that the Borrower, the Revolving
Credit Banks and the Agent are unable to agree as to such adjustments, the
Borrower agrees to refrain from so modifying its accounting principles if the
Borrower has the election to do so or, if the Borrower is required to so modify
its accounting principles, to provide to the Agent and the Revolving Credit
Banks from time to time, as and when required by the terms of this Agreement or
upon the request of the Agent, appropriate reconciliations, based upon the
accounting principles which would have been applicable absent such modification,
in order for the Agent and the Revolving Credit Banks to determine compliance
with the financial covenants set forth in Section 10.3 and the Applicable
Pricing hereunder.
SECTION 10.5. FURTHER ASSURANCES. The Borrower shall (i) execute and
deliver to the Agent a Mortgage (subject to Permitted Liens) on the Exit
Facility Date for each new store lease or other retail outlet location acquired
by the Borrower whether by fee simple or leasehold interest after the date
hereof and prior to the Exit Facility Date, and, upon the acquisition of each
new store lease or other retail outlet location acquired by the Borrower after
the Exit Facility Date, a Mortgage (subject to Permitted Liens) for each such
new store or other retail outlet location so acquired by the Borrower after the
Exit Facility Date (any lease to be considered a Real Estate Lease when so
acquired and such Mortgage whether encumbering a leasehold or fee interest, when
so executed and delivered, to be considered a Security Document) and otherwise
cause each of the Security Documents (at the times contemplated by this
Agreement) to be duly executed and delivered by the respective parties thereto,
each of which shall be in full force and effect and shall be in form and
substance satisfactory to the Agent and the Banks, and the Borrower shall cause
all filings, recordings, deliveries of instruments and other action necessary or
desirable in the opinion of the Agent to protect, perfect, and preserve such
security interests to be duly effected, and shall deliver to the Agent evidence
thereof in form and substance satisfactory to the Agent; (ii) have used its best
efforts to obtain and deliver to the Agent Landlord Waivers with respect to all
leaseholds on which inventory is or will be located; and (iii) cooperate with
the Agent, the Banks and the Surety, take such action, execute such documents
(including additional, supplemental, or confirmatory Security
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Documents), and provide such information as the Agent, the Surety or any Bank
may from time to time reasonably request in order further to effect the
transactions contemplated by and the purposes of the Loan Documents, including
without limitation the delivery at the Borrower' expense of or environmental
assessmnts reasonably required by the Agent and not inconsistent with the
provisions of this Agreement.
SECTION 10.6. REAL ESTATE LEASE CURE PROVISION. If at any time a
representation or warranty of the Borrower contained in Section 8 hereof as to a
Real Estate Lease is untrue or incorrect in any material respect as of the date
on which such representation or warranty is made or deemed to have been made or
repeated, or the Borrower shall fail to comply with any affirmative or negative
covenant contained in Section 10.1 or, as the case may be, Section 10.2 hereof
as to such Real Estate Lease, the Borrower shall be entitled to cure such breach
of representation or warranty or failure to comply by prepaying to the Term Loan
Lender for application to the Term Loan pursuant to Section 3.2.2 an amount
equal to the Specified Amount for such Real Estate Lease, PROVIDED that (a) such
breach of representation or warranty or failure to comply has not, at or prior
to the time of such prepayment, resulted in an Event of Default which has
resulted in any of the Obligations having been declared due and payable prior to
their stated maturity pursuant to the terms of this Agreement, (b) the Agent,
acting upon the instructions solely of the Majority Revolving Credit Banks, has
consented to such prepayment and (c) the Agent, the Term Loan Lender and the
Surety are reimbursed for any collateral protection advances or out of pocket
costs or expenses (including reasonable attorneys' fees and expenses) made or
incurred by any of them on account of such breach of representation or warranty
or failure to comply. Upon such prepayment and reimbursement having been made,
such Real Estate Lease shall remain a "Real Estate Lease" for purposes of this
Agreement and the other Loan Documents, except that the representations and
warranties contained in Section 8 hereof and the affirmative and negative
covenants contained in Sections 10.1 and 10.2 hereof shall no longer apply as to
such Real Estate Lease.
SECTION 11. EVENTS OF DEFAULT; ACCELERATION; ETC.
SECTION 11.1. EVENTS OF DEFAULT; ACCELERATION. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) prior to the Exit Facility Date:
(i) the Borrower shall fail to comply with Section 2.2(c) or
Section 2.4(c) within one Business Day after the Agent has given
written notice of such failure to the Borrower; or the Borrower shall
otherwise fail to pay when due and payable any principal of any of the
Loans (except monthly installment payments of principal of the Term
Loan required by Section 3.2.1
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hereof), or any Reimbursement Obligation not funded by a Revolving Credit
Loan pursuant to Section 2.7(a) hereof, or any cash collateral
requirements, provided for in the Loan Documents when the same becomes due
and payable;
(ii) the Borrower shall fail to pay any interest on the Loans,
monthly installment payments of principal of the Term Loan required by
Section 3.2.1 hereof, or other sums due or required to be paid under this
Agreement or any of the other Loan Documents (A) in the case of the
Borrower, within one Business Day after the Agent has given written notice
to the Borrower that such payment will not be made pursuant to Section 2.6
as requested by standing instructions of the Borrower or Section 2.7(c) in
the Agent's discretion and (B) otherwise within three (3) days after the
same becomes due and payable;
(iii) the Borrower shall fail to perform any other term, covenant or
agreement contained in Sections 2.2, 2.4, 2.12 (which failure, in the case
only of a default consisting of failure under Section 2.12 to send Direct
Collection Letters, extends as to substantially all account debtors and
obligors), 2.14, 7.3, Section 10.1(f) (which failure, in the case only of a
default consisting of a failure to send Direct Collection Letters, extends
as to substantially all account debtors and obligors), 10.2(b), (c) and (i)
(exclusive of inadvertent or immaterial failures which are capable of cure,
and are being forthwith remedied, without violation of other provisions of
the Loan Documents and which do not in the aggregate exceed the sum of
$100,000 for all of Sections 10.2(b), (c) and (i) considered together),
Section 10.1(k) (exclusive of inadvertent or immaterial failures which are
capable of cure, and are being forthwith remedied, without violation of
other provisions of the Loan Documents, and which would not (A) result in
the lessor under any Real Estate Lease having the right: (x) to terminate
or cancel any such Real Estate Lease; or (y) to accelerate the Borrower's
monetary obligations thereunder; or (B) in the reasonable judgment of the
Term Loan Lender, be expected to result in any material adverse effect upon
any of the Borrower's leasehold interests under any such Real Estate Lease
or the value of any such interest), Section 10.2(p) (exclusive of
inadvertent or immaterial failures which are capable of cure, and are being
forthwith remedied, without violation of other provisions of the Loan
Documents, and which would not (A) result in the lessor under any Real
Estate Lease having the right: (x) to terminate or cancel any such Real
Estate Lease; or (y) to accelerate the Borrower's monetary obligations
thereunder; or (B) in the reasonable judgment of the Term Loan Lender, be
expected to result in any material adverse effect upon any of the
Borrower's leasehold interests under any such Real Estate Lease or the
value of any such interest), or any other lettered paragraph of Section
10.1 (other than Section 10.1(h)), Sections 10.2, or 10.3;
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(iv) the Borrower shall fail to perform any other term, covenant or
agreement contained in this Agreement or any of the other Loan Documents
within ten (10) days after the Agent has given written notice of such
failure to the Borrower;
(v) any representation or warranty of the Borrower or any of its
Subsidiaries in this Agreement or any of the other Loan Documents or in any
document, certificate or other paper or notice given in connection
therewith shall have been false or misleading in any material respect at
the time made or deemed to have been made or repeated;
(vi) the Borrower or any of its Subsidiaries shall be in default
under any agreement or agreements (other than the Loan Documents)
evidencing post-petition Indebtedness owing to the Agent or any Bank, or
any affiliates of the Agent, any Bank or the Surety; or the Borrower or any
of its Subsidiaries shall be in default under any agreement or agreements
evidencing any other post-petition Indebtedness or any pre-petition
Indebtedness or shall fail to pay any such Indebtedness when due, or within
any applicable period of grace if, with respect to any such Indebtedness
referred to in this sub-clause by order of the Bankruptcy Court issued or
previously issued at the time of reference thereto with respect to such
Indebtedness, such default or failure to pay when due thereunder would
entitle the holder thereof to relief from automatic stay of Section 362(a)
of the Bankruptcy Code, in excess of $100,000 in aggregate principal amount
of such post- and pre-petition Indebtedness; or the Borrower or any of its
Subsidiaries shall be in default under any of the terms, conditions or
provisions of any supply or other contract, such contract is terminated by
the supplier or other provider of goods or services thereunder as a result
of such default and such termination has a Materially Adverse Effect;
(vii) any material provision of any of the Loan Documents shall cease
to be in full force and effect, or the Agent's and the Banks' Liens shall
fail to constitute a perfected security interest in substantially all the
assets which constitute the Collateral, entitled to the priority
contemplated hereby, at any time;
(viii) the Bankruptcy Court or another court of competent
jurisdiction shall enter any order (A) amending, or modifying the Financing
Order without the consent or approval of the Agent, or staying, vacating or
rescinding the Financing Order, (B) appointing a chapter 11 trustee or an
examiner with enlarged powers relating to the operation of the business
(powers beyond those set forth in Section 1106(a)(3) and (4) of the
Bankruptcy Code) under Section 1106(b) of the Bankruptcy Code in the Case,
(C) dismissing the Case or converting the
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Case to a chapter 7 case, or (D) granting relief from the automatic stay to
any creditor holding or asserting a Lien or reclamation claim on any
material assets of any of the Borrower or any of its Subsidiaries in an
aggregate amount (by value of assets or by amount of the claim or Lien) in
excess of $100,000 or where the deprivation of such Borrower, such
Subsidiary of such assets will, in the reasonable opinion of the Agent,
have a Materially Adverse Effect;
(ix) an application shall be filed by the Borrower or any of its
Subsidiaries for the approval of any other Super-Priority Claim in the Case
which is PARI PASSU with or senior to the claims of the Agent and the Banks
against the Borrower, its Subsidiaries under this Agreement or any of the
other Loan Documents (unless upon giving effect to the transactions
contemplated by such application, all Obligations (whether contingent or
otherwise) shall be paid in full in cash and the Total DIP Commitment shall
be terminated), or there shall be granted any such Super-Priority Claim or
Super-Priority Claims for an amount singularly or in the aggregate, in
excess of $100,000;
(x) the Borrower shall be unable to pay its post-petition debts as
they mature or shall fail to comply with any order of the Bankruptcy Court
in any respect having, in the reasonable opinion of the Agent, a Materially
Adverse Effect; or if any of the Borrower's Subsidiaries (other than a
Subsidiary with nominal assets and liabilities) shall be unable to pay its
debts as they mature;
(xi) there shall remain undischarged for more than thirty (30) days
any final post-petition judgments or execution actions with respect to an
aggregate amount in excess of $100,000 against the Borrower, any of its
Subsidiaries, or relief from the automatic stay of Section 362(a) of the
Bankruptcy Code shall be granted to any creditor or creditors of the
Borrower, and of its Subsidiaries with respect to assets having an
aggregate value in excess of $100,000 or where the deprivation of the
Borrower, any of its Subsidiaries of such assets will, in the reasonable
opinion of the Agent, have a Materially Adverse Effect;
(xii) the Borrower shall pay or discharge any Indebtedness of the
Borrower in existence on the Filing Date, except for cure payments with
respect to the assumption after the Filing Date of unexpired leases or
executory contracts which are not financial accommodations, the payment of
regularly scheduled lease payments under pre-petition leases of Real Estate
and regularly scheduled payments under other pre-petition leases, or
unexpired leases or executory contracts that are not financial
accommodations (in each case in the ordinary course of business), the
making of regularly scheduled debt service payments with
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respect to pre-petition secured Indebtedness permitted by Section 10.2(b)
hereof, honoring obligations under arrangements in respect of customer
returns of merchandise, gift certificates, and layaways of merchandise (in
each case in the ordinary course of business), payments in respect of
employee payroll and related employee benefit arrangements consistent with
past practices, and other payments on such Indebtedness not to exceed
$100,000 in the aggregate;
(xiii) the filing by the Borrower of a disclosure statement, or a
disclosure statement shall be filed by any other Person the adequacy of
which shall have been approved by the Bankruptcy Court, in the Case
incorporating a Reorganization Plan which fails to satisfy all of the
requirements of Section 7.3 and Section 9.2.7(b);
(xiv) the Borrower shall be enjoined, restrained, or in any way
prevented by the order of any Tribunal from conducting any part of its
business as a debtor in possession, or the Borrower, any of its
Subsidiaries shall be enjoined, restrained in any way prevented by the
order of any such Tribunal from conducting any part of its business, or
there shall occur any disruption to any such business which continues for
more than ten (10) days, or loss or damage to the Borrower's assets, which
in any such case results in an impairment or decrease in the value of the
assets of such Person or the Collateral in an amount in excess of $100,000;
(xv) Alan R. Schlesinger or some other person reasonably satisfactory
to the Agent and the Banks shall cease to be the Chief Executive Officer
and President of the Borrower; or there shall occur any change in the
membership of the board of directors of the Borrower or any of its
Subsidiaries or in the key executive or financial management of the
Borrower or any of its Subsidiaries, which, in any such case, the Agent
reasonably believes will have a Materially Adverse Effect;
(xvi) the Borrower shall fail to comply in any material respect with
the Financing Order;
(xvii) the Borrower shall file a motion to reject any Real Estate
Lease;
(xviii) the Borrower shall file a motion in the Case (A) to use cash
collateral of the Banks under Section 363(c) of the Bankruptcy Code without
the consent of the Banks, (B) to recover from any portion of the Collateral
any costs or expenses or preserving or disposing of such Collateral under
Section 506(c) of the Bankruptcy Code, or (C) to take any other action or
actions adverse to the Banks or their rights and remedies hereunder or
under any of the other Loan Documents or the
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Banks' interest in any of the Collateral, which other action or actions
would, individually or in the aggregate, have a Materially Adverse Effect;
or
(xix) a suit or action against the Banks or the Agent shall be
commenced by the Borrower, any Subsidiary of the Borrower which suit or
action asserts any claim or legal or equitable remedy contemplating
subordination of any claim or Lien of the Banks or the Agent or any such
suit or action is commenced by an official committee in the Case or any
other Person which results in the granting of any such remedy;
(b) upon and at any time from and after the Exit Facility Date:
(i) the Borrower shall fail to comply with Section 2.2(c) or Section
2.4(c) within one Business day after the Agent has given written notice of
such failure to the Borrower; or the Borrower shall otherwise fail to pay
when due and payable any principal of any Loans (except monthly installment
payments of principal of the Term Loan required by Section 3.2.1 hereof),
or any Reimbursement Obligation not funded by a Revolving Credit Loan
pursuant to Section 2.7(a) hereof, or any cash collateral requirements
provided for in the Loan Documents when the same shall have first become
due and payable;
(ii) the Borrower shall fail to pay any interest on the Loans,
monthly installment payments of principal of the Term Loan required by
Section 3.2.1 hereof, or other sums due or required to be paid under this
Agreement or any of the other Loan Documents (A) in the case of the
Borrower, within one Business Day after the Agent has given written notice
to the Borrower that such payment will not be made pursuant to Section 2.6
as requested by standing instructions of the Borrower or Section 2.7(c) in
the Agent's discretion and (B) otherwise within three (3) days after the
same becomes due and payable;
(iii) the Borrower shall fail to perform any other term, covenant or
agreement contained in Sections 2.2, 2.4, 2.12 (which failure, in the case
only of a default consisting of a failure to send Direct Collection
Letters, extends as to substantially all account debtors and obligors),
2.14, 7.3, 10.1(g) (which failure, in the case only of a default consisting
of a failure to send Direct Collection Letters, extends as to substantially
all account debtors and obligors), 10.2(b), (c) and (i) (exclusive of
inadvertent or immaterial failures which are capable of cure, and are being
forthwith remedied, without violation of other provisions of the Loan
Documents and which do not in the aggregate exceed the sum of $100,000 for
all of Sections 10.2(b), (c) and (i) considered together), Section 10.1(k)
(exclusive of inadvertent or immaterial failures which are capable of cure,
and are
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being forthwith remedied, without violation of other provisions of the Loan
Documents, and which would not (A) result in the lessor under any Real
Estate Lease having the right: (x) to terminate or cancel any such Real
Estate Lease; or (y) to accelerate the Borrower's monetary obligations
thereunder; or (B) in the reasonable judgment of the Term Loan Lender, be
expected to result in any material adverse effect upon any of the
Borrower's leasehold interests under any such Real Estate Lease or the
value of any such interest), Section 10.2(p) (exclusive of inadvertent or
immaterial failures which are capable of cure, and are being forthwith
remedied, without violation of other provisions of the Loan Documents, and
which would not (A) result in the lessor under any Real Estate Lease having
the right: (x) to terminate or cancel any such Real Estate Lease; or (y) to
accelerate the Borrower's monetary obligations thereunder; or (B) in the
reasonable judgment of the Term Loan Lender, be expected to result in any
material adverse effect upon any of the Borrower's leasehold interests
under any such Real Estate Lease or the value of any such interest), or any
other lettered paragraph of Section 10.1 (other than Section 10.1(h)),
Sections 10.2, or 10.3;
(iv) the Borrower shall fail to perform any other term, covenant or
agreement contained in this Agreement or any of the other Loan Documents
within ten (10) days after the Agent has given written notice of such
failure to the Borrower;
(v) any representation or warranty of the Borrower or any of its
Subsidiaries or in this agreement or any of the other Loan Documents or in
any document, certificate or notice given in connection therewith shall
have been false or misleading in any material respect at the time made or
deemed to have been made;
(vi) after any applicable period of grace or cure, any Indebtedness
of the Borrower, any of its Subsidiaries shall not be paid when due, or
shall be declared due prior to its scheduled maturity, or any default shall
occur in any material respect under any agreement (other than the Warrant
Documents) or agreements evidencing Indebtedness owing to the Agent or any
Bank or any affiliates of the Agent or any Bank, or Indebtedness to any
other Person which permits the holder or holders of that Indebtedness to
declare the Indebtedness to become due and payable prior to its scheduled
maturity, and the aggregate amount of such Indebtedness due, declared due
or capable of being declared due and payable exceeds the sum of $100,000,
or the Borrower shall willfully and materially fail to issue the warrant
stock to be issued pursuant to the Warrants;
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(vii) any material provision of any of the Loan Documents shall cease
to be in full force and effect, or the Agent's and the Banks' Liens or the
Agent's and the Banks' Liens shall fail to constitute a perfected security
interest in substantially all the assets which constitute the Collateral,
entitled to the priority contemplated hereby;
(viii) the Bankruptcy Court or another court of competent
jurisdiction shall enter any order amending, supplementing, altering,
staying, suspending, vacating, rescinding or otherwise modifying the
Confirmation Order (other than amendments consented to or approved by the
Agent) in a manner which could adversely affect the Agent or the Banks;
(ix) the Borrower or any of its Subsidiaries (A) shall make an
assignment for the benefit of creditors, (B) shall be adjudicated bankrupt
or insolvent, (C) shall seek the appointment of, or be the subject of an
order appointing, a trustee, custodian, liquidator or receiver as to all or
part of its assets, (D) shall commence, approve or consent to, or be the
subject of any case of proceeding under any bankruptcy, reorganization or
similar law and, in the case of an involuntary case or proceeding, such
case or proceeding is not dismissed within thirty (30) days following the
commencement thereof, or (E) shall be the subject of an order or decree for
relief in an involuntary case under federal bankruptcy law;
(x) the Borrower or any of its Subsidiaries (other than a Subsidiary
with nominal assets and liabilities) shall be unable to pay its debts as
they mature;
(xi) there shall remain undischarged for more than thirty (30) days
any final judgment or execution action against the Borrower or any of its
Subsidiaries that, together with other outstanding claims and execution
actions against the Borrower and its Subsidiaries exceeds $100,000 in the
aggregate;
(xii) the Borrower or any of its Subsidiaries shall be enjoined,
restrained or any way prevented by the order of any Tribunal from
conducting any part of its business; or there shall occur any disruption to
such business which continues for more than ten (10) days, or loss or
damage to the Borrower's or any Subsidiary's assets, which in any such case
results in an impairment or decrease in the value of the assets of such
Person or the Collateral in an amount in excess of $100,000;
(xiii) there shall occur the loss, suspension or revocation of, or
failure to renew, contract, license, Consent or permit held by the Borrower
or any of its Subsidiaries, which in any such case the Agent reasonably
believes could have a Materially Adverse Effect;
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(xiv) there shall occur any Change of Control; the term "Change of
Control," as used herein, means:
(A) individuals who, as of the Exit Facility Date, constituted
the Board of Directors of the Borrower (as of the Exit Facility Date,
the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors of the Borrower, PROVIDED that any
individual becoming a director, subsequent to the Exit Facility Date,
whose election, or nomination for election by the Borrower's
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board; or
(B) subsequent to the Exit Facility Date, any Person or group of
Persons (within the meaning of Section 13 or 14 of the Securities
Exchange Act of 1934, as amended), which were not, as of the Exit
Facility Date, stockholders, stock warrant holders, or stock option
holders of the Borrower disclosed to and approved by the Agent for
purposes of this clause (B), shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 promulgated by the Securities and
Exchange Commission under said Act) of 20% or more of the issued and
outstanding shares of the capital stock of the Borrower (unless such
Persons are reasonably satisfactory to the Agent);
(xv) Alan R. Schlesinger or some other person reasonably satisfactory
to the Agent and Banks shall cease to be the Chief Executive Officer and
President of the Borrower; or
(xvi) with respect to an employee benefit plan within the meaning of
Section 3.2 of ERISA maintained or contributed to by the Borrower or any
ERISA Affiliate, the benefits of which are guaranteed upon termination in
full or in part by the PBGC (other than a multiemployer plan) (each a
"Guaranteed Pension Plan"), a "reportable event" within the meaning of
Section 4043 of ERISA for which the PBGC requires notice shall have
occurred which the Majority Banks reasonably believe could result in the
liability of the Borrower or any of its Subsidiaries to the PBGC or such
Guaranteed Pension Plan in an aggregate amount exceeding $100,000 and such
event reasonably could constitute grounds for the termination of such
Guaranteed Pension Plan by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer such
Guaranteed Pension Plan; or a trustee shall have been appointed by the
United States District Court to administer such Guaranteed
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Pension Plan; or the PBGC shall have instituted proceedings to terminate
such Guaranteed Pension Plan;
THEN, or at any time thereafter:
(A) The Agent may, and upon the request of the Majority
Revolving Credit Banks shall, subject to the conditions described
below, by written notice to the Borrower, terminate the DIP
Commitments or, if the Exit Facility Date has occurred, the Exit
Commitments and/or declare and require (i) the unpaid principal amount
of the Revolving Credit Loans and all interest accrued and unpaid
thereon forthwith to be due and payable, (ii) that cash be delivered
to the Agent in the amount of 105% of the Maximum Drawing Amount to be
held by the Agent for the benefit of the Agent and the Revolving
Credit Banks as cash collateral for all Reimbursement Obligations, and
(iii) all other amounts payable with regard to the Revolving Credit
Loans hereunder and under the other Loan Documents to be forthwith due
and payable, in each case without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived
by the Borrower, PROVIDED that in the event of an Event of Default
specified in Section 11.1(b)(ix) hereof, such termination of the Exit
Commitment shall occur, and all such amounts shall become immediately
due and payable in each case automatically and without any requirement
of notice from the Agent or any Revolving Credit Bank; and
(B) Upon the request of the Term Loan Lender, the Agent shall,
subject to the conditions described below by written notice to the
Borrower, declare and require (i) the unpaid principal balance of the
Term Loan and all interest accrued and unpaid thereon forthwith to be
due and payable, and (ii) all other amounts payable hereunder in
respect of the Term Loan to be forthwith due and payable, in each case
without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower, PROVIDED
that in the event of an Event of Default specified in Section
11.1(b)(ix) hereof, such amounts shall become immediately due and
payable in each case automatically and without any requirement of
notice from the Agent or the Term Loan Lender.
SECTION 11.2. REMEDIES. If an Event of Default shall occur and be
continuing, and whether or not the Banks shall have accelerated the maturity of
the Loans as set forth above,
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(a) each Revolving Credit Bank if owed any amount with respect
to the Revolving Credit Loans or the Reimbursement Obligations may
(subject, but prior to the Exit Facility Date only, to the provisions
of Section 11.3 hereof), with the consent of the Majority Revolving
Credit Banks, but not otherwise, instruct the Agent to exercise the
rights and remedies which such Revolving Credit Bank may have with
respect to the Revolving Credit Loans, the Reimbursement Obligations
and any of the Non-Real Estate Collateral hereunder or, with respect
to the Revolving Credit Banks and the Non-Real Estate Collateral,
under any of the other Loan Documents or at law (including but not
limited to the Bankruptcy Code and the Uniform Commercial Code) or in
equity or otherwise, subject to the rights of the Term Loan Lender.
At such time as the Commitments have been terminated and the Total
Revolver Obligations have been paid in full, the Agent will act on the
instruction of the Term Loan Lender with regard to the Non-Real Estate
Collateral; and
(b) the Term Loan Lender if owed any amount with respect to the
Term Loan may (subject, but prior to the Exit Facility Date only, to
the provisions of Section 11.3 hereof), instruct the Agent to exercise
the rights and remedies which the Term Loan Lender may have with
respect to the Term Loan and any of the Real Estate Collateral
hereunder or, with respect to the Term Loan Lender and the Real Estate
Collateral, under any of the other Loan Documents or at law (including
but not limited to the Bankruptcy Code and the Uniform Commercial
Code) or in equity or otherwise. At such time as the Term Loan has
been paid in full, the Agent will act on the instruction of the
Majority Revolving Credit Banks with regard to the Real Estate
Collateral.
No remedy herein conferred upon any Bank or the Agent is intended to be
exclusive of any other remedy and each and every remedy shall be cumulative and
in addition to every other remedy hereunder, now or hereafter existing at law or
in equity or otherwise.
SECTION 11.3. RELIEF FROM STAY. Prior to the Exit Facility Date only,
upon the occurrence and during the continuance of an Event of Default which has
resulted in any of the Obligations having been declared (or otherwise becoming)
due and payable prior to their stated maturity (an "Acceleration"), the Agent
may not exercise any of the Agent's and the Banks' rights or remedies relating
to the enforcement of its Liens against the Collateral or the exercise of its
rights of set-off pursuant to Section 12 hereof without obtaining from the
Bankruptcy Court relief from the automatic stay. The Agent shall, however, be
entitled to request from the Bankruptcy Court a hearing on any
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request by it that the automatic stay be lifted so that the Agent may exercise
such rights and remedies and, if the Agent does do, it shall provide prompt
notice of such request to the Borrower, bankruptcy counsel to the Borrower, and
to counsel to the official creditor's committees in the Case, and the Office of
the United States Trustee, setting forth the Event of Default or Events of
Default which the Agent or the Banks believe in good faith to have occurred and
be continuing and stating that the Agent intends, upon the Bankruptcy Court
granting relief from the automatic stay for the Agent to do so, to enforce its
Liens and/or to exercise its rights of set-off. Whether or not relief from the
automatic stay is granted, during the continuance of an Event of Default the
Banks shall have no further obligation to make any additional Loans hereunder,
and the Agent shall have no obligation to issue, extend or renew any Letter of
Credit.
SECTION 11.4. DISTRIBUTION OF COLLATERAL PROCEEDS. In the event that
following the occurrence or during the continuance of any Event of Default, the
Agent or any Bank, as the case may be, receives any monies whether pursuant to
Section 2.12 or Section 2.14 hereof, in connection with the enforcement of any
of the Security Documents, or otherwise, with respect to the collection or
realization upon any of the Collateral, such monies shall be distributed for
application as follows:
(a) in respect of the collection or realization upon any of the Non-Real
Estate Collateral:
(i) FIRST, to the payment of, or (as the case may be) the
reimbursement of the Agent for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Agent in connection with the collection of such monies by
the Agent, for the exercise, protection or enforcement by the Agent of all
or any of the rights, remedies, powers and privileges of the Agent under
this Agreement or any of the other Loan Documents with respect to the
Non-Real Estate Collateral, or in respect of the Non-Real Estate Collateral
or in support of any provision of adequate indemnity to the Agent against
any taxes or liens which by law shall have, or may have, priority over the
rights of the Agent to such monies;
(ii) SECOND, to all Obligations owed to the Revolving Credit Banks in
such order or preference as the Majority Revolving Credit Banks may
determine; PROVIDED, HOWEVER, that distributions in respect of such
obligations shall be made (i) PARI PASSU among Obligations owed to the
Revolving Credit Banks with respect to the facility fees referred to in
Section 6.1(a) hereof and the Agent's administrative fee payable pursuant
to Section 6.1(e) hereof and all other Obligations owed to the Revolving
Credit Banks or the Agent and (ii) such that payments in respect of
Obligations
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owing to the Revolving Credit Banks with respect to each type of Obligation
such as interest, principal, fees and expenses, shall be made among the
Revolving Credit Banks PRO RATA; and PROVIDED, FURTHER, that the Agent
shall be entitled to receive and hold cash collateral in the amount of 105%
of the aggregate Maximum Drawing Amount of outstanding Letters of Credit
and the Agent further may in its discretion make proper allowance to take
into account any other Obligations owed to the Revolving Credit Banks not
then due and payable;
(iii) THIRD, to all the Obligations owed to the Term Loan Lender and
the Surety in such order or preference as the Term Loan Lender and the
Surety may determine;
(iv) FOURTH, upon payment and satisfaction in full or other
provisions for payment in full satisfactory to the Banks, the Agent and the
Surety of all of the Obligations, to the payment of any obligations
required to be paid pursuant to Section 9-504(1)(c) of the Uniform
Commercial Code of the Commonwealth of Massachusetts; and
(v) FIFTH, the excess, if any, shall be returned to the Borrower or
to such other Persons as are entitled thereto.
(b) in respect of the collection or realization upon any of the Real
Estate Collateral:
(i) FIRST, to the payment of, or (as the case may be) the
reimbursement of the Agent for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Agent or the Surety in connection with the collection of
such monies by the Agent or the Surety, for the exercise, protection or
enforcement by the Agent or the Surety of all or any of the rights,
remedies, powers and privileges of the Agent under this Agreement or any of
the other Loan Documents or in respect of the Real Estate Collateral or in
support of any provision of adequate indemnity to the Agent against any
taxes or liens which by law shall have, or may have, priority over the
rights of the Agent to such monies;
(ii) SECOND, to all the Obligations owed to the Term Loan Lender and
the Surety in such order or preference as the Term Loan Lender and the
Surety may determine;
(iii) THIRD, to all other Obligations owed to the Revolving Credit
Banks in such order or preference as the Majority Revolving Credit Banks
may determine; PROVIDED, HOWEVER, that distributions in respect of such
obligations shall be made (i) PARI PASSU among Obligations owed to the
Revolving Credit Banks with respect to the facility fees referred to
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in Section 6.1(a) hereof and the Agent's administrative fee payable
pursuant to Section 6.1(e) hereof and all other Obligations owed to the
Revolving Credit Banks and (ii) such that payments in respect of
Obligations owing to the Revolving Credit Banks with respect to each type
of Obligation such as interest, principal, fees and expenses, shall be made
among the Revolving Credit Banks PRO RATA; and PROVIDED, FURTHER, that the
Agent shall be entitled to receive and hold cash collateral in the amount
of 105% of the aggregate Maximum Drawing Amount of outstanding Letters of
Credit and the Agent further may in its discretion make proper allowance to
take into account any other Obligations owed to the Revolving Credit Banks
not then due and payable;
(iv) FOURTH, upon payment and satisfaction in full or other
provisions for payment in full satisfactory to the Banks, the Agent and the
Surety of all of the Obligations, to the payment of any obligations
required to be paid pursuant to Section 9-504(1)(c) of the Uniform
Commercial Code of the Commonwealth of Massachusetts; and
(vi) FIFTH, the excess, if any, shall be returned to the Borrower or
to such other Persons as are entitled thereto.
SECTION 11.5. PRIORITY. If (a) there shall occur and continue an Event
of Default on account of any failure to make payment under any of Sections
11.1(a)(i), 11.1(a)(ii), 11.1(b)(i) or 11.1(b)(ii), whether such payment was
scheduled, or as a result of acceleration or otherwise, (b) the Borrower shall
fail to pay any Revolving Credit Loans or Reimbursement Obligations on the DIP
Maturity Date or Exit Maturity Date as applicable, or (c) the Term Loan Maturity
Date actually falls on a day which is the DIP Maturity Date or the Exit Maturity
Date, then the payment of any Obligations in respect of the Term Loan owed to
the Term Loan Lender or the Surety shall, except to the extent paid from
dispositions of Real Estate Collateral or pursuant to Section 11.4 hereof, be
subordinated and junior in right of payment to all of the other Obligations.
SECTION 12. SETOFF.
Any deposits or other sums at any time credited by or due from any of the
Banks to the Borrower and any securities or other property of the Borrower in
such Bank's possession may at all times after the occurrence and during the
continuance of an Event of Default hereunder be held and treated as collateral
security for the payment and performance of the Obligations and any and all
other liabilities, direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, of the Borrower to such Bank.
Regardless of the adequacy of any collateral, any deposits or other sums
credited by or due from any of the Banks to the Borrower may after the
occurrence and during the continuance of an Event of Default hereunder be
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appropriately applied to or set-off against any of the Obligations due to such
Bank hereunder at any time without notice to the Borrower or compliance with any
other condition precedent now or hereafter imposed by statute, rule of law or
otherwise (all of which are hereby expressly waived by the Borrower), PROVIDED
however, that prior to the Exit Facility Date only, such Bank shall comply with
the requirements of Section 11.3 hereof prior to any such application or
set-off. Any assignee or loan participant of any Bank shall, to the extent of
such assignment or participation, be entitled to the set-off rights granted to
such Bank under this Section 12. Each of the Banks agrees with each other Bank
that (a) if an account to be set off is to be applied to Indebtedness of the
Borrower to such Bank, other than Indebtedness evidenced by the DIP Note or Exit
Note, as the case may be, held by such Bank, such amount shall be applied
ratably to such other Indebtedness and to the Indebtedness evidenced by such
Note held by such Bank, and (b) if such Bank shall receive from the Borrower,
whether by voluntary payment, exercise of right of set-off, counterclaim, cross
action, enforcement of the claim evidenced by the Note held by such Bank by
proceedings against the Borrower at law or in equity or otherwise, and shall
retain and apply to the payment of the Notes held by such Bank any amount in
excess of its ratable portion of the payment received by all of the Banks with
respect to the Notes held by all of the Banks, such Bank will make such
disposition and arrangements with the other Banks with respect to such excess,
either by way of distribution, PRO TANTO assignment of claims, subrogation or
otherwise as shall result in each Bank receiving in respect of the Note held by
it its proportionate payment as contemplated by this Agreement, PROVIDED that if
all or any part of such excess payment is thereafter recovered from such Bank,
such disposition and arrangements shall be rescinded and the amount restored to
the extent of such recovery, but without interest.
SECTION 13. THE AGENT.
SECTION 13.1. AUTHORIZATION. (a) The Agent is authorized to take
such action on behalf of each of the Banks and to exercise all such powers as
are hereunder and under any of the other Loan Documents and any related
documents delegated to the Agent, together with such powers as are reasonably
incident thereto, PROVIDED that no duties or responsibilities not expressly
assumed herein or therein shall be implied to have been assumed by the Agent.
(b) The relationship between the Agent and each of the Banks is that of an
independent contractor. The use of the term "Agent" is for convenience only and
is used to describe, as a form of convention, the independent contractual
relationship between the Agent and each of the Banks. Nothing contained in this
Agreement nor the other Loan Documents shall be construed to create an agency,
trust or other fiduciary relationship between the Agent and any of the Banks.
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(c) As an independent contractor empowered by the Banks to exercise
certain rights and perform certain duties and responsibilities hereunder and
under the other Loan Documents, the Agent is nevertheless a "representative" of
the Banks, as that term is defined in Article 1 of the Uniform Commercial Code,
for purposes of actions for the benefit of the Agent and the Banks with respect
to all collateral security and guaranties contemplated by the Loan Documents.
Such actions include the designation of the Agent as "secured party",
"mortgagee" or the like on all financing statements and other documents and
instruments, whether recorded or otherwise, relating to the attachment,
perfection, priority or enforcement of any security interests, mortgages or
deeds of trust in collateral security intended to secure the payment or
performance of any of the Obligations, all for the benefit of the Agent and the
Banks.
SECTION 13.2. EMPLOYEES AND AGENTS. The Agent may exercise its powers and
execute its duties by or through employees or agents and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to its
rights and duties under this Agreement and the other Loan Documents. The Agent
may utilize the services of such Persons as the Agent in its sole discretion may
reasonably determine, and all reasonable fees and expenses of any such Persons
shall be paid by the Borrower. The Surety may act as sub-agent for the Real
Estate Collateral pursuant to the terms of the Purchase and Guaranty Agreement.
SECTION 13.3. NO LIABILITY. Neither the Agent nor any of its
shareholders, directors, officers or employees nor any other Person assisting
them in their duties nor any agent or employee thereof, shall be liable for any
waiver, consent or approval given or any action taken, or omitted to be taken,
in good faith by it or them hereunder or under any of the other Loan Documents,
or in connection herewith or therewith, or be responsible for the consequences
of any oversight or error of judgment whatsoever, except that the Agent or such
other Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence.
SECTION 13.4. NO REPRESENTATIONS. The Agent shall not be responsible for
the execution or validity or enforceability of this Agreement, the Notes, any of
the other Loan Documents or any instrument at any time constituting, or intended
to constitute, collateral security for the Notes, or for the value of any such
collateral security or for the validity, enforceability or collectability of any
such amounts owing with respect to the Notes, or for any recitals or statements,
warranties or representations made herein or in any of the other Loan Documents
or in any certificate or instrument hereafter furnished to it by or on behalf of
the Borrower or any of its Subsidiaries, be bound to ascertain or inquire as to
the performance or observance of any of the terms, conditions, covenants or
agreements herein or in any instrument at any time constituting,
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or intended to constitute, collateral security for the Notes or to inspect any
of the properties, books or records of the Borrower or any of its Subsidiaries.
The Agent shall not be bound to ascertain whether any notice, consent, waiver or
request delivered to it by the Borrower or any holder of any of the Notes shall
have been duly authorized or is true, accurate and complete. The Agent has not
made nor does it now make any representations or warranties, express or implied,
nor does it assume any liability to the Banks, with respect to the credit
worthiness or financial conditions of the Borrower, any of its Subsidiaries.
Each Bank acknowledges that it has, independently and without reliance upon the
Agent or any other Bank, and based upon such information and documents as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement.
SECTION 13.5. PAYMENTS.
(a) All payments by the Borrower to the Agent hereunder or under
any of the other Loan Documents shall be made to the Agent for the
respective accounts of the Banks and such payments shall constitute
payments by the Borrower to the Banks. Except as otherwise provided
in Section 2.12 hereof with respect to the Non-Real Estate Collateral,
not later than 1:00 p.m. Boston time, on the day of any proposed
prepayment or repayment of any Loan for which the Agent has received
notice thereof in accordance with Sections 2.2 or 2.4 hereof, the
Agent shall notify each of the affected Banks by telephone or in
writing of the Borrower's proposed prepayment or repayment of such
Loan, and, not later than 4:00 p.m. Boston time, on such date
(PROVIDED that the Agent shall have already actually received such
prepayment or repayment from the Borrower in readily available funds
not later than 3:00 p.m. Boston time on the proposed prepayment or
repayment date), the Agent agrees to distribute promptly to each
affected Bank such payment, and, in the case of payments made to any
of the Revolving Credit Banks, such Bank's PRO RATA share thereof in
accordance with its respective Commitment Percentage, or other
applicable share of such prepayment or repayment received by the Agent
for the account of the affected Banks, except as otherwise expressly
provided herein or in any of the other Loan Documents.
(b) If the Agent makes available to the Banks any prepayment or
repayment of any Loan received from it by the Borrower as set forth above
after such prepayment or repayment date, the Agent shall pay to each Bank
on demand its PRO RATA share of the amount equal to the product of (i) the
average computed for the period referred to in clause (iii) below, of the
weighted average interest rate paid by the Agent for federal funds acquired
by the Agent during each day included in such period, TIMES (ii) the amount
of the prepayment or repayment of the
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Loans made by the Borrower in accordance with Sections 2.2 or 2.4 hereof,
as applicable, TIMES (iii) a fraction, the numerator of which is the number
of days that elapse from and including such prepayment or repayment date to
the date on which the PRO RATA or other applicable share of the amount of
the Loans prepaid or repaid by the Borrower in accordance with Sections 2.2
or 2.4 hereof, as applicable, shall become immediately available to such
Bank, and the denominator of which is 365.
(c) If in the opinion of the Agent the distribution of any amount
received by it in such capacity hereunder, under the Notes or under any of
the other Loan Documents might involve it in liability, it may refrain from
making such distribution until its right to make such distribution shall
have been adjudicated by a court of competent jurisdiction. If a court of
competent jurisdiction shall adjudge that any amount received and
distributed by the Agent is to be repaid, each Person to whom any such
distribution shall have been made shall either repay to the Agent its
proportionate share of the amount so adjudged to be repaid or shall pay
over the same in such manner and to such Persons as shall be determined by
such court.
(d) Each distribution of cash, property, securities or other value
received by any Bank, directly or indirectly, in respect of the Borrower's
Obligations hereunder, whether pursuant to any attachment, garnishment,
execution or other proceedings for collection thereof or pursuant to any
bankruptcy, reorganization, liquidation or other similar proceeding, after
payment of collection and other expenses as provided herein and in the
Security Documents, shall be apportioned among the Banks, and, in the case
of the Revolving Credit Banks PRO RATA in accordance with their Commitment
Percentages or other applicable shares thereof and such Bank shall promptly
pay to the Agent for distribution to the Banks as set forth herein their
respective PRO RATA shares of such cash, property, securities or other
value, unless such Bank is legally required to return such recovery, in
which case each Person receiving a portion thereof shall return to such
Bank its PRO RATA share of the sum required to be returned without
interest.
(e) Notwithstanding anything to the contrary contained in this
Agreement or any of the other Loan Documents, any Revolving Credit Bank
that fails (i) to make available to the Agent its PRO RATA share of any
Loan as provided in Sections 2.1, 2.3 or 2.11 hereof or (ii) to comply with
the provisions of Section 12 hereof with respect to making dispositions and
arrangements with the other Banks, where such Bank's share of any payment
received, whether by set-off or otherwise, is in excess of its PRO RATA
share of such payments due and payable to all of the Banks, in each case
as, when and to the full extent required by the provisions of this
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Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall be
deemed a Delinquent Bank until such time as such delinquency is satisfied.
A Delinquent Bank shall be deemed to have assigned any and all payments due
to it from the Borrower, whether on account of outstanding Loans, interest,
fees or otherwise, to the remaining nondelinquent Banks for application to,
and reduction of, their respective PRO RATA shares of all outstanding
Loans. The Delinquent Bank hereby authorizes the Agent to distribute such
payments to the nondelinquent Banks in proportion to their respective PRO
RATA shares of all outstanding Loans. A Delinquent Bank shall be deemed to
have satisfied in full a delinquency when and if, as a result of
application of the assigned payments to all outstanding Loans of the
nondelinquent Banks, the Banks' respective PRO RATA shares of all
outstanding Loans have returned to those in effect immediately prior to
such delinquency and without giving effect to the nonpayment causing such
delinquency.
SECTION 13.6. HOLDERS OF NOTES. The Agent may deem and treat the payee of
any Note as the absolute owner thereof for all purposes hereof until it shall
have been furnished in writing with a different name by such payee or by a
subsequent holder, assignee or transferee.
SECTION 13.7. INDEMNITY. The Banks agree hereby to indemnify and hold
harmless the Agent and any agent referred to in Section 13.2 from and against
any and all claims, actions and suits (whether groundless or otherwise), losses,
damages, costs, expenses (including any expenses for which the Agent has not
been reimbursed by the Borrower as required by Section 16.1 hereof), and
liabilities of every nature and character arising out of or related to this
Agreement, the Notes, or any of the other Loan Documents or the transactions
contemplated or evidenced hereby or thereby, or the Agent's actions taken
hereunder or thereunder, except to the extent that any of the same shall be
directly caused by the Agent's, or such agent's willful misconduct or gross
negligence. Such indemnification obligations shall be (a) the ratable
responsibility of the Revolving Credit Banks if such claim, action, suit, loss,
damage, cost, expense or liability is on account of the Agent acting upon the
request or instructions of the Majority Revolving Credit Banks pursuant Section
11.1(A) or Section 11.2(a), (b) the responsibility of the Term Loan Lender if
such claim, action, suit, loss, damage, cost, expense or liability is on account
of the Agent acting upon the request or instructions of the Term Loan Lender
pursuant Section 11.1(B) or Section 11.2(b), and (c) otherwise the ratable
responsibility of all of the Banks.
SECTION 13.8. AGENT AS LENDER. In its individual capacity, BkB shall have
the same obligations and the same rights, powers and privileges in respect to
its DIP Commitment, Exit Commitment and the Loans made by it, and as the holder
of any of the Notes as it would have were it not also the Agent.
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SECTION 13.9. RESIGNATION.
(a) The Agent may resign at any time by giving thirty (30) days'
prior written notice thereof to the Banks and the Borrower. Upon any such
resignation, the Banks shall have the right to appoint a successor Agent.
Unless an Event of Default shall have occurred and be continuing, such
successor Agent shall be reasonably acceptable to the Borrower. If no
successor Agent shall have been so appointed by the Banks and shall have
accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on
behalf of the Banks, appoint a successor Agent, which shall be a financial
institution having a rating of not less than A or its equivalent by
Standard & Poor's Ratings Group. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation, the provisions of this Agreement and the other Loan Documents
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Agent.
(b) As long as any Obligations in respect of the Term Loan remain
outstanding, the resignation of the Agent shall not be effective unless and
until a successor Agent is appointed and, if such appointed successor is
not the Surety, approved by the Term Loan Lender, such approval not to be
unreasonably withheld or delayed. The Term Loan Lender shall, upon request
of the Agent, provide a list of potential successor agents acceptable to
the Term Loan Lender.
SECTION 13.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each
Bank hereby agrees that, upon learning of the existence of a Default or an
Event of Default, it shall promptly notify the Agent thereof. The Agent
hereby agrees that upon receipt of any notice under this Section 13.10 or
upon learning of the existence of a Default or Event of Default it shall
promptly notify the other Banks of the existence of such Default or Event of
Default.
SECTION 13.11. DUTIES IN THE CASE OF ENFORCEMENT. In case one of more
Events of Default have occurred and shall be continuing, and whether or not
acceleration of the Obligations shall have occurred, the Agent shall, if (a)
so requested by the Revolving Credit Banks with respect to Non-Real Estate
Collateral or the Term Loan Lender with respect to the Real Estate
Collateral, and (b) the Revolving Credit Banks or (as the case may be) the
Term Loan Lender or the Surety shall have provided to the Agent such
additional indemnities and assurances against expenses and liabilities as the
Agent may
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reasonably request, proceed to enforce the provisions of the Security Documents
authorizing the sale or other disposition of all or any part of the Non-Real
Estate Collateral or (as the case may be) the Real Estate Collateral and
exercise all or any such other legal and equitable and other rights or remedies
as it may have in respect of such Collateral. The Revolving Credit Banks may
direct the Agent in writing as to the method and the extent of any such sale or
other disposition in respect of the Non-Real Estate Collateral and the Term Loan
Lender may direct the Agent in writing in respect of the Real Estate Collateral,
the Revolving Credit Banks or (as the case may be) the Term Loan Lender hereby
agreeing to indemnify and hold the Agent harmless from all liabilities incurred
in respect of all actions taken or omitted in accordance with such directions,
PROVIDED that the Agent need not comply with any such direction to the extent
that the Agent reasonably believes the Agent's compliance with such direction to
be unlawful or commercially unreasonable in any applicable jurisdiction.
SECTION 14. ASSIGNMENT AND PARTICIPATION.
SECTION 14.1. CONDITIONS TO ASSIGNMENT BY BANKS. Except as provided
herein, each Revolving Credit Bank may assign to one or more Eligible Assignees,
and each Bank may assign to the Surety pursuant to the Purchase and Guaranty
Agreement, all or a portion of its interests, rights and obligations under this
Agreement (including, with respect to a Revolving Credit Bank, all or a portion
of its Commitment Percentage, DIP Commitment and Exit Commitment and the same
portion of the DIP Loans and Exit Loans at the time owing to it, the Notes held
by it, and its share of the Reimbursement Obligations with respect to Letters of
Credit); PROVIDED that (a) each of the Agent and, unless an Event of Default
shall have occurred and be continuing, the Borrower shall have given its prior
written consent to such assignment, which consent, in the case of the Borrower,
will not be unreasonably withheld, provided that no such Consent will be
necessary in connection with an assignment to the Surety, (b) each such
assignment by a Revolving Credit Bank shall be of a constant, and not a varying,
percentage of all the assigning Bank's rights and obligations under the
Revolving Credit Commitments, (c) each assignment of the Revolving Credit Loans
and Reimbursement Obligations shall be in an amount that is a minimum of
$7,500,000 or integral multiples of $500,000 in excess thereof and any
assignment of the Term Loan shall be in an amount equal to the entire unpaid
principal balance of the Term Loan, (d) any assignee of Revolving Credit Loans
and Reimbursement Obligations shall have joined the Purchase and Guaranty
Agreement as a party subject thereto as provided thereby, and (e) the parties to
such assignment shall execute and deliver to the Agent, for recording in the
Register (as hereinafter defined), an Assignment and Acceptance, substantially
in the form of EXHIBIT K attached hereto (an "Assignment and Acceptance"),
together with any Notes subject to such assignment. Upon such execution,
<PAGE>
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delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least five
(5) Business Days after the execution thereof, (i) the assignee thereunder shall
be a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Bank hereunder, and (ii) the assigning
Bank, if a Revolving Credit Bank, to the extent provided in such assignment and
upon payment to the Agent of the registration fee referred to in Section 14.3
hereof, and the Term Loan Lender upon assignment to the Surety of the Term Loan
and the Revolving Credit Banks upon assignment to the Surety, pursuant to the
Purchase Option referred to in the Purchase and Guaranty Agreement, of the
Revolving Credit Loans and Reimbursement Obligations, shall be released from its
or their obligations under this Agreement. The Term Loan Lender shall not
assign the Term Loan or any portion thereof in any way that would defeat the
rights of the Surety to acquire 100% of the Term Loan upon the terms of the
Purchase and Guaranty Agreement. An Assignment and Acceptance shall not be
necessary for an assignment to the Surety and shall be effective as set forth in
the Purchase and Guaranty Agreement. The Borrower hereby consents to the
assignment by the Term Loan Lender or, with respect to such Purchase Option, by
the Revolving Credit Banks to the Surety pursuant to the terms of the Purchase
and Guaranty Agreement.
SECTION 14.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS;
COVENANTS. By executing and delivering an Assignment and Acceptance, the
parties to the assignment thereunder confirm to and agree with each other and
the other parties hereto as follows: (a) other than the representation and
warranty that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim or encumbrance, the
assigning Bank makes no representation or warranty, express or implied, and
assumes and shall have no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement, the other Loan Documents or any other instrument or
document furnished pursuant hereto or the attachment, perfection or priority of
any security interest or mortgage; (b) the assigning Bank makes no
representation or warranty and assumes and shall have no responsibility with
respect to the financial condition of the Borrower and its Subsidiaries or any
other Person primarily or secondarily liable in respect of any of the
Obligations, or the performance or observance by the Borrower or any other
Person primarily or secondarily liable in respect of any of the Obligations of
any of their obligations under this Agreement or any of the other Loan Documents
or any other instrument or document furnished pursuant hereto or thereto; (c)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the most recent financial statements referred to in Section 8(e)
and Sections 10.1(a)(i) and (ii) hereof and such other documents
<PAGE>
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and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (d) such assignee will,
independently and without reliance upon the assigning Bank, the Agent or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (e) such assignee represents and
warrants that it is an Eligible Assignee; (f) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Agent by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto; (g) such assignee agrees that it will perform in
accordance with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Bank; and (h) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment and Acceptance.
SECTION 14.3. REGISTER. The Agent shall maintain a copy of each
Assignment and Acceptance delivered to it and a register of similar list (the
"Register") for the recordation of the names and addresses of the Banks and the
Commitment Percentage, DIP Commitment, and Exit Commitment of, and principal
amount of the Loans owing to, the Banks from time to time. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Agent and the Banks may treat each Person whose name is recorded
in the Register as a Bank hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower and the Banks at any
reasonable time and from time to time upon reasonable prior notice. Upon each
such recordation, the assigning Bank agrees to pay to the Agent a registration
fee in the sum of $3000 unless the Surety is the assignee.
SECTION 14.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, together with each Note subject to
such assignment, the Agent shall (a) record the information contained therein in
the Register, and (b) give prompt notice thereof to the Borrower and the Banks
(other than the assigning Bank). Within five (5) Business Days after receipt of
such notice, the Borrower, at its own expense, shall execute and deliver to the
Agent, in exchange for each surrendered Note, a new Note to the order of such
Eligible Assignee in an amount equal to the amount assumed by such Eligible
Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank
has retained some portion of its obligations hereunder, a new Note to the order
of the assigning Bank in an amount equal to the amount retained by it hereunder.
Such new Notes shall provide that they are replacements for the surrendered
Notes, shall be in an aggregate principal amount equal to the aggregate
principal amount of the surrendered Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be substantially the form of
the assigned Notes. Within five (5) days
<PAGE>
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after the issuance of any new Notes pursuant to this Section 14.4, the Borrower
shall, at its reasonable expense, deliver an opinion of counsel, addressed to
the Banks and the Agent, relating to the due authorization, execution and
delivery of such new Notes and the legality, validity, binding effect and
enforceability thereof, in form and substance reasonably satisfactory to the
Agent and the Banks. The surrendered Notes shall be canceled and returned to
the Borrower.
SECTION 14.5. PARTICIPATIONS. Each Revolving Credit Bank may sell
participations to one or more banks or other entities in all or a portion of
such Bank's rights and obligations under this Agreement and the other Loan
Documents and the Term Loan Lender may sell participations to one or more banks
or other entities in up to 50% of its rights and obligations under this
Agreement and the other Loan Documents; PROVIDED that (a) each such
participation in Revolving Credit Loans and Reimbursement Obligations shall be
in an initial amount of not less than $5,000,000, and each such participation in
the Term Loan shall be in an amount not greater than 50% of the unpaid principal
of the Term Loan, with there being no more than one such participant, (or in any
lesser amount and to more than one participant if the Agent has consented
thereto), (b) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrower and (c) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the right to approve waivers, amendments or modifications that would (i) reduce
the principal of or the interest rate on any Loans, (ii) extend the duration or
increase the amount of the DIP Commitment or Exit Commitment, as the case may
be, of such Bank as it relates to such participant, (iii) reduce the amount of
any commitment fees, facility fees or other fees to which such participant is
entitled, (iv) except for extensions of the Term Loan expressly contemplated by
Section 9.4, extend any regularly scheduled payment date for principal or
interest, or (v) release any Collateral (other than asset dispositions permitted
by the Loan Documents, and other than with respect to cash collateral in any
bankruptcy or insolvency case or proceeding after the Exit Facility Date).
SECTION 14.6. DISCLOSURE. The Borrower agrees that in addition to
disclosures made in accordance with standard and customary banking practices any
Bank may disclose information obtained by such Bank pursuant to this Agreement
to the Surety, assignees or participants and with the written consent of the
Borrower (such consent not to be unreasonably withheld) to potential assignees
or participants hereunder; PROVIDED that such assignees or participants or
potential assignees or participants shall agree (a) to treat in confidence such
information unless such information otherwise becomes public knowledge, (b) not
to disclose such information to a third party, except as required by law or
<PAGE>
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legal process, and (c) not to make use of such information for purposes of
transactions unrelated to such contemplated assignment or participation.
SECTION 14.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. If
any assignee Bank is an Affiliate of the Borrower (except the Term Loan Lender
or the Surety on account of its holding of the Warrants, any warrant stock, or
the Special Shares issued with respect thereto or otherwise), then any such
assignee Bank shall have no right to vote as a Bank hereunder or under any of
the other Loan Documents for purposes of granting consents or waivers or for
purposes of agreeing to amendments or other modifications to any of the Loan
Documents or for purposes of making requests to the Agent pursuant to Section 11
hereof, and the determination of the Majority Banks shall for all purposes of
this Agreement and the other Loan Documents be made without regard to such
assignee Bank's interest in any of the Loans. If any Bank sells a participating
interest in any of the Loans to a participant, and such participant is the
Borrower or an Affiliate of the Borrower, then such transferor Bank shall
promptly notify the Agent of the sale of such participation. A transferor Bank
shall have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or modifications to any of the Loan Documents or for
purposes of making requests to the Agent pursuant to Section 11 hereof to the
extent that such participation is beneficially owned by the Borrower or any
Affiliate of the Borrower, and the determination of the Majority Banks shall for
all purposes of this Agreement and the other Loan Documents be made without
regard to the interest of such participation.
SECTION 14.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank
shall retain its rights to be indemnified pursuant to Section 16.2 hereof with
respect to any claims or actions arising prior to the date of such assignment.
If any assignee Bank is not incorporated under the laws of the United States of
America or any state thereof, it shall, prior to the date on which any interest
or fees are payable hereunder or under any of the other Loan Documents for its
account, deliver to the Borrower and the Agent certification as to its exemption
from deduction or withholding of any United States federal income taxes.
Anything contained in this Section 14 to the contrary notwithstanding, any Bank
may at any time pledge all or any portion of its interest and rights under this
Agreement (including all or any portion of its Notes) to any of the twelve
Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12
U.S.C. Section 341. No such pledge or assignment or the enforcement thereof
shall release the pledgor or assignor Bank from its obligations hereunder or
under any of the other Loan Documents.
<PAGE>
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SECTION 14.9. ASSIGNMENT BY BORROWER. The Borrower shall not assign or
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of each of the Banks.
SECTION 15. AGENT AND BANKS AS PARTIES IN INTEREST. The Borrower hereby
stipulates and agrees that the Agent and each of the Banks and the Surety is and
shall remain a party in interest in the Case and shall have the right to
participate, object and be heard in any motion or proceeding in connection
therewith and to appeal therefrom. Neither the failure to so participate,
object or be heard nor anything in this Agreement or any other Loan Documents
shall be deemed to be a waiver of the Agent's, the Surety's or any Bank's rights
or remedies thereunder or under applicable law. Without limitation of the
foregoing, the Agent and each of the Banks and the Surety shall have the right
to make any motion or raise any objection which it deems to be in its interest
(specifically including but not limited to objections to use of proceeds of the
Loans, use of Letters of Credit, payment of professional fees and expenses or
the amount thereof, sales or other transactions outside the ordinary course of
business or assumption or rejection of any unexpired lease or executory
contract) whether or not the action or inaction by the Borrower which is the
subject of such motion or objection violates or is expressly permitted by any
covenant or provisions of this Agreement or any other Loan Document.
SECTION 16. MISCELLANEOUS.
SECTION 16.1. COSTS AND EXPENSES. Whether or not the transactions
contemplated hereby are consummated, the Borrower shall pay (a) to the Agent
promptly on demand all reasonable costs and expenses, including any taxes and
reasonable legal and other professional fees and expenses and reasonable fees
and expenses of the Agent's commercial finance examiners, liquidation analysis
consultants, collateral auditors (absent the continuance of a Default or an
Event of Default, not to exceed the sum of $17,500 for each audit by an
independent collateral auditor) appraisers (absent the continuance of a Default
or an Event of Default, not to exceed $15,000 per each appraisal by an
independent appraiser), and other professional advisors, incurred by the Agent,
the Term Loan Lender or the Surety in connection with its due diligence or the
preparation, negotiation, execution, syndication, amendment, and administration
of the Loan Documents, the Financing Order, and the Confirmation Order, PROVIDED
THAT (i) the Borrower shall not be required to pay both the Agent and the Surety
in connection with any examinations relating to the Real Estate Collateral, with
priority to the Surety, and the Borrower shall not be required to pay both the
Agent and the Surety in connection with examinations relating to the Non-Real
Estate Collateral, with priority to the Agent, and (ii) the Surety shall be
entitled in any case to be reimbursed the
<PAGE>
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reasonable expenses of a visit to each store location by one person, once per
calendar quarter, regardless of any such finance examinations, appraisals, and
environmental inspections otherwise conducted or to be conducted, and (b) to the
Agent and each of the Banks promptly on demand all costs and expenses (including
any taxes and reasonable legal and other professional fees and expenses and
reasonable fees and expenses of such other Persons as referred to above)
incurred by the Agent or such Bank in connection with the enforcement of or
preservation of rights under any of the Loan Documents or the administration
thereof after the occurrence of an Event of Default, or in connection with any
litigation in any way related to any Bank's or the Agent's relationship with the
Borrower and all fees, expenses and disbursements in connection with the
perfection, protection or priority of any Liens upon any of the Collateral and
in connection with any Bankruptcy Court or other court appearances. The
covenants of this Section 16.1 shall survive payment or satisfaction in full of
all other Obligations.
SECTION 16.2. INDEMNIFICATION. The Borrower agrees to indemnify and hold
harmless the Agent, each of the Banks, the Surety and their respective officers,
employees, affiliates, agents and controlling Persons from and against any and
all losses, claims, damages and liabilities to which any such Person may be
subject arising out of or in connection with this Agreement and the other Loan
Documents or any of the transactions contemplated hereby or thereby or any
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether or not such indemnified Person is a party hereto or thereto, and to
reimburse each of such indemnified Persons, from time to time upon its or his
demand, for any reasonable legal or other expenses incurred in connection with
investigating or defending any of the foregoing, whether or not the transactions
contemplated hereby are consummated; PROVIDED, HOWEVER, that the foregoing
indemnity will not, as to any indemnified Person, apply to losses, claims,
damages, liabilities or related expenses to the extent that they have been
determined by a court of competent jurisdiction by final non-appealable order to
arise from the bad faith, willful misconduct or gross negligence of such
indemnified Person. In litigation, or the preparation therefor, the Agent and
the Banks and the Surety will be entitled to select their own counsel and, in
addition to the foregoing indemnity, the Borrower agrees to pay promptly the
reasonable fees and expenses of such counsel. The covenants of this Section
16.2 shall survive payment or satisfaction in full of all other Obligations.
SECTION 16.3. NOTICES. Any communication to be made hereunder shall (a)
be made in writing, but unless otherwise stated, may be made by facsimile
transmission or letter, and (b) be made or delivered to the address of the party
receiving notice which is identified with its signature below (unless such party
has by five (5) days written notice specified another address), and shall be
deemed made or delivered when left at or delivered to that address, or five (5)
<PAGE>
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days after being mailed, postage prepaid, to such address, or in the case of
facsimile transmission, at the time of dispatch thereof if during normal
business hours on a Business Day in the country and city of receipt, or
otherwise at the opening of business on the following Business Day in such
destination location.
SECTION 16.4. AMENDMENT, ETC.
(a) Except as otherwise expressly provided in this
Agreement, any consent or approval required or permitted by this
Agreement to be given by all of the Banks, may be given, and any term
of this Agreement or of any other instrument related hereto or
mentioned herein may be amended, and the performance or observance by
the Borrower of any terms of this Agreement or such other instrument
or the continuance of any Default or Event of Default may be waived
(either generally or in a particular instance and either retroactively
or prospectively) with, but only with the written consent of the
Majority Banks. Notwithstanding the foregoing, the rate of interest
on the Notes (other than interest accruing pursuant to Section 2.9(b)
or Section 3.6(b) following the effective date of any applicable
waiver by the Majority Banks, or, where required, all of the Banks, of
the Event of Default relating thereto), the amounts and terms and
maturity of the Notes, the dates and amounts of any required principal
or interest payments, the amount and duration of the respective DIP
Commitments and the Exit Commitments of the Banks, and the date and
amount of the commitment fees or letter of credit fees hereunder may
not be changed without the written consent of the Borrower and the
written consent of each of the Banks; the definition of Majority
Banks, any provision of the Loan Documents providing for or requiring
the approval, consent, or direction of the Agent, or of a specified
number, combination, or percentage of the Banks or holders of a
certain percentage of the DIP Commitments, the Exit Commitments, or
the Obligations, in any case with respect to any action or matter
relating to the Loan Documents, and the provisions of this Section
16.4(a) may not be amended without the written consent of all of the
Banks; SCHEDULE 2.12, SCHEDULE 2.12A, and SCHEDULE 2.14 may be amended
from time to time with the written agreement of the Agent and the
Borrower; and SCHEDULE 10.2(M) may be amended from time to time with
the written agreement of the Borrower and the Term Loan Lender with
notice to the Agent; except for the use of cash collateral in any
bankruptcy or insolvency case or proceeding after the Exit Facility
Date, and except for asset dispositions permitted by Section 10.2(f)
or Section 10.2(m) hereof, Collateral may not be released without the
written consent of all of the Banks and the Agent; and the amount of
the Agent's administrative fee or facility fees or other fees for the
Agent's own account or any fees with respect to the Letters of Credit
payable for the Agent's account, and the provisions of Section 13
hereof and the Fee Letter may not be amended without the written
consent of the Agent.
<PAGE>
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(b) Notwithstanding the foregoing:
(i) the consent of the Term Loan Lender shall not be required
for:
(A) any exercise by the Agent, or any Revolving Credit Bank
of any discretionary right that it has under this Agreement or
related documents to determine the Borrowing Base (exclusive of
any discretionary right to alter advance rates) or to monitor,
preserve or protect any of the Collateral, which monitoring,
preservation or protection would not adversely affect the Real
Estate Collateral,
(B) any amendments or waivers (1) that are favorable to the
Surety and have no adverse effect on the Term Loan Lender or the
Real Estate Collateral, or (2) which, in the Agent's reasonable
judgment, require immediate action for the protection of the
interests of the Agent, the Revolving Credit Banks and the Term
Loan Lender as a whole, and to which the Term Loan Lender has not
objected within forty-eight hours following notice of such action
to the Term Loan Lender, or
(C) minor or immaterial amendments or waivers of an
administrative or operational nature;
(ii) the Revolving Credit Banks may, without the approval of the
Term Loan Lender, make Revolving Credit Loans, and the Agent may,
without the approval of the Term Loan Lender, on a discretionary basis
issue, extend or renew Letters of Credit, notwithstanding the failure
of the Borrower to meet conditions precedent thereto in this Agreement
or any other Loan Documents, so long as, in each such case, (A) the
Borrower certifies as to the absence, and officers of the Agent active
on the Borrower's account are not aware, of the existence of any
material Default or any Event of Default, whether before or after
giving effect to such action, other than Defaults or Events of Default
that would be cured with the proceeds of such extension of credit; and
(B) after taking into account such Revolving Credit Loans and
issuance, extensions or renewals of Letters of Credit, the Borrower's
Obligations in respect of the Revolving Credit Loans and Reimbursement
Obligations would not exceed the lesser of (x) the Borrowing Base, and
(y) the sum of $35,000,000; and
(iii) the Revolving Credit Banks may, without the approval of
the Term Loan Lender, make Revolving Credit Loans, and the
<PAGE>
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Agent may, without the approval of the Term Loan Lender, on a
discretionary basis issue, extend or renew Letters of Credit, even if
the Obligations in respect of the Revolving Credit Loans and
Reimbursement Obligations would exceed the Borrowing Base, so long as
the overadvance amount so resulting does not exceed $500,000, or
remain outstanding for more than 30 days in any twelve month period,
and the Borrower certifies as to the absence, and the officers of the
Agent active on the Borrower's account are not otherwise aware, of any
material Default or any Event of Default then continuing at the time
when such overadvance is extended or which would occur after giving
effect to such action, other than (A) any Event of Default which would
otherwise be caused by the overadvance itself and (B) any Defaults or
Events of Default that would be cured with the proceeds of such
extension of credit.
SECTION 16.5. NO WAIVER. No waiver shall extend to or affect any
obligation not expressly waived or impair any right consequent thereon. No
course of dealing or delay or omission on the part of the Agent or any Bank in
exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto. No notice to or demand upon the Borrower or any of its
Subsidiaries shall entitle the Borrower or any Subsidiary to other or further
notice or demand in similar or other circumstances. No failure or delay by the
Agent or any Bank to exercise any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege preclude any other right, power or privilege.
SECTION 16.6. SEVERABILITY. The provisions of this Agreement are
severable and if any one provision hereof shall be held invalid or unenforceable
in whole or in part in any jurisdiction, such invalidity or unenforceability
shall affect only such provision in such jurisdiction. This Agreement, together
with all exhibits and schedules hereto, expresses the entire understanding of
the parties with respect to the transactions contemplated hereby. This
Agreement and any amendment hereby may be executed in several counterparts, each
of which shall be an original, and all of which shall constitute one agreement.
In proving this Agreement, it shall not be necessary to produce more than one
such counterpart executed by the party to be charged.
SECTION 16.7. GOVERNING LAW. THIS AGREEMENT AND THE NOTES ARE CONTRACTS
UNDER SEAL UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF SAID
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW) AND, PRIOR TO THE EXIT FACILITY DATE BUT ONLY TO
<PAGE>
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THE EXTENT APPLICABLE, OR AS OTHERWISE PROVIDED IN THE REORGANIZATION PLAN, THE
PROVISIONS OF THE BANKRUPTCY CODE. The Borrower agrees that during the period
prior to the Exit Facility Date, any suit for the enforcement of this Agreement
and any other Loan Documents may be brought in the Bankruptcy Court and consents
to the nonexclusive jurisdiction of such court. The Borrower agrees that during
the period from and after the Exit Facility Date, any suit for the enforcement
of this Agreement and any of the other Loan Documents may be brought in the
courts of the Commonwealth of Massachusetts or any federal court sitting therein
and consents to the nonexclusive jurisdiction of such court. The Borrower
hereby waives any objection that it may now or hereafter have to the venue of
any such suit or any such court or that such suit is brought in an inconvenient
court. THE BORROWER, AS AN INDUCEMENT TO THE AGENT AND EACH OF THE BANKS TO
ENTER INTO THIS AGREEMENT, HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT
TO ANY ACTION ARISING IN CONNECTION WITH THIS AGREEMENT AND ANY OTHER LOAN
DOCUMENT.
SECTION 16.8. TRANSITION PROVISION. This Agreement shall supersede the
Original Credit Agreement in its entirety on the Effective Date, except as
otherwise provided in this Section 16.8. On the Effective Date, the rights and
obligations of the parties under the Original Credit Agreement and the "DIP
Notes" as defined therein shall be subsumed within and be governed by this
Agreement and the DIP Revolving Credit Notes; provided, however, that (a) each
"DIP Loan" (as defined in the Original Credit Agreement) outstanding under the
Original Credit Agreement on the Effective Date shall, for purposes of this
Agreement, be a DIP Revolving Credit Loan, and (b) each "Letter of Credit" (as
defined in the Original Credit Agreement) outstanding under the Original Credit
Agreement on the Effective Date shall, for purposes of this Agreement, be a
Letter of Credit. Upon its receipt of its DIP Revolving Credit Note hereunder
on the Effective Date, each Revolving Credit Bank will promptly return to the
Borrower, marked "Cancelled," such Revolving Credit Bank's "DIP Note" (as
defined in the Original Credit Agreement) issued to such Revolving Credit Bank
under the Original Credit Agrement. All unpaid interest and all unpaid
commitment, agent's and other fees and expenses owing or accruing under or in
respect of the Original Credit Agrement for the period ending on the Effective
Date shall be paid at the times and in accordance with the method specified in
the Original Credit Agreement as if the Original Credit Agreement were in
effect.
<PAGE>
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IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a
sealed instrument as of the date first above written.
LAMONTS APPAREL, INC., a Delaware corporation,
debtor and debtor in possession
By: /s/ Loren Rothschild
------------------------------
Name: Loren Rothschild
Title: Vice Chairman
12413 Willows Road, N.E. Kirkland,
Washington 98034
Tel: (425) 814-5461
Fax: (425) 814-9749
Attention: Ms. Debra Brownfield
BANKBOSTON, N.A., individually and as
Agent
By: /s/ William J. Sherald, JR.
---------------------------
Name: William J. Sherald, Jr.
Title: Vice President
Address:
100 Federal Street
Boston, Massachusetts 02110
Tel: (617) 434-1513
Fax: (617) 434-2309
Attention: Mr. William J. Sherald, Jr.
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<INCOME-PRETAX> (8,896)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,896)
<EPS-PRIMARY> (8,896)
<EPS-DILUTED> 0.00
<FN>
<F1>Net of accumulated depreciation and amortization of $30,994.
<F2>Excludes Liabilities Subject to Settlement Under Reorganization Proceedings.
<F3>Includes: Operating and Administrative expenses of $47,235, depreciation and
amortization of $5,484, and reorganization expenses of $1,924.
</FN>
</TABLE>
<PAGE>
Judge: The Honorable Thomas T. Glover
Chapter: 11
Hearing Location: Park Place Building
1200 Sixth Avenue
Seattle, Washington
Room 416
Hearing Date: December 18, 1997
Hearing Time: 9:30 AM
Response Date: December 12, 1997
RECEIVED
U.S. Bankruptcy Court
Western District of Washington
at Seattle
OCT 31 1997
Thomas T. Glover
Bankruptcy Judge
UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
RECEIVED
Western District of Washington
at Seattle
OCT 31 1997
U.S. BANKRUPTCY COURT
In re ) Case No. 95-00100
)
LAMONTS APPAREL, INC., )
a Delaware corporation, dba ) MODIFICATION TO PLAN
LAMONTS, LAMONTS FOR KIDS, )
fka TEXSTYRENE CORPORATION, a )
Delaware corporation, ARIS )
CORPORATION, a Delaware )
corporation, LAMONTS )
CORPORATION, a Delaware )
corporation, and LAMONTS )
APPAREL, INC., a Washington )
corporation, )
)
Debtor. )
)
Taxpayer Identification )
No. 75-2076160 )
)
Debtor's Former Address: )
- ------------------------ )
)
3650 131st Avenue S.E. )
Bellevue, WA 98006 )
)
Debtor's Current Address: )
- ------------------------- )
)
12413 Willows Road N.E. )
Kirkland, WA 98034 )
- ---------------------------------------
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
MODIFICATION TO PLAN 3699 Wilshire Blvd., Suite 900
Los Angeles, CA 90010
161679 Special Reorganization Counsel for
Debtor and Debtor in Possession
<PAGE>
Pursuant to Section 1127(a) of the Bankruptcy Code, Lamonts Apparel,
Inc., a Delaware corporation, debtor and debtor in possession, hereby
modifies the "Debtor's Amended Plan of Reorganization under Chapter 11 of the
Bankruptcy Code" (the "Prior Plan") filed herein on October 23, 1996, to read
as set forth in the attached "Debtor's Modified and Restated Plan of
Reorganization under Chapter 11 of the Bankruptcy Code" (the "Modified
Plan"). The Modified Plan shall supersede and replace the Prior Plan.
DATED: October 31, 1997 /s/ JEFFREY H. DAVIDSON
------------------------------------
JEFFREY H. DAVIDSON, and
MICHAEL H. GOLDSTEIN, members of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
Special Reorganization Counsel
for Debtor and Debtor in Possession
-and-
/s/ RICHARD J. HYATT
------------------------------------
RICHARD J. HYATT (WSBA No. 14048)
RYAN SWANSON & CLEVELAND, PLLC
1201 Third Avenue, Suite 3400
Seattle, WA 98101 (206) 464-4224
Counsel for Debtor and
Debtor in Possession
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
MODIFICATION TO PLAN 3699 Wilshire Blvd., Suite 900
Los Angeles, CA 90010
161679 Special Reorganization Counsel for
Debtor and Debtor in Possession
2
<PAGE>
Judge: The Honorable Thomas T. Glover
Chapter: 11
Hearing Location: Park Place Building
1200 Sixth Avenue
Seattle, Washington
Room 416
Confirmation Hearing Date: December 18, 1997
Confirmation Hearing Time: 9:30 AM
Objection Date: December 12, 1997
UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
In re ) Case No. 95-00100
)
LAMONTS APPAREL, INC., )
a Delaware corporation, dba )
LAMONTS, LAMONTS FOR KIDS, fka )
TEXSTYRENE CORPORATION, a ) DEBTOR'S MODIFIED AND RESTATED
Delaware corporation, ARIS ) PLAN OF REORGANIZATION UNDER
CORPORATION, a Delaware ) CHAPTER 11 OF THE
corporation, LAMONTS ) BANKRUPTCY CODE
CORPORATION, a Delaware )
corporation, and LAMONTS )
APPAREL, INC., a Washington )
corporation, )
)
Debtor. )
)
Taxpayer Identification )
No. 75-2076160 )
)
Debtor's Former Address: )
- ------------------------
3650 131st Avenue S.E. )
Bellevue, WA 98006 )
)
Debtor's Current Address: )
- -------------------------
12413 Willows Road N.E. )
Kirkland, WA 98034 )
)
- --------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I. DEFINITIONS AND RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . .1
A. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
B. Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
C. Plan Documentary Supplement. . . . . . . . . . . . . . . . . . . . . 13
D. Exhibits.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
II. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS. . . . . . . . . . 14
A. Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
B. Administrative Expenses. . . . . . . . . . . . . . . . . . . . . . . 15
C. Priority Tax Claims. . . . . . . . . . . . . . . . . . . . . . . . . 17
D. Classification and Treatment.. . . . . . . . . . . . . . . . . . . . 19
III. ACCEPTANCE OR REJECTION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . 23
A. Voting Classes.. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
B. Voting Rights of Holders of Disputed Claims. . . . . . . . . . . . . 23
C. Acceptance by Impaired Classes.. . . . . . . . . . . . . . . . . . . 23
D. Presumed Acceptance of Plan. . . . . . . . . . . . . . . . . . . . . 24
E. Nonconsensual Confirmation.. . . . . . . . . . . . . . . . . . . . . 24
IV. PROVISIONS FOR TREATMENT OF DISPUTED, CONTINGENT, OR UNLIQUIDATED CLAIMS,
EQUITY INTERESTS, AND ADMINISTRATIVE EXPENSES . . . . . . . . . . . . . . . . 24
A. Reserve for Disputed Other Priority Claims, Disputed Priority Tax
Claims, and Disputed Administrative Expenses. . . . . . . . . . . . 24
B. Allowance of Claims of Holders of Record of Old 10 1/4% Notes and
of Holders of Record of Old 13 1/2% Notes; Reserve for Disputes . . 26
Page i
<PAGE>
<S> <C>
C. Allowance of Interests of Holders of Record of Old Common Stock;
Reserve for Disputes. . . . . . . . . . . . . . . . . . . . . . . . 26
D. Reserve for Disputed General Unsecured Claims. . . . . . . . . . . . 27
E. Resolution of Disputed Claims, Disputed Equity Interests, and
Disputed Administrative Expenses. . . . . . . . . . . . . . . . . . 28
V. IMPLEMENTATION OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
A. Funding of Cash Payments.. . . . . . . . . . . . . . . . . . . . . . 29
B. Issuance of New Securities.. . . . . . . . . . . . . . . . . . . . . 29
C. Cancellation of Existing Securities and Rejection of Related
Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
D. Surrender of Existing Securities.. . . . . . . . . . . . . . . . . . 30
E. Compromise of Subordination Disputes.. . . . . . . . . . . . . . . . 31
1. Subordination Provisions of Old 10 1/4% Notes . . . . . . . . . 31
2. Subordination Provisions of Old 13 1/2% Notes . . . . . . . . . 33
F. Certificate of Incorporation and Bylaws. . . . . . . . . . . . . . . 35
G. Management of the Reorganized Debtor.. . . . . . . . . . . . . . . . 35
H. Corporate Action.. . . . . . . . . . . . . . . . . . . . . . . . . . 39
I. Method of Distribution Under the Plan. . . . . . . . . . . . . . . . 40
1. In General. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2. Investment of Cash. . . . . . . . . . . . . . . . . . . . . . . 40
3. Manner of Payment Under the Plan. . . . . . . . . . . . . . . . 40
4. Manner of Distribution of Other Property. . . . . . . . . . . . 40
5. Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6. Distribution of Unclaimed Property. . . . . . . . . . . . . . . 41
7. DE MINIMIS Distributions. . . . . . . . . . . . . . . . . . . . 41
Page ii
<PAGE>
<S> <C>
8. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . 41
9. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10. Allocation of Consideration Distributed on Account of Allowed
Class 4 Claims . . . . . . . . . . . . . . . . . . . . . . . . 43
11. Saturday, Sunday, or Legal Holiday. . . . . . . . . . . . . . . 43
J. Revesting of Assets. . . . . . . . . . . . . . . . . . . . . . . . . 43
K. Continuation of FNBB Claim and FNBB Liens. . . . . . . . . . . . . . 44
VI. EXECUTORY CONTRACTS AND UNEXPIRED LEASES . . . . . . . . . . . . . . . . . . . 45
A. Assumption.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
B. Rejection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
VII. EFFECTIVENESS OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . 49
A. Conditions Precedent.. . . . . . . . . . . . . . . . . . . . . . . . 49
B. Waiver of Conditions.. . . . . . . . . . . . . . . . . . . . . . . . 49
C. Notice of Effective Date.. . . . . . . . . . . . . . . . . . . . . . 49
VIII. RETENTION OF JURISDICTION. . . . . . . . . . . . . . . . . . . . . . . . . . 50
IX. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
A. Payment of Statutory Fees. . . . . . . . . . . . . . . . . . . . . . 52
B. Discharge of Debtor and Injunction.. . . . . . . . . . . . . . . . . 53
C. No Liability for Solicitation or Participation.. . . . . . . . . . . 55
D. Limitation of Liability. . . . . . . . . . . . . . . . . . . . . . . 55
E. Rights of Action.. . . . . . . . . . . . . . . . . . . . . . . . . . 56
F. Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
G. Binding Effect.. . . . . . . . . . . . . . . . . . . . . . . . . . . 57
H. Revocation or Withdrawal.. . . . . . . . . . . . . . . . . . . . . . 57
1. Right to Revoke . . . . . . . . . . . . . . . . . . . . . . . . 57
Page iii
<PAGE>
<S> <C>
2. Effect of Withdrawal or Revocation. . . . . . . . . . . . . . . 57
I. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
J. Withholding, Reporting, and Payment of Taxes.. . . . . . . . . . . . 58
K. Other Documents and Actions. . . . . . . . . . . . . . . . . . . . . 58
L. Modification of the Plan.. . . . . . . . . . . . . . . . . . . . . . 58
M. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
N. Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>
Page iv
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A Summary of Certain Principal Terms and Conditions
of New Class A Warrants
Exhibit B Summary of Certain Principal Terms and Conditions
of New Class B Warrants
Exhibit C Summary of Certain Principal Terms and Conditions
of New Class C Warrants
Exhibit D Summary of Certain Principal Terms and Conditions
of New Employee Stock Options
Exhibit E List of Deferred Payment Tax Claims
Exhibit F Quantity of Shares of New Common Stock to be
Received as of the Effective Date by Holders of
Allowed Senior Claims
Exhibit G List of Executory Contracts Assumed
Exhibit H List of Executory Contracts Rejected
Exhibit I Members of Initial Board of Directors of
Reorganized Debtor
Page v
<PAGE>
LAMONTS APPAREL, INC., a Delaware corporation, as debtor and debtor in
possession, proposes the following chapter 11 plan pursuant to section 1121(a)
of the Bankruptcy Code. The Disclosure Statement which accompanies the Plan
discusses the Debtor's history, business, properties, and results of operations
and contains a summary and discussion of the Plan. Holders of Claims and Equity
Interests are encouraged to read the Disclosure Statement before voting to
accept or reject the Plan.
I.
DEFINITIONS AND RULES OF CONSTRUCTION
A. DEFINED TERMS.
As used herein, the following terms have the respective meanings
specified below, unless the context otherwise requires (such meanings to be
equally applicable to both the singular and plural, and masculine and feminine,
forms of the terms defined):
1. "ALLOWED ADMINISTRATIVE EXPENSE" means any cost or expense of
administration of the Chapter 11 Case allowed under sections 503(b) and
507(a)(1) of the Bankruptcy Code, including, without limitation, any actual and
necessary postpetition expenses of preserving the estate of the Debtor, any
actual and necessary postpetition expenses of operating the business of the
Debtor in Possession, all compensation or reimbursement of expenses to the
extent allowed by the Bankruptcy Court under section 330, 331, or 503 of the
Bankruptcy Code, and
Page 1
<PAGE>
any fees or charges assessed against the estate of the Debtor under section
1930 of title 28 of the United States Code.
2. "ALLOWED CLAIM" and "ALLOWED EQUITY INTEREST" mean,
respectively, except as otherwise provided herein, a Claim or an Equity
Interest, proof of which was timely and properly filed or, if no proof of
claim or proof of interest was filed, which has been or hereafter is listed
by the Debtor on its Schedules as liquidated in amount and not disputed or
contingent, and, in either case, as to which no objection to the allowance
thereof has been interposed on or before the later of (i) the sixtieth day
after the Effective Date, or (ii) the sixtieth day after proof of such Claim
or Equity Interest is filed, or (iii) such other applicable period of
limitation as may be fixed or extended by the Bankruptcy Court, or as to
which any objection has been determined by a Final Order to the extent such
objection is determined in favor of the respective holder. Unless otherwise
specified herein or by order of the Bankruptcy Court, "Allowed Claim" shall
not include interest on such Claim accruing after the Petition Date.
3. "AMENDED AND RESTATED CERTIFICATE OF INCORPORATION" means the
Second Restated Certificate of Incorporation of the Reorganized Debtor which
shall be substantially in the form set forth in the Plan Documentary Supplement.
4. "AMENDED AND RESTATED BYLAWS" means the Amended and Restated
Bylaws of the Reorganized Debtor which shall be
Page 2
<PAGE>
substantially in the form set forth in the Plan Documentary Supplement.
5. "BANKRUPTCY CODE" means Title I of the Bankruptcy Reform Act of
1978, as amended, set forth in sections 101 et seq. of title 11 of the United
States Code, as applicable to the Chapter 11 Case.
6. "BANKRUPTCY COURT" means the United States District Court for
the Western District of Washington, at Seattle, having jurisdiction over the
Chapter 11 Case and, to the extent of any reference made pursuant to section
157 of title 28 of the United States Code, the unit of such District Court
pursuant to section 151 of title 28 of the United States Code; or, in the
event such court ceases to exercise jurisdiction over the Chapter 11 Case,
such court or unit thereof that exercises jurisdiction over the Chapter 11
Case in lieu thereof.
7. "BANKRUPTCY RULES" means, collectively, (i) the Federal Rules of
Bankruptcy Procedure, as amended from time to time, as applicable to the
Chapter 11 Case, and (ii) the Local Bankruptcy Rules applicable to cases pending
before the Bankruptcy Court, as now in effect or hereafter amended.
8. "BUSINESS DAY" means any day which is not a Saturday, a Sunday,
or a "legal holiday" as defined in Bankruptcy Rule 9006(a).
9. "CASH" means cash or cash equivalents.
10. "CASH RESERVE" means the bank account or accounts referred to in
Section V.A of the Plan.
Page 3
<PAGE>
11. "CHAPTER 11 CASE" means the case under chapter 11 of the
Bankruptcy Code, commenced by the Debtor on the Petition Date, styled "In re
Lamonts Apparel, Inc.", and assigned Case No. 95-00100.
12. "CLAIM" means (a) any right to payment from the Debtor, whether
or not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured, or unsecured, or (b) any right to an equitable remedy for breach of
performance if such breach gives rise to a right of payment from the Debtor,
whether or not such right to an equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured, disputed, undisputed, secured, or
unsecured.
13. "CLOSING PRICE" has the meaning referred to in Section II.B of
the Plan.
14. "COMMITTEES" means, collectively, the Official Committee of
Creditors Holding Unsecured Claims, the Official Committee of Bondholders,
and the Official Committee of Equity Security Holders, each as appointed by
the Office of the United States Trustee pursuant to section 1102 of the
Bankruptcy Code to serve in the Chapter 11 Case.
15. "CONFIRMATION DATE" means the date on which the Clerk of the
Bankruptcy Court enters the Confirmation Order on its docket.
Page 4
<PAGE>
16. "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan in accordance with the provisions of chapter 11 of the
Bankruptcy Code.
17. "CURE PAYMENT" has the meaning referred to in Section VI.A of
the Plan.
18. "DEBTOR" means Lamonts Apparel, Inc., a Delaware corporation.
19. "DEBTOR IN POSSESSION" means the Debtor when acting in the
capacity of representative of the estate in the Chapter 11 Case.
20. "DEFERRED PAYMENT TAX CLAIM" has the meaning referred to in
Section II.C of the Plan.
21. "DISBURSING AGENT" means the Reorganized Debtor in its
fiduciary capacity as the agent to hold and distribute the consideration to
be distributed to holders of Allowed Administrative Expenses, Allowed Claims,
and Allowed Equity Interests pursuant to the Plan, the Confirmation Order, or
such other order as may be entered by the Bankruptcy Court. The Disbursing
Agent may employ or contract with other entities to assist in or perform the
distribution of property. The Disbursing Agent will serve without bond.
22. "DISPUTED ADMINISTRATIVE EXPENSE", "DISPUTED CLAIM", AND
"DISPUTED EQUITY INTEREST" mean any Administrative Expense, Claim, or Equity
Interest, as the case may be, (i) which is listed in the Schedules as
unliquidated, disputed, contingent, and/or unknown, or (ii) as to which the
Debtor, any
Page 5
<PAGE>
of the Committees, or any other party in interest has interposed a timely
objection or request for estimation in accordance with the Bankruptcy Code
and the Bankruptcy Rules, which objection or request for estimation has not
been withdrawn or determined by a Final Order.
23. "DISTRIBUTION RESERVE" means the reserve referred to in Section
IV.A of the Plan.
24. "EFFECTIVE DATE" means the later of (i) the first Business Day
(a) on which no stay of the Confirmation Order is and remains in effect and
(b) that is at least one business day after the date on which the conditions
specified in Section VII.A of the Plan have been satisfied or waived, and
(ii) January 31, 1998.
25. "EQUITY INTEREST" means any equity interest in the Debtor
represented by the Old Common Stock.
26. "FINAL ORDER" means an order or judgment of the Bankruptcy
Court or other applicable court as to which the time to appeal, petition for
certiorari, or move for reargument or rehearing has expired and as to which
no appeal, petition for certiorari, or other proceedings for reargument or
rehearing shall then be pending or as to which any right to appeal, petition
for certiorari, reargue, or rehear shall have been waived in writing in form
and substance satisfactory to the Debtor or, in the event that an appeal,
writ of certiorari, or reargument or rehearing thereof has been sought, such
order or judgment of the Bankruptcy Court or other applicable court shall
have been
Page 6
<PAGE>
affirmed by the highest court to which such order or judgment was appealed,
or certiorari has been denied, or from which reargument or rehearing was
sought, and the time to take any further appeal, petition for certiorari or
move for reargument or rehearing shall have expired.
27. "FNBB" means, collectively, BankBoston, N.A. (formerly known as
"The First National Bank of Boston"), a national banking association, and
certain other financial institutions specified as the lenders under the FNBB
Facility.
28. "FNBB CLAIM" means all "Obligations" to FNBB and the Surety as
defined in and arising under the FNBB Facility, including without limitation
any unpaid accrued interest, fees, costs, and charges.
29. "FNBB FACILITY" means that certain "Amended and Restated Debtor
in Possession and Exit Financing Loan Agreement", dated as of September 26,
1997, as it may be amended from time to time, by and among the Debtor and
FNBB, and all ancillary documents, instruments, and agreements referred to
therein, and the orders with respect thereto entered in the Chapter 11 Case.
30. "FNBB LIENS" has the meaning referred to in Section V.K of the
Plan.
31. "GENERAL UNSECURED CLAIM" means any Claim that is not a Secured
Claim, Administrative Expense, Priority Tax Claim, or Other Priority Claim.
Page 7
<PAGE>
32. "GORDIAN" has the meaning referred to in Section II.B of the
Plan.
33. "GORDIAN STIPULATION" has the meaning referred to in Section II.B
of the Plan.
34. "GORDIAN WARRANTS" has the meaning referred to in Section II.B of
the Plan.
35. "NEW BOARD" has the meaning referred to in Section V.G of the
Plan.
36. "NEW CLASS A WARRANTS" means certain warrants exercisable for
the purchase of 2,203,320 shares of New Common Stock, in the aggregate, to be
issued and distributed pursuant to Section V.B of the Plan as of the
Effective Date. A summary of certain of the principal terms and conditions
of the New Class A Warrants is set forth in Exhibit A to the Plan. The
certificates for the New Class A Warrants shall be substantially in the form
set forth in the Plan Documentary Supplement. The New Class A Warrants shall
be governed in all respects by the New Class A/Class B Warrant Agreement
substantially in the form set forth in the Plan Documentary Supplement.
37. "NEW CLASS B WARRANTS" means certain warrants exercisable for
the purchase of 800,237 shares of New Common Stock, in the aggregate, to be
issued and distributed pursuant to Section V.B of the Plan as of the
Effective Date. A summary of certain of the principal terms and conditions
of the New Class B Warrants is set forth in Exhibit B to the Plan. The
certificates for the New Class B Warrants shall be substantially
Page 8
<PAGE>
in the form set forth in the Plan Documentary Supplement. The New Class B
Warrants shall be governed in all respects by the New Class A/Class B Warrant
Agreement substantially in the form set forth in the Plan Documentary
Supplement.
38. "NEW CLASS C WARRANTS" means certain warrants
exercisable for the purchase of 3,810,653 shares of New Common Stock, in the
aggregate, to be issued and distributed pursuant to Section V.B of the Plan
as of the Effective Date. A summary of certain of the principal terms and
conditions of the New Class C Warrants is set forth in Exhibit C to the Plan.
The certificates for the New Class C Warrants shall be substantially in the
form set forth in the Plan Documentary Supplement. The New Class C Warrants
shall be governed in all respects by the New Class C Warrant Agreement
substantially in the form set forth in the Plan Documentary Supplement.
39. "NEW COMMON STOCK" means shares of the Class A Common Stock of
the Reorganized Debtor, par value $.01 per share, authorized pursuant to the
Amended and Restated Certificate of Incorporation. 9,000,000 of such
authorized shares of New Common Stock shall be issued and distributed
pursuant to Section V.B of the Plan as of the Effective Date. The
certificates for the New Common Stock shall be substantially in the form set
forth in the Plan Documentary Supplement.
40. "NEW EMPLOYEE STOCK OPTIONS" means those options to purchase New
Common Stock to be issued to certain employees of the Reorganized Debtor
pursuant to Section V.G of the Plan.
Page 9
<PAGE>
A summary of certain principal terms and conditions of the New Employee Stock
Options is set forth in Exhibit D to the Plan. The New Employee Stock
Options shall be governed in all respects by the Employee Stock Option Plan
substantially in the form set forth in the Plan Documentary Supplement.
41. "NEW SPECIAL VOTING COMMON STOCK" means shares of the Class B
Common Stock of the Reorganized Debtor, par value $.01 per share, authorized
pursuant to the Amended and Restated Certificate of Incorporation. 10 shares of
New Special Voting Common Stock, representing all of the authorized shares of
the New Special Voting Common Stock, shall be issued and distributed pursuant to
Section V.B of the Plan as of the Effective Date. The certificates for the New
Special Voting Common Stock shall be substantially in the form set forth in the
Plan Documentary Supplement.
42. "NEW WARRANTS" means, collectively, the New Class A Warrants and
the New Class B Warrants.
43. "NORMALIZED SHARE PRICE" has the meaning referred to in Section
II.B of the Plan.
44. "OLD COMMON STOCK" means the issued and outstanding shares of
common stock of the Debtor, par value $.01 per share, prior to the Effective
Date, and all rights and interests arising thereunder.
45. "OLD EMPLOYEE STOCK OPTIONS" means those options to purchase Old
Common Stock of the Debtor which were previously
///
Page 10
<PAGE>
granted by the Debtor and are outstanding as of the Effective Date, and all
rights and interests arising thereunder.
46. "OLD 10-1/4% NOTES" means the Debtor's 10-1/4% Subordinated
Notes due 1999, and all rights and Claims arising thereunder.
47. "OLD 13-1/2% NOTES" means the Debtor's 13-1/2% Senior
Subordinated Guaranteed Notes due 1995, and all rights and Claims arising
thereunder.
48. "OLD WARRANTS" means warrants for the purchase of Old Common
Stock which were previously issued by the Debtor and are outstanding as of the
Effective Date, and all rights and interests arising thereunder.
49. "OTHER PRIORITY CLAIM" means any Claim accorded priority in
right of payment under section 507(a) of the Bankruptcy Code, other than a
Priority Tax Claim or an Administrative Expense.
50. "OTHER SECURED CLAIM" means any Secured Claim other than the FNBB
Claim.
51. "PETITION DATE" means January 6, 1995, the date on which the
Debtor filed its voluntary petition commencing the Chapter 11 Case.
52. "PLAN" means this chapter 11 plan of reorganization, including
all exhibits thereto and all documents incorporated by reference to the Plan
Documentary Supplement, either in their present form or as they may be altered,
amended, or modi-
///
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<PAGE>
fied from time to time in accordance with the Bankruptcy Code and Bankruptcy
Rules.
53. "PLAN DOCUMENTARY SUPPLEMENT" means the compilation of the forms
of certain documents referred to herein as specified in Section I.C of the Plan,
as amended.
54. "PRIORITY TAX CLAIM" means a Claim of a governmental unit of the
kind specified in section 507(a)(8) of the Bankruptcy Code.
55. "PRIOR DISCLOSURE STATEMENT" has the meaning referred to in
Section V.E.1 of the Plan.
56. "PRIOR PLAN" has the meaning referred to in Section V.E.1 of the
Plan.
57. "PRO RATA SHARE" and "PRO RATA BASIS" mean a proportionate share,
so that the ratio of the consideration distributed on account of an Allowed
Claim or Allowed Equity Interest to the amount of the Allowed Claim or Allowed
Equity Interest is the same as the ratio of the amount of the consideration
distributed on account of all Allowed Claims or Allowed Equity Interests in such
class to the amount of all Allowed Claims or Allowed Equity Interests in that
class.
58. "REORGANIZED DEBTOR" means the Debtor and Debtor in Possession,
or any successor thereto by merger, consolidation, or otherwise, on and after
the Effective Date.
59. "SCHEDULES" means the schedules of assets and liabilities and
list of equity security holders filed by the Debtor as required by
section 521(1) of the Bankruptcy Code,
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Bankruptcy Rules 1007(a)(3) and (b)(1), and Official Bankruptcy Form No. 6,
as amended from time to time.
60. "SECURED CLAIM" means (i) an Allowed Claim against the Debtor to
the extent of the value, as determined by the Bankruptcy Court pursuant to
section 506(a) of the Bankruptcy Code, of any interest in property of the
estate securing such Allowed Claim, and (ii) the FNBB Claim.
61. "SENIOR CLAIM" has the meaning referred to in Section V.E.1 of
the Plan.
62. "SENIOR INDEBTEDNESS" has the meaning referred to in Section
V.E.2 of the Plan.
63. "SURETY" means the Surety as defined in the FNBB Facility.
B. OTHER TERMS.
The words "herein," "hereof," "hereto," "hereunder," and others of
similar import refer to the Plan as a whole and not to any particular section,
subsection, or clause contained in the Plan. A term used herein that is not
defined herein shall have the meaning ascribed to that term, if any, in the
Bankruptcy Code or Bankruptcy Rules and shall be construed in accordance with
the rules of construction thereunder.
C. PLAN DOCUMENTARY SUPPLEMENT.
Forms of certain documents referred to herein are contained in a
separate Plan Documentary Supplement, as amended, which is on file with the
Clerk of the Bankruptcy Court. The Plan Documentary Supplement may be inspected
in the office of
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the Clerk of the Bankruptcy Court during normal court hours. Holders of
Claims or Equity Interests may obtain a copy of the Plan Documentary
Supplement or excerpts therefrom upon written request to the Debtor.
D. EXHIBITS.
All exhibits to the Plan and all documents contained in the Plan
Documentary Supplement are incorporated into and are a part of the Plan as if
set forth in full herein.
II.
CLASSIFICATION AND TREATMENT OF
CLAIMS AND EQUITY INTERESTS
A. SUMMARY.
The categories of Claims and Equity Interests listed below classify
Allowed Claims and Allowed Equity Interests for all purposes, including voting,
confirmation, and distribution pursuant to the Plan:
CLASS STATUS
----- ------
CLASS 1: Other Priority Impaired - entitled to vote.
Claims
CLASS 2: FNBB Claim Unimpaired - not entitled to vote.
CLASS 3: Other Secured Unimpaired - not entitled to vote.
Claims
CLASS 4: General Impaired - entitled to vote.
Unsecured Claims
CLASS 5: Equity Interests Impaired - entitled to vote.
Interests
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<PAGE>
B. ADMINISTRATIVE EXPENSES.
The Disbursing Agent shall pay each Allowed Administrative Expense in
full, in Cash, on the later of the Effective Date or the date such
Administrative Expense becomes an Allowed Administrative Expense or as soon
thereafter as is practicable, except to the extent that the holder of an Allowed
Administrative Expense agrees to a different treatment; provided, however, that
Allowed Administrative Expenses representing obligations incurred in the
ordinary course of postpetition business by the Debtor in Possession (including
without limitation postpetition trade obligations, routine postpetition payroll
obligations, and postpetition tax obligations) shall be paid in full or
performed by the Reorganized Debtor in the ordinary course of business.
All applications for final compensation of professional persons for
services rendered and for reimbursement of expenses incurred on or before the
Effective Date and all other requests for payment of Administrative Expenses
incurred before the Effective Date under sections 507(a)(1) or 507(b) of the
Bankruptcy Code (except only for (i) postpetition trade obligations and routine
postpetition payroll obligations incurred in the ordinary course of the Debtor's
postpetition business and (ii) obligations under section 1930 of title 28 of the
United States Code) shall be filed no later than 60 days after the Effective
Date, unless such date is extended by the Bankruptcy Court after notice to the
Reorganized Debtor. Any such request for Administrative Expense that is not
filed within this dead-
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<PAGE>
line shall be forever barred; and any holders of Administrative Expenses who
are required to file a request for payment of such Administrative Expenses
who do not file such requests by such deadline shall be forever barred from
asserting such Administrative Expenses against the Debtor, the Reorganized
Debtor, the estate, or any of their property.
In accordance with the "Stipulation re Employment of Gordian Group,
L.P.; and Order Thereon" (the "Gordian Stipulation") which was approved by the
Bankruptcy Court on October 11, 1996, Gordian Group, L.P. ("Gordian") will be
issued, on the 120th calendar day following the Effective Date, in exchange for
its Administrative Expense Claim for compensation for services rendered as
investment banker for the Debtor in Possession, warrants (the "Gordian
Warrants") for the purchase of New Common Stock. The term of the Gordian
Warrants will be 5 years from their issuance date. The number of shares of New
Common Stock for which the Gordian Warrants will be exercisable in the aggregate
will be equal to 200,000 divided by the "Normalized Share Price". The exercise
price will be the Normalized Share Price per share. The Normalized Share Price
will be equal to the average of the "Closing Prices" of New Common Stock for the
45 trading days commencing on the 45th calendar day following the Effective
Date. For purposes of determining the Normalized Share Price, the Closing Price
will mean (i) the closing sales price per share on the national securities
exchange on which the New Common Stock is principally traded, or (ii) if the
shares
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are then traded in an over-the-counter market, the average of the closing
bid and asked prices on such market, or (iii) if the shares are not then traded
on a national securities exchange or in an over-the-counter market, then such
value as the Board of Directors of the Reorganized Debtor shall in good faith
reasonably determine; if Gordian disagrees with such determination, then an
investment banking firm shall be mutually agreed upon, engaged, and compensated
by the Reorganized Debtor for a definitive determination of the Normalized Share
Price. The securities law exemption of section 1145 of the Bankruptcy Code will
apply to the Gordian Warrants and the securities issued upon exercise thereof.
The Gordian Warrants shall be governed in all respects by the Gordian Warrant
Agreement substantially in the form set forth in the Plan Documentary Supplement
and by the Gordian Stipulation. The obligations of the Debtor and Gordian under
the Gordian Stipulation shall survive confirmation of the Plan and shall
continue in effect after the Effective Date.
Any professional fees or reimbursement of expenses incurred by the
Reorganized Debtor subsequent to the Effective Date may be paid by the
Reorganized Debtor without application to the Bankruptcy Court.
C. PRIORITY TAX CLAIMS.
The Disbursing Agent shall pay each Allowed Priority Tax Claim, except
those Allowed Priority Tax Claims listed on Exhibit E to the Plan, in full, in
Cash, on the Effective Date or as soon thereafter as is practicable, except to
the extent
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<PAGE>
that the holder of an Allowed Priority Tax Claim agrees to a different
treatment. Each holder of an Allowed Priority Tax Claim listed on Exhibit E
to the Plan (a "Deferred Payment Tax Claim") shall instead receive on account
of such Claim deferred Cash payments over a period not exceeding six years
after the date of assessment of such Claim, of a value, as of the Effective
Date, equal to the amount of such Allowed Priority Tax Claim, as provided in
section 1129(a)(9)(C) of the Bankruptcy Code. The Deferred Payment Tax
Claims shall be paid in equal installments of principal, with the first of
such installments to be made three months after the later of (i) the
Effective Date and (ii) the date on which an order allowing such Claim
becomes a Final Order, and with each successive installment to be made at
three month intervals thereafter. Interest will accrue on the unpaid
principal balance of such Claim from and after the Effective Date at the
interest rate specified by the applicable tax law for delay in the payment of
taxes (including, as applicable, sections 6621 and 6622 of the Internal
Revenue Code), without penalty, unless a different rate is specified by the
Bankruptcy Court after notice thereof to the claimant and the Debtor and a
hearing, and will be payable in arrears at the time of payment of each
principal installment. Any Deferred Payment Tax Claim may be prepaid at any
time without penalty or premium, and any such prepayments shall be applied to
future principal installments in order of maturity. The Deferred Payment Tax
Claim of the United States of America on behalf of the
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<PAGE>
Internal Revenue Service shall be further governed by the "Stipulation re
Resolution of Objection to Plan by United States Internal Revenue Service" filed
in the Chapter 11 Case. Allowed Priority Tax Claims shall not include any
interest accruing subsequent to the Petition Date or any penalties, and all
postpetition interest and all penalties shall be disallowed.
D. CLASSIFICATION AND TREATMENT.
CLASS 1: OTHER PRIORITY CLAIMS.
1. CLASSIFICATION: Class 1 consists of all Claims entitled to
priority in right of payment under section 507(a) of the Bankruptcy Code, except
Priority Tax Claims and Administrative Expenses.
2. TREATMENT: The Disbursing Agent shall pay all Allowed Claims in
this class in full, in Cash, on the Effective Date or as soon thereafter as is
practicable, except to the extent that the holder of any such Claim agrees to a
different treatment. Class 1 is impaired, and the holders of Claims in Class 1
are entitled to vote to accept or reject the Plan.
CLASS 2: FNBB CLAIM.
1. CLASSIFICATION: Class 2 consists of the FNBB Claim.
2. TREATMENT: The FNBB Claim, including without limitation any
unpaid accrued interest, fees, costs, and charges, shall be paid in accordance
with all of the provisions of the FNBB Facility, and all of the legal,
equitable, and contractual rights to which FNBB and the Surety are entitled
under
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<PAGE>
the FNBB Facility shall be left unaltered. As provided under the FNBB
Facility, on the Effective Date or as soon thereafter as is practicable, the
Surety shall receive, in partial exchange for its Class 2 Claim, both of the
following: (i) New Class C Warrants exercisable for the purchase of
3,429,588 shares of New Common Stock, and (ii) 10 shares of New Special
Voting Common Stock, representing all of the authorized shares of the New
Special Voting Common Stock. In addition, as of the Effective Date, the
Surety shall be entitled to the benefits of the Grant of Registration Rights
contained in the Plan Documentary Supplement, which shall be deemed an
obligation of the Reorganized Debtor, subject to the limitations contained
therein. Class 2 is unimpaired, and the holders of the Class 2 Claim are not
entitled to vote to accept or reject the Plan. However, under the terms of
the FNBB Facility, the Debtor is required to obtain both FNBB's and the
Surety's written approval of the Plan.
CLASS 3: OTHER SECURED CLAIMS.
1. CLASSIFICATION: Class 3 consists of Other Secured Claims.
2. TREATMENT: Any defaults with respect to an Allowed Other Secured
Claim that occurred either before or after the Petition Date, other than
defaults of a kind specified in section 365(b)(2) of the Bankruptcy Code, shall
be cured on the Effective Date; the maturity of each such Claim shall be
reinstated as the maturity existed before any defaults; the holder of each such
Claim shall be compensated on the Effective Date
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<PAGE>
for any damages incurred as a result of any reasonable reliance by such
holder on any contractual provision or applicable law that entitled the
holder to accelerate maturity of the Claim; and the other legal, equitable,
and contractual rights of the holder of such Allowed Other Secured Claim
shall not be otherwise altered. Class 3 is unimpaired, and the holders of
Claims in Class 3 are not entitled to vote to accept or reject the Plan.
CLASS 4: GENERAL UNSECURED CLAIMS.
1. CLASSIFICATION: Class 4 consists of General Unsecured Claims.
2. TREATMENT: On the Effective Date or as soon thereafter as is
practicable, each holder of an Allowed General Unsecured Claim shall receive, in
exchange for and satisfaction of such Claim, all of the following: (i) its Pro
Rata Share of 8,800,000 shares of New Common Stock, (ii) its Pro Rata Share of
New Class A Warrants exercisable for the purchase of 2,203,320 shares of New
Common Stock, and (iii) its Pro Rata Share of New Class B Warrants exercisable
for the purchase of 700,237 shares of New Common Stock. In addition, as of the
Effective Date, certain holders of the New Common Stock and New Warrants shall
be entitled to the benefits of the Grant of Registration Rights contained in the
Plan Documentary Supplement, which shall be deemed an obligation of the
Reorganized Debtor, subject to the limitations contained therein. All
distributions on account of Old 10-1/4% Notes and Old 13-1/2% Notes shall be
deemed allocated to
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<PAGE>
the principal amount thereof, and no portion of such distributions shall be
allocated to any accrued interest on the Old 10-1/4% Notes or the Old 13-1/2%
Notes. Class 4 is impaired, and the holders of Allowed Class 4 Claims are
entitled to vote to accept or reject the Plan.
CLASS 5: EQUITY INTERESTS.
1. CLASSIFICATION: Class 5 consists of the Equity Interests in the
Debtor.
2. TREATMENT: On the Effective Date or as soon thereafter as is
practicable, each holder of record as of the Effective Date of an Allowed Equity
Interest shall receive, in exchange for and satisfaction of such Equity
Interest, both of the following: (i) its Pro Rata Share of 200,000 shares of
New Common Stock, and (ii) its Pro Rata Share of New Class B Warrants
exercisable for the purchase of 100,000 shares of New Common Stock. In
addition, as of the Effective Date, certain holders of the New Common Stock and
New Warrants shall be entitled to the benefits of the Grant of Registration
Rights contained in the Plan Documentary Supplement, which shall be deemed an
obligation of the Reorganized Debtor, subject to the limitations contained
therein. Class 5 is impaired, and the holders of Allowed Class 5 Interests are
entitled to vote to accept or reject the Plan.
///
///
///
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<PAGE>
III.
ACCEPTANCE OR REJECTION OF THE PLAN
A. VOTING CLASSES.
Each holder of an Allowed Claim or Allowed Equity Interest in Class 1,
4, or 5 shall be entitled to vote to accept or reject the Plan.
B. VOTING RIGHTS OF HOLDERS OF DISPUTED CLAIMS.
Pursuant to Bankruptcy Rule 3018(a), a Disputed Claim will not be
counted for purposes of voting on the Plan to the extent it is disputed, unless
an order of the Bankruptcy Court is entered after notice and a hearing
temporarily allowing the Disputed Claim for voting purposes under Bankruptcy
Rule 3018(a). Such disallowance for voting purposes is without prejudice to the
claimant's right to seek to have its Disputed Claim allowed for purposes of
distribution under the Plan.
C. ACCEPTANCE BY IMPAIRED CLASSES.
An impaired class of Claims shall have accepted the Plan if (i) the
holders (other than any holder designated under section 1126(e) of the
Bankruptcy Code) of at least two-thirds in dollar amount of the Allowed
Claims actually voting in such class have voted to accept the Plan and (ii)
more than one-half in number of the holders (other than any holder designated
under section 1126(e) of the Bankruptcy Code) of such Allowed Claims actually
voting in such class have voted to accept the Plan. An impaired class of
Equity Interests shall have accepted the Plan if the holders (other than any
holder designated under section
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<PAGE>
1126(e) of the Bankruptcy Code) of at least two-thirds in amount of the
Allowed Equity Interests actually voting in such class have voted to accept
the Plan.
D. PRESUMED ACCEPTANCE OF PLAN.
Class 2 and Class 3 are unimpaired under the Plan and, therefore, are
conclusively presumed by the Bankruptcy Code to accept the Plan. However, to
comply with the terms of the FNBB Facility, the Debtor is required to obtain
both FNBB's and the Surety's written approval of the Plan.
E. NONCONSENSUAL CONFIRMATION.
In the event that any impaired class of Claims or Equity Interests
shall fail to accept the Plan in accordance with section 1129(a)(8) of the
Bankruptcy Code, the Debtor reserves the right to (i) request that the
Bankruptcy Court confirm the Plan in accordance with section 1129(b) of the
Bankruptcy Code, and/or (ii) modify the Plan in accordance with section 1127(a)
of the Bankruptcy Code.
IV.
PROVISIONS FOR TREATMENT OF DISPUTED, CONTINGENT,
OR UNLIQUIDATED CLAIMS, EQUITY INTERESTS,
AND ADMINISTRATIVE EXPENSES
A. RESERVE FOR DISPUTED OTHER PRIORITY CLAIMS,
DISPUTED PRIORITY TAX CLAIMS, AND DISPUTED
ADMINISTRATIVE EXPENSES.
On the Effective Date or as soon thereafter as is practicable, the
Disbursing Agent shall establish such reserve (the "Distribution Reserve"),
if any, as the Bankruptcy Court
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<PAGE>
may require after notice and a hearing, on account of particular Disputed
Other Priority Claims, Disputed Priority Tax Claims, and Disputed
Administrative Expenses. Any such Distribution Reserve shall be held in
trust for the benefit of holders of such Disputed Other Priority Claims,
Disputed Priority Tax Claims, Disputed Administrative Expenses, and the
Reorganized Debtor, as their respective interests may appear, pending
determination of their respective entitlement thereto. No reserve shall be
required for any Disputed Claim or Disputed Administrative Expenses to the
extent of any effective insurance coverage therefor. Any Distribution
Reserve shall be distributed in accordance with the Plan by the Disbursing
Agent to the holder of any Disputed Other Priority Claim, Disputed Priority
Tax Claim, or Disputed Administrative Expense for which a reserve has been
required by the Bankruptcy Court to the extent that such Disputed Other
Priority Claim, Disputed Priority Tax Claim, or Disputed Administrative
Expense becomes an Allowed Claim or an Allowed Administrative Expense
pursuant to a Final Order. To the extent that such a Disputed Other Priority
Claim, Disputed Priority Tax Claim, or Disputed Administrative Expense
ultimately is disallowed or allowed in an amount less than the amount of the
Disputed Other Priority Claim, Disputed Priority Tax Claim, or Disputed
Administrative Expense, any resulting surplus in the Distribution Reserve
shall be transferred from the Distribution Reserve to the Reorganized Debtor
by the Disbursing Agent.
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<PAGE>
B. ALLOWANCE OF CLAIMS OF HOLDERS OF RECORD OF
OLD 10-1/4% NOTES AND OF HOLDERS OF RECORD OF OLD
13-1/2% NOTES; RESERVE FOR DISPUTES.
Each beneficial owner of Old 10-1/4% Notes or of Old 13-1/2% Notes
of record as of the Effective Date shall, for purposes of distributions under
the Plan, be deemed to have an Allowed Class 4 Claim and need not file a
proof of claim with respect thereto. In the event any entity that is neither
the record holder as of the Effective Date of an Old 10-1/4% Note or of an
Old 13-1/2% Note nor the beneficial owner with respect thereto shall file a
proof of right to record status pursuant to Bankruptcy Rule 3003(d), the
Disbursing Agent shall establish such reserve, if any, as may be ordered by
the Bankruptcy Court on account of any objection thereto. Such reserve shall
be held in trust for the holder of such Disputed Class 4 Claim. To the
extent such Disputed Class 4 Claim is disallowed, any reserve pertaining to
such Disputed Class 4 Claim shall be distributed to all holders of Allowed
Class 4 Claims on a Pro Rata Basis, subject to redistribution pursuant to
Section V.E of the Plan.
C. ALLOWANCE OF INTERESTS OF HOLDERS OF RECORD OF
OLD COMMON STOCK; RESERVE FOR DISPUTES.
Each beneficial owner of Old Common Stock of record as of the
Effective Date shall be deemed to have an Allowed Class 5 Interest for the
number of such shares of record for purposes of distributions under the Plan
and need not file a proof of interest with respect thereto. In the event any
entity that is neither the record holder as of the Effective Date of Old Common
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Stock nor the beneficial owner with respect thereto shall file a proof of
right to record status pursuant to Bankruptcy Rule 3003(d), the Disbursing
Agent shall establish such reserve, if any, as may be ordered by the
Bankruptcy Court on account of any objection thereto. Such reserve shall be
held in trust for the holder of such Disputed Class 5 Interest. To the
extent such Disputed Class 5 Interest is disallowed, any reserve pertaining
to such Disputed Class 5 Interest shall be distributed to all holders of
Allowed Class 5 Interests on a Pro Rata Basis.
D. RESERVE FOR DISPUTED GENERAL UNSECURED CLAIMS.
Shares of New Common Stock and New Warrants which would otherwise be
issued and distributed on account of Disputed General Unsecured Claims pursuant
to Section II.D of the Plan shall instead be issued in the name of the
Disbursing Agent. Such shares and warrants, together with any dividends and
distributions thereon, shall be held in trust by the Disbursing Agent and
reserved for the benefit of holders of such Disputed General Unsecured Claims
pending determination of their entitlement thereto, but shall not be voted by
the Disbursing Agent. The Debtor or any of the Committees shall have the right
to seek an order of the Bankruptcy Court, after notice and a hearing, estimating
or limiting the amount of such Claims for which such shares and warrants must be
so reserved. No reserve shall be required for any Disputed General Unsecured
Claim to the extent of any effective insurance coverage therefor. Such shares
and warrants so reserved shall be distributed by the Disbursing
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<PAGE>
Agent to a holder of a Disputed General Unsecured Claim to the extent that
such Disputed General Unsecured Claim becomes an Allowed General Unsecured
Claim pursuant to a Final Order. To the extent that such a Disputed General
Unsecured Claim ultimately is disallowed or allowed in an amount less than
the amount for which such shares and warrants have been reserved, the
resulting surplus shares of New Common Stock and surplus New Warrants shall
be distributed by the Disbursing Agent from time to time to holders of
Allowed General Unsecured Claims as their respective interests appear.
Pending the resolution of objections to Disputed General Unsecured Claims,
the Disbursing Agent shall, from time to time and to the extent practicable
under the circumstances, make distributions to holders of Allowed General
Unsecured Claims of shares of New Common Stock and New Warrants which are not
reserved for holders of Disputed General Unsecured Claims.
E. RESOLUTION OF DISPUTED CLAIMS,
DISPUTED EQUITY INTERESTS, AND
DISPUTED ADMINISTRATIVE EXPENSES.
The Reorganized Debtor and each of the Committees shall have the right
to make and file objections to Claims, to Equity Interests, and to
Administrative Expenses, and shall serve a copy of each objection upon the
holder of the Claim, Equity Interest, or Administrative Expense to which the
objection is made, on or before the later of (i) the sixtieth day after the
Effective Date, or (ii) the sixtieth day after proof of such Claim or Equity
Interest or request for payment of such
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Administrative Expense is filed, or (iii) such other applicable period of
limitation as may be fixed or extended by the Bankruptcy Court.
V.
IMPLEMENTATION OF THE PLAN
A. FUNDING OF CASH PAYMENTS.
On the Effective Date or as soon thereafter as is practicable, the
Debtor shall deposit into a cash reserve an amount, in Cash, equal to the
aggregate amount of Cash to be distributed as of the Effective Date under the
Plan (the "Cash Reserve"). All distributions of Cash under the Plan shall be
made by the Disbursing Agent from the Cash Reserve, except as otherwise required
to be made from the Distribution Reserve as set forth in Section IV hereof. Any
surplus funds in the Cash Reserve shall be transferred from the Cash Reserve to
the Reorganized Debtor by the Disbursing Agent.
B. ISSUANCE OF NEW SECURITIES.
On the Effective Date or as soon thereafter as is practicable, the
Reorganized Debtor shall be deemed empowered to issue and shall issue (i)
9,000,000 shares of New Common Stock, (ii) New Class A Warrants exercisable for
the purchase of 2,203,320 shares of New Common Stock, (iii) New Class B Warrants
exercisable for the purchase of 800,237 shares of New Common Stock, (iv) New
Class C Warrants exercisable for the purchase of 3,810,653 shares of New Common
Stock, and (v) 10 shares of New
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<PAGE>
Special Voting Common Stock; and on the 120th day following the Effective
Date, the Reorganized Debtor shall be deemed empowered to issue and shall
issue the Gordian Warrants. All such securities shall be distributed in
accordance with the provisions of the Plan.
C. CANCELLATION OF EXISTING SECURITIES AND REJECTION
OF RELATED AGREEMENTS.
On the Effective Date, (i) the Old 10-1/4% Notes, the Old 13-1/2%
Notes, and the Old Common Stock shall each be deemed canceled, and (ii) the
Old Employee Stock Options, the Old Warrants, and the obligations of the
Debtor under the respective indentures governing the Old 10-1/4% Notes and
the Old 13-1/2% Notes and under the respective agreements governing the Old
Employee Stock Options and the Old Warrants shall be rejected.
D. SURRENDER OF EXISTING SECURITIES.
Each holder of an Old 10-1/4% Note, of an Old 13-1/2% Note, or of
Old Common Stock shall surrender such note or stock certificate to the
Disbursing Agent in exchange for the distribution under this Plan. No
distributions under this Plan shall be made to or on behalf of any holder of
an Old 10-1/4% Note, Old 13-1/2% Note, or Old Common Stock unless and until
such note or stock certificate is received by the Disbursing Agent or the
unavailability of such note or certificate is reasonably established to the
satisfaction of the Disbursing Agent. Any such holder that fails to
surrender such note or certificate or to execute and deliver an affidavit of
loss and indemnity reasonably satisfac-
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<PAGE>
tory to the Disbursing Agent and, if so requested by the Disbursing Agent,
fails to furnish a bond in form and substance (including, without limitation,
with respect to amount) reasonably satisfactory to the Disbursing Agent,
within five years after the Confirmation Date shall be deemed to have
forfeited all rights, Claims, and interests and shall not participate in any
distribution under this Plan, and all property in respect of such forfeited
distribution shall revert to the Reorganized Debtor.
E. COMPROMISE OF SUBORDINATION DISPUTES.
1. SUBORDINATION PROVISIONS OF OLD 10-1/4% NOTES.
In full settlement and satisfaction of all subordination rights
claimed by holders of all Claims which constitute "Senior Claims" (as defined in
the indenture, as amended, for the Old 10-1/4% Notes), (i) a portion of the New
Common Stock otherwise distributable as of the Effective Date to the holders of
Old 10-1/4% Notes absent this compromise will instead be distributed on a Pro
Rata Basis to holders of Allowed Senior Claims to the extent that holders of
Allowed Senior Claims will receive, in the aggregate, the number of shares of
New Common Stock set forth in Exhibit F to the Plan, and (ii) all New Class A
Warrants and New Class B Warrants otherwise distributable to the holders of
Senior Claims absent this compromise will instead be distributed on a Pro Rata
Basis to holders of Old 10-1/4% Notes. This compromise takes fully into account
the relative priorities of the Claims affected in connection with the
contractual subor-
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<PAGE>
dination provisions relating to the Old 10-1/4% Notes. Accordingly, all
holders of Claims shall be deemed, as of the Effective Date, to have waived
any and all contractual subordination rights which they might otherwise have
with respect to the Old 10-1/4% Notes and shall be deemed, as of the
Effective Date, permanently enjoined from enforcing or attempting to enforce
any such rights with respect to the distributions under the Plan to the
holders of the Old 10-1/4% Notes. In addition, this compromise takes fully
into account the Debtor's right, if any, under the indenture for the Old
10-1/4% Notes to exercise any option to exchange preferred and common stock
for the Old 10-1/4% Notes.
For purposes of the implementation of the compromise set forth in
this Section V.E.1, Annex C to the Disclosure Statement filed in conjunction
with this Plan specifies those Claims that have been filed or are deemed
filed in the Chapter 11 Case which will, to the extent ultimately allowed, be
treated as Allowed Senior Claims. Such Annex C to the Disclosure Statement
filed in conjunction with this Plan has been modified (by the addition or
deletion of particular Senior Claims) from Annex C to the disclosure
statement (the "Prior Disclosure Statement") filed on October 23, 1996, in
conjunction with the "Debtor's Amended Plan of Reorganization under Chapter
11 of the Bankruptcy Code" (the "Prior Plan") filed on October 23, 1996. The
deadline which was fixed by the Bankruptcy Court for any objections to the
contents of Annex C to the Prior Disclosure Statement was December 6, 1996,
no such objections were filed,
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and no such objections would now be timely. In the event that any party in
interest contends that any modification to Annex C is incorrect, such party
must file with the Bankruptcy Court and serve upon counsel for the Debtor and
each of the Committees a written statement and an accompanying declaration in
support thereof specifying the alleged error in the addition to or deletion
from Annex C effected by such modification, no later than 10 calendar days
before the date scheduled for the commencement of the hearing to consider
confirmation of this Plan. Failure timely to file and serve such statement
shall result in the determination that those Claims specified in Annex C to
the Disclosure Statement as Senior Claims constitute all of the Senior Claims
and will, to the extent allowed, be treated as Allowed Senior Claims under
Section V.E.1 of the Plan. The Debtor and the Committees reserve the right to
respond to any objection filed by any party in interest, and any disputes
with respect to whether a Claim constitutes an Allowed Senior Claim shall be
resolved by the Bankruptcy Court.
2. SUBORDINATION PROVISIONS OF OLD 13-1/2% NOTES.
In full settlement and satisfaction of all subordination rights
claimed by holders of all Claims which constitute "Senior Indebtedness" (as
defined in the indenture, as amended, for the Old 13-1/2% Notes), (i) only
16,500 shares of New Common Stock distributable as of the Effective Date to
the holders of Old 13-1/2% Notes shall be retained by the holders of Old
13-1/2% Notes, (ii) all other shares of New Common Stock otherwise dis-
Page 33
<PAGE>
tributable as of the Effective Date to the holders of Old 13-1/2% Notes
absent this compromise will instead be distributed on a Pro Rata Basis to
holders of Allowed Senior Indebtedness, (iii) all New Class A Warrants
otherwise distributable to the holders of Old 13-1/2% Notes absent this
compromise will instead be distributed on a Pro Rata Basis to holders of
Allowed Senior Indebtedness, and (iv) all New Class B Warrants otherwise
distributable to the holders of Old 13-1/2% Notes absent this compromise will
instead be distributed on a Pro Rata Basis to holders of Allowed Senior
Indebtedness. This compromise takes fully into account the relative
priorities of the Claims affected in connection with the contractual
subordination provisions relating to the Old 13-1/2% Notes. Accordingly, all
holders of Claims shall be deemed, as of the Effective Date, to have waived
any and all contractual subordination rights which they might otherwise have
with respect to the Old 13-1/2% Notes and shall be deemed, as of the
Effective Date, permanently enjoined from enforcing or attempting to enforce
any such rights with respect to the distributions under the Plan to the
holders of the Old 13-1/2% Notes.
For purposes of the implementation of the compromise set forth in
this Section V.E.2, only the Allowed Claims of the holders of Old 10-1/4%
Notes will be treated as Allowed Senior Indebtedness. The deadline which was
fixed by the Bankruptcy Court for any objections to such treatment was
December 6, 1996,
///
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<PAGE>
no such objections were filed, and no such objections would now be timely.
F. CERTIFICATE OF INCORPORATION AND BYLAWS.
As of the Effective Date, the certificate of incorporation of the
Reorganized Debtor shall be the Amended and Restated Certificate of
Incorporation substantially in the form set forth in the Plan Documentary
Supplement. The Amended and Restated Certificate of Incorporation will,
among other provisions, (i) prohibit the issuance of non-voting equity
securities to the extent required by section 1123(a)(6) of the Bankruptcy
Code, and (ii) authorize the issuance of the New Special Voting Common Stock,
which provides certain special voting rights to the holders thereof upon the
occurrence of certain triggering events relating to the FNBB Facility. As of
the Effective Date, the bylaws of the Reorganized Debtor shall be the Amended
and Restated Bylaws substantially in the form set forth in the Plan
Documentary Supplement. The Amended and Restated Certificate of Incorporation
and Amended and Restated Bylaws shall be deemed effective as of the Effective
Date by virtue of the Confirmation Order without the need for any corporate
action.
G. MANAGEMENT OF THE REORGANIZED DEBTOR.
On the Effective Date, the operation of the Reorganized Debtor shall
become the general responsibility of the Reorganized Debtor's
newly-constituted Board of Directors (the "New Board"), who shall thereafter
have the responsibility for the management and control of the Reorganized
Debtor. As of the
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
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<PAGE>
Effective Date, the New Board shall consist of the individuals to be
designated as set forth in Exhibit I to the Plan. The initial senior
officers of the Reorganized Debtor as of the Effective Date shall consist of
the individuals whose names are set forth in the Disclosure Statement filed
in connection with the Plan. All such directors and senior officers shall be
deemed appointed pursuant to the Confirmation Order without the need for any
corporate action. Those directors and senior officers not continuing in
office shall be deemed removed therefrom pursuant to the Confirmation Order
without the need for any corporate action.
The initial compensation for the senior officers of the Reorganized
Debtor shall be as set forth in the Disclosure Statement. As of the
Effective Date, the existing employment agreements between the Debtor and
each of Alan Schlesinger and Loren Rothschild shall be deemed assumed
pursuant to the Plan, and each of such agreements shall be deemed amended,
extended, and restated in the manner set forth in the respective Amended and
Restated Employment Agreements substantially in the forms set forth in the
Plan Documentary Supplement.
As of and after the Effective Date, the Reorganized Debtor shall,
from time to time, issue New Employee Stock Options allocated and vesting in
the manner set forth in the Disclosure Statement, for distribution to
specified employees of the Reorganized Debtor. The New Employee Stock
Options shall be initially exercisable for the purchase of 1,333,729 shares
of
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 36
<PAGE>
New Common Stock and shall consist of: (i) options exercisable for the
purchase of 1,000,000 shares of New Common Stock with an initial exercise
price of $1.00 per share; (ii) to prevent dilution resulting from the
issuance of the New Class A Warrants, options exercisable for the purchase of
an additional 244,813 shares of New Common Stock with an initial exercise
price of $0.01 per share, exercisable only on or after the date on which the
New Class A Warrants become exercisable; and (iii) to prevent dilution
resulting from the issuance of the New Class B Warrants, options exercisable
for the purchase of an additional 88,915 shares of New Common Stock with an
initial exercise price of $0.01 per share, exercisable only on or after the
date on which the New Class B Warrants become exercisable. The number of New
Employee Stock Options described in clauses (ii) and (iii) above shall be
issued on a Pro Rata Basis and the number that may be exercised by any holder
shall bear the same proportion (based on the total number of such options
granted to such holder) to the number of New Employee Stock Options described
in clause (i) above that have been exercised by such holder (based on the
total number of such options granted to such holder). In addition, to prevent
dilution resulting from the issuance of the New Class C Warrants to the
Surety, each holder of New Employee Stock Options shall be issued, on a Pro
Rata Basis and with the same vesting schedule as such holder's respective New
Employee Stock Options, New Class C Warrants initially exercisable for the
purchase of 381,065 shares of New
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 37
<PAGE>
Common Stock with an exercise price equivalent to that of the New Class C
Warrants to be issued to the Surety. The New Employee Stock Options and the
New Class C Warrants are subject to adjustment to prevent dilution upon the
occurrence of certain specified events, excluding exercise of the New
Employee Stock Options, the New Class A Warrants, the New Class B Warrants,
the New Class C Warrants, or the Gordian Warrants. The principal terms and
conditions of the New Employee Stock Options and the New Class C Warrants are
summarized in Exhibits D and C, respectively, to the Plan and described in
detail in the Disclosure Statement. The New Employee Stock Options shall be
governed in all respects by the Employee Stock Option Plan substantially in
the form set forth in the Plan Documentary Supplement, and the New Class C
Warrants issued in conjunction therewith shall be governed in all respects by
the New Class C Warrant Agreement substantially in the form set forth in the
Plan Documentary Supplement. The Employee Stock Option Plan makes available,
in addition to the New Employee Stock Options, an additional 375,000 shares
of New Common Stock for possible grants of additional stock options from time
to time after the Effective Date if, and to the extent, the disinterested
committee administering the Employee Stock Option Plan may determine that
such additional grants would be in the best interest of the Reorganized
Debtor. The Plan and Disclosure Statement as approved by the Bankruptcy
Court shall be deemed to be a solicitation, to persons who hold Old Common
Stock and to persons who will
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 38
<PAGE>
receive New Common Stock, New Warrants, or New Class C Warrants under the
Plan, for approval of the Employee Stock Option Plan, and the entry of the
Confirmation Order shall constitute approval of such plan for purposes of
compliance with Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended. Future employee stock plans or grants will be implemented
by the New Board if and as the New Board determines such plans to be
appropriate as a means to provide management with additional incentives.
H. CORPORATE ACTION.
On the Effective Date, the issuance of securities as provided in the
Plan, the adoption of the Amended and Restated Certificate of Incorporation
and Amended and Restated Bylaws pursuant to the Plan, the appointment of the
New Board and initial senior officers of the Reorganized Debtor as specified
in the Plan, the adoption of the Employee Stock Option Plan pursuant to the
Plan, and all other corporate actions called for by the Plan shall be deemed
authorized and approved by virtue of entry of the Confirmation Order, in
accordance with the Bankruptcy Code and section 303 of the Delaware General
Corporations Law and without any requirement of further action by the
stockholders or directors of the Debtor or the Reorganized Debtor. The
Amended and Restated Certificate of Incorporation shall be filed with the
Delaware Secretary of State on the Effective Date or as soon as practicable
thereafter.
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 39
<PAGE>
I. METHOD OF DISTRIBUTION UNDER THE PLAN.
1. IN GENERAL.
All Cash distributions shall be made by the Disbursing Agent from
the Cash Reserve or Distribution Reserve as specified in Sections V.A and IV
of this Plan. Except as set forth herein, the Disbursing Agent shall make
all distributions of Cash and property pursuant to the Plan on the Effective
Date or as soon thereafter as is practicable.
2. INVESTMENT OF CASH.
Cash held in the Distribution Reserve and the Cash Reserve shall be
invested by the Disbursing Agent in interest-bearing certificates of deposit
and interest-bearing accounts to be established in one or more depository
banks which have qualified to hold deposits of bankruptcy estates. All
interest earned on such Cash shall be disbursed by the Disbursing Agent to
the Reorganized Debtor.
3. MANNER OF PAYMENT UNDER THE PLAN.
Any payment of Cash made by the Disbursing Agent pursuant to the
Plan may be made either by check drawn on a domestic bank or by wire transfer
from a domestic bank, at the option of the Disbursing Agent.
4. MANNER OF DISTRIBUTION OF OTHER PROPERTY.
Any distribution under the Plan of property other than Cash shall be
made by the Reorganized Debtor, its designee, or the Disbursing Agent in
accordance with the terms of the Plan.
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 40
<PAGE>
5. SETOFFS.
The Debtor may, but shall not be required to, set off against any
Claim, and the payments to be made pursuant to the Plan in respect of such
Claim, any claims of any nature whatsoever the Debtor may have against the
holder of such Claim, but neither the failure to do so nor the allowance of
any Claim hereunder shall constitute a waiver or release by the Debtor of any
such claim the Debtor may have against such holder.
6. DISTRIBUTION OF UNCLAIMED PROPERTY.
Except as otherwise provided in the Plan, any distribution of
property (Cash or otherwise) under the Plan which is unclaimed after five
years following the Confirmation Date shall be transferred by the Disbursing
Agent to the Reorganized Debtor.
7. DE MINIMIS DISTRIBUTIONS.
No cash payment of less than five dollars shall be made by the
Disbursing Agent to any holder of a Claim unless a request therefor is made
in writing to the Disbursing Agent.
8. FRACTIONAL SHARES.
The calculation of the number of shares of New Common Stock and the
number of New Warrants to be distributed to the holders of Allowed Class 4
Claims and Allowed Class 5 Interests may mathematically entitle some of such
holders to fractional shares of New Common Stock and/or fractional New
Warrants. Notwithstanding such entitlement or anything to the contrary
contained in this Plan, only whole shares of New Common Stock and
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 41
<PAGE>
whole New Warrants shall be issued and distributed, and no fractional
shares of New Common Stock and no fractional New Warrants shall be issued.
The number of shares of New Common Stock and/or number of New Warrants to be
received by a holder of an Allowed Claim or an Allowed Interest shall be
rounded to the next greater or lower whole number of shares as follows: (a)
fractions of 1/2 or greater shall be rounded to the next greater whole
number, and (b) fractions of less than 1/2 shall be rounded to the next lower
whole number. The total number of shares of New Common Stock and/or New
Warrants distributed to a class of claims or interests shall be adjusted as
necessary to account for the rounding so provided for. No consideration
shall be provided in lieu of the fractional shares that are rounded down and
therefore are not issued.
9. RECORD DATE.
On the Effective Date, the transfer ledgers for the Old 10-1/4%
Notes, the Old 13-1/2% Notes, and the Old Common Stock shall be closed, and
there shall be no further changes in the holders of record of such
securities. The Disbursing Agent shall not recognize any transfer of such
securities occurring after the Effective Date, but shall instead be entitled
to recognize and deal for all purposes with only those holders of record
stated on the applicable transfer ledgers as of the Effective Date. In
addition, the transfer ledger for the Old Warrants shall be closed.
///
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 42
<PAGE>
10. ALLOCATION OF CONSIDERATION DISTRIBUTED ON ACCOUNT OF ALLOWED
CLASS 4 CLAIMS.
The distributions provided for holders of Allowed Class 4 Claims under
the Plan shall be allocated in full satisfaction and substitution of the
principal amount of such Claims, exclusive of accrued interest. However,
nothing contained in this Section V.I.10 shall limit the scope of the discharge
provided under Section IX.B of the Plan.
11. SATURDAY, SUNDAY, OR LEGAL HOLIDAY.
If any payment or act under the Plan is required to be made or
performed on a date that is not a Business Day, then the making of such
payment or the performance of such act may be completed on the next
succeeding Business Day, but shall be deemed to have been completed as of the
required date.
J. REVESTING OF ASSETS.
Except as otherwise provided in the Plan, on the Effective Date the
property of the estate of the Debtor shall revest in the Reorganized Debtor.
The Reorganized Debtor may operate its business and may use, acquire, and
dispose of property without supervision by the Bankruptcy Court or the United
States Trustee and free of any restrictions of the Bankruptcy Code or the
Bankruptcy Rules. As of the Effective Date, all property of the Reorganized
Debtor shall be free and clear of all Claims, liens, encumbrances, and other
interests of creditors and holders of Equity Interests, except as otherwise
provided herein.
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 43
<PAGE>
K. CONTINUATION OF FNBB CLAIM AND FNBB LIENS.
Notwithstanding the entry of the Confirmation Order and the
implementation of the Plan on the Effective Date, the FNBB Claim shall not be
discharged, and all liens, security interests, and mortgages granted to FNBB
(the "FNBB Liens") pursuant to the FNBB Facility shall continue in full force
and effect. The validity and enforceability of the FNBB Claim and the
validity, enforceability, perfection, and priority of the FNBB Liens shall be
automatically ratified and confirmed in all respects and continue without any
further action by FNBB. The orders of the Bankruptcy Court authorizing the
FNBB Facility, the FNBB Claim, and the FNBB Liens shall continue in full
force and effect, including without limitation the provisions thereof
authorizing and directing the filing and recordation of UCC financing
statements, mortgages, deeds of trust, and other perfection documents and the
provisions thereof granting FNBB the right, INTER ALIA, after an Event of
Default under the FNBB Facility and acting otherwise in compliance with the
FNBB Facility, to cause the sale or other disposition of collateral
constituting interests in real estate by directing the Reorganized Debtor or
any trustee appointed in any future bankruptcy case for the Reorganized
Debtor to assume, assign, and sell any or all of such real estate collateral
pursuant to sections 363 and 365 of the Bankruptcy Code after appropriate
notice and a hearing, with FNBB's first priority lien and security interest
to attach to the proceeds of such sale. Without limiting the fore-
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 44
<PAGE>
going, the FNBB Liens shall not be subject to any present or future
contractual, statutory, or common law lien, security interest, or mortgage
which might be avoided and preserved for the benefit of the estate pursuant
to section 551 of the Bankruptcy Code. In furtherance of (and without
limiting) the foregoing, the FNBB Liens in any of the Reorganized Debtor's
non-fixture personal property shall be superior and senior in priority to any
and all liens arising by operation of law in favor of lessors and landlords
for obligations relating to or arising in connection with rental agreements
for the use of real property.
VI.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. ASSUMPTION.
Effective upon the Effective Date, the Debtor in Possession hereby
assumes those executory contracts and unexpired leases which are listed in
Exhibit G to the Plan.
Exhibit G to the Plan specifies the amount ("Cure Payment"), if any,
that the Debtor believes must be tendered on the Effective Date, in order to
provide compensation in accordance with sections 365(b)(1)(A) & (B) of the
Bankruptcy Code. Exhibit G to this Plan has been modified in certain
respects from Exhibit G to the Prior Plan. The deadline which was fixed by
the Bankruptcy Court for any objections to the Cure Payment amounts set forth
in Exhibit G to the Prior Plan was December 6, 1996, and no further
objections to such Cure Payment amounts
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 45
<PAGE>
would now be timely. In the event that any party to a listed contract or
lease affected by any modification to Exhibit G contends that the Cure
Payment amount as so modified is incorrect, such party must file with the
Bankruptcy Court and serve upon counsel for the Debtor and each of the
Committees a written statement and an accompanying declaration in support
thereof specifying the amounts allegedly owing under sections 365(b)(1)(A) &
(B) of the Bankruptcy Code no later than 10 calendar days before the date
scheduled for the commencement of the hearing to consider confirmation of
this Plan. Failure timely to file and serve such statement shall result in
the determination that the Reorganized Debtor's tender of the Cure Payment,
as specified in Exhibit G, on the Effective Date, shall provide cure and
compensation for any and all defaults and unpaid obligations under such
assumed executory contract or unexpired lease. The Debtor and the Committees
reserve the right to respond to any objection filed by any party to an
executory contract or unexpired lease under this paragraph and/or to reject
any executory contract or unexpired lease or assume such contract or
unexpired lease by complying with section 365(b) of the Bankruptcy Code, if
the other party to any executory contract or unexpired lease establishes that
the Cure Payment is greater than the amount specified in Exhibit G. To the
extent the Debtor disagrees with any objection filed by any party to an
executory contract or unexpired lease under this paragraph, the Debtor will
request that the Bankruptcy Court declare that the
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 46
<PAGE>
Cure Payment is as stated by the Debtor, and any disputes shall be
resolved by the Bankruptcy Court.
Entry of the Confirmation Order shall constitute approval of the
assumptions under the Plan pursuant to section 365(a) of the Bankruptcy Code.
All Cure Payments which may be required by section 365(b)(1) of the
Bankruptcy Code shall be made on the Effective Date or as soon thereafter as
is practicable or as may otherwise be agreed by the parties to any particular
contracts or leases.
B. REJECTION.
Effective upon the Effective Date, the Debtor in Possession hereby
rejects all executory contracts and unexpired leases that exist between the
Debtor and any other entity which have not previously been rejected, except
the Debtor in Possession does not reject those executory contracts and
unexpired leases (i) which are listed in Exhibit G hereto and assumed
pursuant to Section VI.A of the Plan, or (ii) which are or have been
specifically assumed, or assumed and assigned, by the Debtor in Possession
with the approval of the Bankruptcy Court by separate proceeding in the
Chapter 11 Case. The executory contracts and unexpired leases rejected under
the Plan shall include, without limitation, those listed in Exhibit H to the
Plan. Inclusion of a matter in Exhibit H does not constitute an admission by
the Debtor in Possession that an executory contract or unexpired lease exists
or is valid. As a matter of prudence, Exhibit H includes contracts and
leases which may have previ-
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 47
<PAGE>
ously been rejected or canceled or assigned or which may have expired. Entry
of the Confirmation Order shall constitute approval of the rejections under
the Plan pursuant to section 365(a) of the Bankruptcy Code.
The executory contracts rejected under the Plan shall include,
without limitation, all Old Employee Stock Options and all Old Warrants
which, in each case, are unexercised as of the Effective Date, to the extent
that they constitute executory contracts. Holders of Old Employee Stock
Options and holders of Old Warrants who, in each case, shall have exercised
prior to the Effective Date such holders' rights to purchase Old Common Stock
in accordance with the provisions of such Old Employee Stock Options or Old
Warrants, as the case may be, shall be treated under the Plan with respect to
the Old Common Stock so purchased in the manner specified in Section II.D of
the Plan for Class 5.
All Allowed Claims arising from the rejection of executory contracts
or unexpired leases, whether under the Plan or by separate proceeding, shall
be treated as Class 4 Claims under the Plan.
All Claims arising from the rejection of executory contracts or
unexpired leases, whether under the Plan or by separate proceeding, must be
filed with the Bankruptcy Court on or before such date as the Bankruptcy Court
has fixed or may fix by express order with respect to Claims arising from the
rejection of specified executory contracts and unexpired leases, or,
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 48
<PAGE>
if no such date is or has been fixed, on or before the first Business Day
which is at least fifteen calendar days after the date of mailing of notice
of entry of the Confirmation Order. Any such Claims which are not filed
within such time will be forever barred from assertion against the Debtor,
its estate, the Reorganized Debtor, and its property.
VII.
EFFECTIVENESS OF THE PLAN
A. CONDITIONS PRECEDENT.
The Plan shall not become effective unless and until the following
conditions shall have been satisfied or waived:
1. The Confirmation Order shall have been entered on the docket of
the Bankruptcy Court for at least ten days (as calculated in accordance with
Bankruptcy Rule 9006(a)); and
2. All conditions to the occurrence of the "Exit Facility Date" as
defined and set forth in the FNBB Facility shall have been satisfied or
waived and no Event of Default shall have occurred and be continuing
thereunder.
B. WAIVER OF CONDITIONS.
The Debtor, in its sole discretion, may waive by a writing signed by
an authorized representative of the Debtor and filed with the Bankruptcy
Court the condition to effectiveness of the Plan set forth in Section VII.A.1
of the Plan.
C. NOTICE OF EFFECTIVE DATE.
As soon as practicable after the Effective Date has
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
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Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 49
<PAGE>
occurred, the Reorganized Debtor shall file with the Bankruptcy Court an
informational notice specifying the Effective Date, as a matter of record.
VIII.
RETENTION OF JURISDICTION
Following the Confirmation Date, the Bankruptcy Court shall retain
jurisdiction of all matters arising out of, or related to, the Chapter 11
Case and the Plan pursuant to, and for the purposes of, sections 105(a) and
1142 of the Bankruptcy Code and for, among other things, the following
purposes:
A. To hear and determine pending motions for the assumption,
assumption and assignment, or rejection of executory contracts or unexpired
leases, if any are pending as of the Effective Date, the determination of any
cure payments related thereto, and the allowance or disallowance of Claims
resulting therefrom;
B. To determine any and all adversary proceedings, applications,
motions, and contested matters instituted prior to the closing of the Chapter
11 Case;
C. To ensure that distributions to holders of Allowed
Administrative Expenses, Allowed Claims, and Allowed Equity Interests are
accomplished as provided herein;
D. To hear and determine any objections to Administrative
Expenses, to Proofs of Claims, and to Proofs of Equity Interests filed both
before and after the Confirmation Date, and
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 50
<PAGE>
to allow or disallow any Disputed Administrative Expense, Disputed Claim, or
Disputed Equity Interest, in whole or in part;
E. To enter and implement such orders as may be appropriate in the
event the Confirmation Order is for any reason stayed, revoked, modified, or
vacated;
F. To issue orders in aid of execution of the Plan and to issue
injunctions or take such other actions or make such other orders as may be
necessary or appropriate to restrain interference with this Plan or its
execution or implementation by any entity;
G. To consider any modifications of the Plan, to cure any defect
or omission, or to reconcile any inconsistency in the Plan or any order of
the Bankruptcy Court, including, without limitation, the Confirmation Order;
H. To hear and determine all applications for compensation and
reimbursement of expenses of professionals under sections 330, 331, and
503(b) of the Bankruptcy Code;
I. To hear and determine any disputes arising in connection with
the interpretation, implementation, execution, or enforcement of the Plan,
the Confirmation Order, or any other order of the Bankruptcy Court;
J. To recover all assets of the Debtor and property of the estate,
wherever located;
K. To hear and determine any matters concerning state, local, and
federal taxes in accordance with sections 346, 505, and 1146 of the
Bankruptcy Code;
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 51
<PAGE>
L. To hear any other matter not inconsistent with the Bankruptcy
Code; and
M. To enter a final decree closing the Chapter 11 Case.
Notwithstanding the foregoing, the Bankruptcy Court's retention of
jurisdiction shall not govern the enforcement of the FNBB Facility or any
rights or remedies relating thereto, except to the extent expressly provided
or preserved for the benefit of FNBB in the Plan.
IX.
MISCELLANEOUS PROVISIONS
A. PAYMENT OF STATUTORY FEES.
All quarterly fees due and payable to the Office of the United
States Trustee pursuant to section 1930(a)(6) of title 28 of the United
States Code shall be duly paid in full on or before the Effective Date, as
required by section 1129(a)(12) of the Bankruptcy Code. Lamonts projects
that $10,000 will be payable to the Office of the United States Trustee for
the quarter including the Effective Date. The Reorganized Debtor shall
remain responsible for timely payment of such quarterly fees due and payable
after the Effective Date and until the Chapter 11 Case is closed, pursuant to
section 1930(a)(6) of title 28 of the United States Code. After the
Effective Date and until the Chapter 11 Case is closed, the Reorganized
Debtor shall file with the Office of the United States Trustee required
monthly
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 52
<PAGE>
financial reports including a statement of all disbursements, whether or not
pursuant to the Plan.
B. DISCHARGE OF DEBTOR AND INJUNCTION.
The rights afforded in the Plan and the treatment of all Claims and
Equity Interests therein shall be in exchange for and in complete
satisfaction, discharge, and release of any and all Claims and Equity
Interests of any nature whatsoever, including any interest accrued on such
Claims whether before or after the Petition Date, against the Debtor and the
Debtor in Possession, or any of their assets or properties. Except as
otherwise provided herein, (i) on the Effective Date, the Debtor shall be
deemed discharged and released to the fullest extent permitted by section
1141 of the Bankruptcy Code from all Claims and Equity Interests, including,
but not limited to, demands, liabilities, Claims, and interests that arose
before the Confirmation Date and all debts of the kind specified in sections
502(g), 502(h), or 502(i) of the Bankruptcy Code, whether or not: (a) a proof
of claim or proof of interest based on such debt or interest is filed or
deemed filed pursuant to section 501 of the Bankruptcy Code, (b) a Claim or
Equity Interest based on such debt or interest is Allowed pursuant to section
502 of the Bankruptcy Code, or (c) the holder of a Claim or Equity Interest
based on such debt or interest has accepted the Plan; and (ii) all persons
and entities shall be deemed precluded from asserting against the Reorganized
Debtor, its successors, or its assets or properties any other or further
Claims
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 53
<PAGE>
or Equity Interests based upon any act or omission, transaction, or other
activity of any kind or nature that occurred prior to the Confirmation Date.
The Confirmation Order shall act as a discharge of any and all claims against
and all debts and liabilities of the Debtor, as provided in sections 524 and
1141 of the Bankruptcy Code, and such discharge shall void any judgment
against the Debtor at any time obtained to the extent that it relates to a
Claim discharged.
Except as otherwise provided in the Plan, the documents executed
pursuant to the Plan, or the Confirmation Order, on and after the Effective
Date, all persons and entities who have held, currently hold, or may hold a
debt, Claim, or interest discharged pursuant to the terms of the Plan shall
be deemed permanently enjoined from taking any of the following actions on
account of any such discharged debt, Claim, or interest: (1) commencing or
continuing in any manner any action or other proceeding against the Debtor,
the Reorganized Debtor, its successors, or its property; (2) enforcing,
attaching, executing, collecting, or recovering in any manner any judgment,
award, decree, or order against the Debtor, the Reorganized Debtor, its
successors, or its property; (3) creating, perfecting, or enforcing any lien
or encumbrance against the Debtor, the Reorganized Debtor, its successors, or
its property; (4) asserting any setoff, right of subrogation, or recoupment
of any kind against any obligation due to the Debtor, the Reorganized Debtor,
its successors, or its property; and (5) commencing or
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 54
<PAGE>
continuing any action, in any manner, in any place that does not comply with
or is inconsistent with the provisions of this Plan. Any person or entity
injured by any willful violation of such injunction shall recover actual
damages, including costs and attorneys' fees, and, in appropriate
circumstances, may recover punitive damages, from the willful violator.
The provisions of this Section IX.B will not apply to the FNBB Claim
or the FNBB Liens, which shall survive and continue and be governed by the
FNBB Facility.
C. NO LIABILITY FOR SOLICITATION OR PARTICIPATION.
As specified in section 1125(e) of the Bankruptcy Code, persons that
solicit acceptances or rejections of the Plan and/or that participate in the
offer, issuance, sale, or purchase of securities offered or sold under the
Plan, in good faith and in compliance with the applicable provisions of the
Bankruptcy Code, are not liable, on account of such solicitation or
participation, for violation of any applicable law, rule, or regulation
governing the solicitation of acceptances or rejections of the Plan or the
offer, issuance, sale, or purchase of securities.
D. LIMITATION OF LIABILITY.
Neither the Debtor, nor the Reorganized Debtor, nor any of their
employees, officers, directors, agents, or representatives, nor the
Committees or their members, nor any professional persons employed by the
Debtor, the Debtor in Possession, the Reorganized Debtor, or the Committees,
shall have or incur
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 55
<PAGE>
any liability to any person or entity for any act taken or omission made in
good faith in connection with or related to negotiating, formulating,
implementing, confirming, or consummating the Plan, the Disclosure Statement,
or any contract, instrument, security, release, or other agreement,
instrument, or document created in connection with the Plan.
E. RIGHTS OF ACTION.
Any and all rights and causes of action accruing to the Debtor or
its estate shall remain assets of and vest in the Reorganized Debtor, whether
or not litigation relating thereto is pending on the Effective Date. The
Reorganized Debtor may pursue all rights and causes of action in its sole
discretion in accordance with what is in the best interests, and for the
benefit, of the Reorganized Debtor. Neither the Debtor nor the Reorganized
Debtor waives, relinquishes, or abandons any right or cause of action which
constitutes property of the Debtor's Estate, whether or not such right or
cause of action has been listed or referred to in the Schedules or in the
Disclosure Statement and whether or not such right or cause of action is
currently known to the Debtor. Notwithstanding the foregoing, the
Reorganized Debtor shall not pursue any preference causes of action arising
under section 547 of the Bankruptcy Code.
F. HEADINGS.
Headings are used in the Plan for convenience and reference only,
and shall not constitute a part of the Plan for any other purpose.
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 56
<PAGE>
G. BINDING EFFECT.
The Plan shall be binding upon and inure to the benefit of the
Debtor, the Reorganized Debtor, holders of Claims, holders of Equity
Interests, and their respective successors or assigns.
H. REVOCATION OR WITHDRAWAL.
1. RIGHT TO REVOKE.
The Debtor reserves the right to revoke or withdraw the Plan prior
to the Confirmation Date.
2. EFFECT OF WITHDRAWAL OR REVOCATION.
If the Debtor revokes or withdraws the Plan prior to the
Confirmation Date, or if the Confirmation Date or the Effective Date does not
occur, then the Plan shall be deemed null and void. In such event, nothing
contained herein shall be deemed to constitute a waiver or release of any
claims by or against the Debtor or any other person or to prejudice in any
manner the rights of the Debtor or any person in any further proceedings
involving the Debtor.
I. GOVERNING LAW.
Unless a rule of law or procedure is supplied by federal law
(including the Bankruptcy Code and Bankruptcy Rules), the laws of the State
of Washington (without reference to its conflict of law rules) shall govern
the construction and implementation of the Plan and any agreements,
documents, and instruments executed in connection with the Plan, unless
otherwise specifically provided in such agreements, documents, or instru-
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 57
<PAGE>
ments.
J. WITHHOLDING, REPORTING, AND PAYMENT OF TAXES.
In connection with the Plan and all instruments issued in connection
therewith and distributions thereon, the Disbursing Agent shall comply with
all withholding and reporting requirements imposed by any federal, state,
local, or foreign taxing authority and all distributions hereunder shall be
subject to any such withholding and reporting requirements. The Disbursing
Agent shall report and pay taxes on the income of the Distribution Reserve or
the Cash Reserve as required by applicable law. In addition, to the extent
required by applicable law, reported distributions from such reserves shall
include all interest and investment income, if any, attributable to the Cash
or property being distributed net of taxes which are, or are estimated to be,
due and payable thereon.
K. OTHER DOCUMENTS AND ACTIONS.
The Reorganized Debtor may execute such other documents and take
such other actions as may be necessary or appropriate to effectuate the
transactions ocntemplated under this Plan.
L. MODIFICATION OF THE PLAN.
The Debtor or Reorganized Debtor may further alter, amend, or modify
the Plan pursuant to section 1127 of the Bankruptcy Code.
M. NOTICES.
Any notice to the Debtor or Reorganized Debtor
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 58
<PAGE>
required or permitted to be provided under the Plan shall be in writing and
served by either (a) certified mail, return receipt requested, postage
prepaid, (b) hand delivery, or (c) reputable overnight delivery service,
freight prepaid, to be addressed as follows:
Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, WA 98034
Attn.: Chief Financial Officer
N. SUCCESSORS AND ASSIGNS.
The rights, benefits, and obligations of any entity named or referred
to in the Plan shall be binding on, and shall inure to the benefit of, the
heirs, executors, administrators, successors, and assigns of such entity.
DATED: October 31, 1997 LAMONTS APPAREL, INC.,
a Delaware corporation
By /s/ LOREN R. ROTHSCHILD
-----------------------------
LOREN R. ROTHSCHILD,
Vice-Chairman of the
Board of Directors
SUBMITTED BY:
/s/ JEFFREY H. DAVIDSON
- -----------------------------------
JEFFREY H. DAVIDSON and
MICHAEL H. GOLDSTEIN, Members of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
Special Reorganization Counsel
for Debtor and Debtor in Possession
- and -
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 59
<PAGE>
/s/ Richard J. Hyatt
- -----------------------------------
RICHARD J. HYATT (WSBA No. 14048)
RYAN SWANSON & CLEVELAND, PLLC
1201 Third Avenue, Suite 3400
Seattle, WA 98101
(206) 464-4224
Counsel for Debtor and
Debtor in Possession
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 60
<PAGE>
SUMMARY OF CERTAIN PRINCIPAL TERMS
AND CONDITIONS OF NEW CLASS A WARRANTS
The New Class A Warrants will be issued pursuant to a Warrant Agreement
between the Reorganized Debtor and a Warrant Agent to be determined, the form
of which is included in the Plan Documentary Supplement (the "New Class
A/Class B Warrant Agreement").
The New Class A Warrants will initially be exercisable for an aggregate
of 2,203,320 shares of New Common Stock. The New Class A Warrants will be
exercisable at any time after the first date on which the Aggregate Equity
Trading Value (as defined in the New Class A/Class B Warrant Agreement)
equals or exceeds $20,000,000 and will expire on the tenth anniversary of the
Effective Date. The exercise price for the New Class A Warrants will
initially be $0.01 per share.
The number and type of securities issuable upon exercise of the New
Class A Warrants and the exercise price payable upon exercise thereof are
subject to customary anti-dilution protection as provided in the New Class
A/Class B Warrant Agreement for (i) stock dividends, subdivisions,
combinations, and reclassifications affecting the New Common Stock, (ii)
certain issuances of New Common Stock or rights, options, or warrants to
purchase New Common Stock, and (iii) certain distributions on the New Common
Stock.
EXHIBIT A TO PLAN
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 61
<PAGE>
SUMMARY OF CERTAIN PRINCIPAL TERMS
AND CONDITIONS OF NEW CLASS B WARRANTS
The New Class B Warrants will be issued pursuant to a Warrant Agreement
between the Reorganized Debtor and a Warrant Agent to be determined, the form
of which is included in the Plan Documentary Supplement (the "New Class
A/Class B Warrant Agreement").
The New Class B Warrants will initially be exercisable for an aggregate
of 800,237 shares of New Common Stock. The New Class B Warrants will be
exercisable at any time after the first date on which the Aggregate Equity
Trading Value (as defined in the New Class A/Class B Warrant Agreement)
equals or exceeds $25,000,000 and will expire on the tenth anniversary of the
Effective Date. The exercise price for the New Class B Warrants will
initially be $0.01 per share.
The number and type of securities issuable upon exercise of the New
Class B Warrants and the exercise price payable upon exercise thereof are
subject to customary anti-dilution protection as provided in the New Class
A/Class B Warrant Agreement for (i) stock dividends, subdivisions,
combinations, and reclassifications affecting the New Common Stock, (ii)
certain issuances of New Common Stock or rights, options, or warrants to
purchase New Common Stock, and (iii) certain distributions on the New Common
Stock.
EXHIBIT B TO PLAN
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 62
<PAGE>
SUMMARY OF CERTAIN PRINCIPAL TERMS
AND CONDITIONS OF NEW CLASS C WARRANTS
The New Class C Warrants will be issued pursuant to a Warrant Agreement
between the Reorganized Debtor, on the one hand, and the Surety and certain
officers, directors, and employees of the Reorganized Debtor, on the other,
the form of which is included in the Plan Documentary Supplement (the "New
Class C Warrant Agreement").
The New Class C Warrants will be exercisable as follows: (i) at any time
after the date of issuance thereof and until the fourth anniversary of the
Effective Date, the New Class C Warrants will initially be exercisable for an
aggregate of 3,556,610 shares of New Common Stock at an exercise price of
$1.25 per share; and (ii) at any time after the first date on which the
Aggregate Equity Trading Value (as defined in the New Class C Warrant
Agreement) equals or exceeds $25,000,000 and until the tenth anniversary of
the Effective Date, the New Class C Warrants will initially be exercisable
for an aggregate of 254,043 additional shares of New Common Stock at an
exercise price of $.01 per share; provided that the New Class C Warrants
described in this clause (ii) will not be exercisable unless and until the
holder of such warrants has fully exercised such holder's corresponding New
Class C Warrants described in the foregoing clause (i).
The number and type of securities issuable upon exercise of the New
Class C Warrants are subject to customary anti-
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 63
<PAGE>
dilution protection as provided in the New Class C Warrant Agreement for (i)
stock dividends, subdivisions, combinations, and reclassifications affecting
the New Common Stock, (ii) certain issuances of New Common Stock or rights,
options, or warrants to purchase New Common Stock, and (iii) certain
distributions on the New Common Stock. In addition, the term and exercise
price of the New Class C Warrants are subject to adjustment under certain
additional circumstances described in the New Class C Warrant Agreement.
EXHIBIT C TO THE PLAN
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 64
<PAGE>
SUMMARY OF CERTAIN PRINCIPAL TERMS AND
CONDITIONS OF NEW EMPLOYEE STOCK OPTIONS
The New Employee Stock Options will be initially exercisable for the
purchase of 1,333,729 shares of New Common Stock and will consist of: (i)
options exercisable for the purchase of 1,000,000 shares of New Common Stock
with an initial exercise price of $1.00 per share; (ii) to prevent dilution
resulting from the issuance of the New Class A Warrants, options exercisable
for the purchase of an additional 244,813 shares of New Common Stock with an
initial exercise price of $0.01 per share, exercisable only on or after the
date on which the New Class A Warrants become exercisable; and (iii) to
prevent dilution resulting from the issuance of the New Class B Warrants,
options exercisable for the purchase of an additional 88,915 shares of New
Common Stock with an initial exercise price of $0.01 per share, exercisable
only on or after the date on which the New Class B Warrants become
exercisable. The number of New Employee Stock Options described in clauses
(ii) and (iii) above will be issued on a Pro Rata Basis and the number that
may be exercised by any holder will bear the same proportion (based on the
total number of such options granted to such holder) to the number of New
Employee Stock Options described in clause (i) above that have been exercised
by such holder (based on the total number of such options granted to such
holder). In addition, to prevent dilution resulting from the issuance of the
New Class C Warrants to the Surety, each holder of New Employee Stock Options
will be
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 65
<PAGE>
issued, on a Pro Rata Basis and with the same vesting schedule as such
holder's respective New Employee Stock Options, New Class C Warrants
initially exercisable for the purchase of 381,065 shares of New Common Stock
with an exercise price equivalent to that of the New Class C Warrants to be
issued to the Surety. The New Employee Stock Options and the New Class C
Warrants are subject to adjustment to prevent dilution upon the occurrence of
certain specified events, excluding exercise of the New Employee Stock
Options, the New Class A Warrants, the New Class B Warrants, the New Class C
Warrants, or the Gordian Warrants. The term of the New Employee Stock
Options will be 10 years. The New Employee Stock Options will be governed by
the Employee Stock Option Plan in substantially the form set forth in the
Plan Documentary Supplement, and the New Class C Warrants issued in
conjunction therewith will be governed by the New Class C Warrant Agreement
in substantially the form set forth in the Plan Documentary Supplement.
The New Employee Stock Options and the New Class C Warrants to be issued
to holders of the New Employee Stock Options will be allocated and will vest
as set forth in the Disclosure Statement.
EXHIBIT D TO PLAN
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 66
<PAGE>
LIST OF DEFERRED PAYMENT TAX CLAIMS
The following Claims will, to the extent allowed, be treated as Deferred
Payment Tax Claims in the manner specified in Section II.C of the Plan:
1. United States Department of the Treasury - Internal Revenue Service
2. State of Washington Department of Revenue
EXHIBIT E TO PLAN
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 67
<PAGE>
QUANTITY OF SHARES OF NEW COMMON STOCK TO
BE RECEIVED AS OF THE EFFECTIVE DATE BY
HOLDERS OF ALLOWED SENIOR CLAIMS
Upon the implementation of the compromise regarding the subordination
provisions of the indenture, as amended, for the Old 10 1/4% Notes, pursuant
to Section V.E.1 of the Plan, holders of Allowed Senior Claims (as defined in
such indenture) shall receive, as of the Effective Date, in the aggregate,
the number of shares specified in the following table that corresponds to the
total amount of such Senior Claims actually allowed in the Chapter 11 Case:
TOTAL SENIOR CLAIMS ALLOWED NUMBER OF SHARES
Less than $14,000,000 4,050,000
$14,000,000 - $15,399,999 4,800,000
$15,400,000 - $16,999,999 4,970,000
$17,000,000 or greater 5,670,000
EXHIBIT F TO PLAN
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 68
<PAGE>
LIST OF EXECUTORY CONTRACTS ASSUMED
Effective upon the Effective Date, the Debtor in Possession hereby
assumes the following executory contracts and unexpired leases:
SEE ATTACHED LIST.
EXHIBIT G TO PLAN
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 69
<PAGE>
LEASES AND EXECUTORY CONTRACTS ASSUMED
1. Name and Mailing Address of other Parties to Lease or Contract
2. Description of Contract or Lease
3. Cure Amount, if any
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
NAME & MAILING ADDRESS DESCRIPTION OF CONTRACT/LEASE CURE AMOUNT
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
After 7 Hair Design Hair & Beauty Care Services Sublet $ -0-
363 SW Jefferson Ave (Store #594)
Corvallis, OR 97330
- ------------------------------------------------------------------------------------------------
Alco Capital Resources, Inc. Canon Copier Lease $403.05
P.O. Box 9115
Macon, GA 31298-2099
- ------------------------------------------------------------------------------------------------
Allendale Mutual Insurance Co. Insurance Policy $ -0-
411 108th Avenue, NE, Suite 2000 Property
Bellevue, WA 98004-5515
- ------------------------------------------------------------------------------------------------
American Express Travel Related Services Retail Establishment Agreement $ -0-
Company, Inc.
2121 4th Avenue, Suite 2150 Previously assumed per order dated
Seattle, WA 98121 02/17/95. Listed as a matter of
prudence.
American Express Travel Related Services
Company, Inc.
American Express Tower
World Financial Center
New York, NY 10285-3500
- ------------------------------------------------------------------------------------------------
Armored Car Dispatch Armored Car Services Contract $ -0-
P.O. Box 1180
Yakima, WA 98907
- ------------------------------------------------------------------------------------------------
Armored Transport Northwest, Inc., OR Armored Car Services Contract $ -0-
1401 E. Yesler Way
Seattle, WA 98122
- ------------------------------------------------------------------------------------------------
Armored Transport Northwest, Inc., WA Armored Car Services Contract $ -0-
1401 E. Yesler Way
Seattle, WA 98122
- ------------------------------------------------------------------------------------------------
Ascent Solutions Inc. Software Maintenance Contract $ -0-
17 South St. Clair, Suite 300
Dayton, OH 45402
- ------------------------------------------------------------------------------------------------
AT&T Uniplan Telephone Services Contract $ -0-
P.O. Box 8206
Fox Valley, IL 60572-6206 Post-petition agreement dated 4/2/96.
Listed as a matter of prudence.
- ------------------------------------------------------------------------------------------------
ATD/Assembly Transportation Distribution Distribution Center Letter of Intent $ -0-
System, Inc.
Distribution Center Services
7202 S. 212th Street
Northwest District, Center 1
Kent, WA 98188
Attn: Dave Hutchins
- ------------------------------------------------------------------------------------------------
Bendata Inc, Software Maintenance Contract $ -0-
1755 Telstar Drive, Suite 100
Colorado Springs, CO 80920
- ------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-1
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Best Programs Software Maintenance Contract $ -0-
P.O. Box 17428
Baltimore, MD 21298-9108
- ------------------------------------------------------------------------------------------------
Brownfield, Debbie Indemnification Agreement $ -0-
c/o Lamonts Apparel, Inc.
12413 Willows Road, NE
Kirkland, WA 98034
- ------------------------------------------------------------------------------------------------
Card Establishment Services, Inc. Credit Card Services $ -0-
Establishment Services Division
265 Broad Hollow Road Previously assumed per order dated
Melville, NY 11747 02/17/95. Listed as a matter of
prudence.
- ------------------------------------------------------------------------------------------------
Cascade Architectural and Engineering Xerox Maintenance Agreement $ -0-
Supplies Co.
235 9th Avenue North
Seattle, WA 98109-5190
- ------------------------------------------------------------------------------------------------
Ceridian Employer Services Payroll Processing Service $ 128.37
1730 Minor Avenue, Suite 1200 Agreement
Seattle, WA 98101
- ------------------------------------------------------------------------------------------------
Comshare Computer Software Maintenance $ -0-
3001 South State Street Contract
Ann Arbor, MI 48106
- ------------------------------------------------------------------------------------------------
Copper Mountain Financial Group, Inc. Custody Agreement - Lamonts $ -0-
1211 SW Fifth Avenue, Suite 1900 Apparel, Inc.'s Qualified Defined
Portland, OR 97204 Benefits Retirement Plan
- ------------------------------------------------------------------------------------------------
Data Serve Hardware Maintenance Contract $ 14,714.83
12125 Technology Drive
Eden Prarie, MN 55344-7339
- ------------------------------------------------------------------------------------------------
Department of Labor and Industries Insurance Policy $ -0-
Policy Manager, Robert Scribner Workers Compensation (Washington)
P.O. Box 44163
Olympia, WA 98504-4163
- ------------------------------------------------------------------------------------------------
Discover Card Services, Inc. Merchant Services Agreement $ -0-
2500 Lake Cook Road
Riverwoods, IL 60015 Previously assumed per order dated
02/17/95. Listed as a matter of
prudence.
- ------------------------------------------------------------------------------------------------
Electronic Data Systems, Inc., (AIM) Computer Software Maintenance $ 255.49
2620 Augustine Drive, Suite 200 Contract
Santa Clara, CA 95054
- ------------------------------------------------------------------------------------------------
Electronic Technical Services/ETS Alarm Monitoring for Stores $ 1,064.39
P.O. Box 33583 Agreement
San Diego, CA 92163
- ------------------------------------------------------------------------------------------------
Executive Risk Indemnity, Inc. Insurance Policy $ -0-
P.O. Box 2002 Director & Officers - primary
Simsbury, CT 06090-7883
- ------------------------------------------------------------------------------------------------
Farmington Casualty Company Insurance Policy $ -0-
Hartford, CT 06156 General Liability (Alaska stores)
- ------------------------------------------------------------------------------------------------
Farmington Casualty Company Insurance Policy $ -0-
Hartford, CT 06156 Property
- ------------------------------------------------------------------------------------------------
Farmington Casualty Company Insurance Policy $ -0-
Hartford, CT 06156 General Liability
- ------------------------------------------------------------------------------------------------
Foster Higgins & Co Inc. Health & Welfare Insurance $ -0-
(William M. Mercer Company) Consulting Retainer Agreement
P.O. Box 100255
Pasadena, CA 91189
- ------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-2
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Frederick Atkins, Incorporated Standard Service Agreement $ -0-
1515 Broadway
New York, NY 10036 Previously assumed per order dated
04/24/95. Listed as a matter of
prudence.
- ------------------------------------------------------------------------------------------------
Graebel Quality Movers Relocation Services Agreement $ -0-
20232 72nd Avenue, South
Kent, WA 98032 Post-petition agreement. Listed as a
matter of prudence.
- ------------------------------------------------------------------------------------------------
Grinnell Fire Protection Maintenance Service Contract $ 645.00
Department 04015
P.O. Box C34936
Seattle, WA 98124
- ------------------------------------------------------------------------------------------------
Group Health Cooperative of Puget Sound Medical Coverage Agreement $ 1,401.33
P.O. Box 34581
Seattle, WA 96124-1581
- ------------------------------------------------------------------------------------------------
Group Health Northwest Medical Coverage Agreement $ -0-
P.O. Box 204
Spokane, WA 99210-0204
- ------------------------------------------------------------------------------------------------
Guardian Security Services Armored Car Services Contract $ -0-
2600 Seward Highway
Anchorage, AK 99503
- ------------------------------------------------------------------------------------------------
Gulf Insurance Company Insurance Policy $ -0-
P.O. Box 1771 Directors & Officers - excess
Dallas, TX 75221-1771
- ------------------------------------------------------------------------------------------------
Hammon Services Corporation Armored Car Services Contract $ -0-
P.O. Box 2586
Idaho Falls, ID 83401
- ------------------------------------------------------------------------------------------------
Hassel, Inc. d/b/a Pacific Refrigeration Month to Month Lease (Port Angeles $ -0-
600 East First Street Store sublease)
Port Angeles, WA 98362
- ------------------------------------------------------------------------------------------------
IBM Corporation Computer Software and Hardware $ 7,622.88
2929 North Central Maintenance Contract (Unix &
Phoenix, AZ 85012-2743 DC/Corporate Controllers & Printers)
- ------------------------------------------------------------------------------------------------
Industrial Indemnity Insurance Policy $ -0-
1601 Fifth Avenue, Suite 1300 Worker Compensation
Seattle, WA 98101
Policy #CN9619008 (5/1/95 - 5/1/96)
Policy #CN9626478 (5/1/96 - 5/1/97)
Policy #CN9630345 (5/1/97 - 5/1/98)
Post-petition agreements. Listed as a
matter of prudence.
- ------------------------------------------------------------------------------------------------
Integra-Trak Inc. Software Maintenance Contract $ -0-
146 North Canal Street, Suite 300
Seattle, WA 98103
- ------------------------------------------------------------------------------------------------
Knightwatch Security Armored Car Services Contract $ -0-
2525 Industrial Boulevard
Juneau, AK 99803
- ------------------------------------------------------------------------------------------------
Lamonts Apparel, Inc. Employee Retirement Qualified Defined Benefits Retirement $ -0-
Trust Plan
12413 Willows Road, NE
Kirkland, WA 98034
- ------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-3
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Lamonts Apparel, Inc. Tax Relief Investment Qualified Defined Contribution 401K $ -0-
Protection Plan Retirement Plan
12413 Willows Road, NE
Kirkland, WA 98034
- ------------------------------------------------------------------------------------------------
London Fog Industries, Inc. London Fog Consignment Agreement $ -0-
1332 Londontown Boulevard
Eldersburg, MD 21784-5399 Previously assumed per order dated
Attn: Gerry Schoenen 02/17/95. Listed as a matter of
prudence.
- ------------------------------------------------------------------------------------------------
Loomis Armored, Inc. Armored Car Services Contract $ -0-
1205 E. Dowling Road
Anchorage, AK 99518
- ------------------------------------------------------------------------------------------------
Loomis Armored, Inc. Armored Car Services Contract $ -0-
3300 Airport Road
Fairbanks, AK 99709
- ------------------------------------------------------------------------------------------------
Loomis Armored, Inc. Armored Car Services Contract $ -0-
806 East Second
Spokane, WA 99202
- ------------------------------------------------------------------------------------------------
Maxum Systems Corporation Software Maintenance Contract $ -0-
Dept. AT 49903
Atlanta, GA 31192-9903
- ------------------------------------------------------------------------------------------------
Micro-Focus Software License $ 37.12
P.O. Box 45611
San Francisco, CA 96145-0611
- ------------------------------------------------------------------------------------------------
Miller Elevator Service Company Maintenance Service Contract $ 2,617.54
P.O. Box 73017-N
Cleveland, Ohio 44193
- ------------------------------------------------------------------------------------------------
Montgomery Elevator Co. Maintenance Service Contract $ 3,308.77
P.O. Box 429
Moline, IL 61265-0429
- ------------------------------------------------------------------------------------------------
National Flood Insurance Program Insurance Policy $ -0-
Rockville, MD 20849-6468 Flood
- ------------------------------------------------------------------------------------------------
National Union Fire Insurance Company Comprehensive Dishonesty, $ -0-
70 Pine Street Disappearance and Destruction
New York, NY 10270-0150 Policy #483-13-34
- ------------------------------------------------------------------------------------------------
National Union Fire Insurance Company Pension and Welfare Benefit Plan $ -0-
70 Pine Street Fiduciaries' and Administrators'
New York, NY 10270-0150 Insurance Policy #483-13-93
- ------------------------------------------------------------------------------------------------
NCF Financial, Inc. Computer Equipment Lease $ -0-
15 Lake Street, Suite 106
Kirkland, WA 98033
- ------------------------------------------------------------------------------------------------
Oracle Software License $ -0-
P.O. Box 44471
San Francisco, CA 94144-4471
- ------------------------------------------------------------------------------------------------
Oracle Software License $ -0-
P.O. Box 44471
San Francisco, CA 94144-4471
- ------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-4
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
Oracle Software License $ -0-
P.O. Box 44471
San Francisco, CA 94144-4471
- ---------------------------------------------------------------------------------------------
Otis Elevator Company Maintenance Service Contract $ 329.30
P.O. Box 100188
Pasadena, CA 91189-0188
- ---------------------------------------------------------------------------------------------
Reliance Insurance Company Insurance Policy $ -0-
4 Penn Center Plaza Directors & Officer - excess
Philadelphia, PA 19103
- ---------------------------------------------------------------------------------------------
Rothschild, Loren Employment Agreement, as $ -0-
1201 Tower Grove Drive amended, extended and restated
Beverly Hills, CA 90210 pursuant to the Plan
Post-petition agreement. Listed as a
matter of prudence.
- ---------------------------------------------------------------------------------------------
Rothschild, Loren Indemnification Agreement $ -0-
1201 Tower Grove Drive
Beverly Hills, CA 90210
- ---------------------------------------------------------------------------------------------
RREEF Corporation Lease Agreement between RREEF $ -0-
520 Pike Street, Suite 2134 and Assembly Transportation
Seattle, WA 98101 Distribution Systems, Inc. for
Distribution Center I at 7202 South
212th Street in the City of Kent, WA.
- ---------------------------------------------------------------------------------------------
Safeco Credit Co., Inc. Telephone Systems Lease $ 1,544.12
Safeline
Attn: Billie Honey
P.O. Box 84066
Seattle, WA 98124-8468
- ---------------------------------------------------------------------------------------------
Schlesinger, Alan Employment Agreement, as $ -0-
Lamonts Apparel, Inc. amended, extended and restated
12413 Willows Road, NE pursuant to the Plan
Kirkland, WA 98034
Post-petition agreement. Listed as a
Lawrence A. Jacobson matter of prudence.
Cohen and Jacobson
577 Airport Boulevard, Suite 230
Burlingame, CA 94101
- ---------------------------------------------------------------------------------------------
Schlesinger, Alan Indemnification Agreement $ -0-
c/o Lamonts Apparel, Inc.
12413 Willows Road, NE
Kirkland, WA 98034
- ---------------------------------------------------------------------------------------------
Scott Wetzel Services, Inc Claims Services Contract $ -0-
3000 "C" Street, Suite 110
Anchorage, AK 99503
- ---------------------------------------------------------------------------------------------
Scott Wetzel Services, Inc. Claims Services Contract $ -0-
Corporate Claims
33801 First Way South, Suite 351
Federal Way, WA 98003
- ---------------------------------------------------------------------------------------------
Sensormatic Electronics Corp. Lease for Ink Tag equipment $ 2,296.81
500 NW 12th Avenue
Deerfield Beach, FL 33442
- ---------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-5
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
Shoe Corporation of America Shoe Department License Agreement $ -0-
2035 Innis Road
Columbus, OH 43224 Post-petition agreement per order
Attn: Mike Dervis, Sr. VP of Operations dated 05/26/95. Listed as a matter of
prudence.
J. Baker
555 Turnpike Street
Canton, MA 02021
Attn: Patty Cimmino
- ---------------------------------------------------------------------------------------------
Standard Insurance Company Group Long Term Disability Insurance $ -0-
P.O. Box 5673 Coverage
Portland, OR 97228-5673
- ---------------------------------------------------------------------------------------------
Syncsort Inc Software Maintenance Contract $ -0-
50 Tice Blvd, CN 18
Woodcliff Lake, NJ 07675
- ---------------------------------------------------------------------------------------------
The Aetna Casualty & Surety Company Insurance Policy $ -0-
1501 Fourth Avenue, Suite 1000 Umbrella
Seattle, WA 98101
- ---------------------------------------------------------------------------------------------
The Aetna Casualty & Surety Company Insurance Policy $ -0-
1501 Fourth Avenue, Suite 1000 Automobile
Seattle, WA 98101
- ---------------------------------------------------------------------------------------------
The Maryland Insurance Group Group Insurance Plan $ -0-
3910 Keswick Road
Baltimore, MD 21211
- ---------------------------------------------------------------------------------------------
Trans Union Corporation Loss Prevention Skip Tracing $ 906.96
400 112th Avenue N.E. #330 Contract
Bellevue, WA 98004
- ---------------------------------------------------------------------------------------------
Transamerica Occidental Life Voluntary Personal Accident $289.98
c/o Transamerica Assurance Company Insurance Coverage
File #52649
Los Angeles, CA 90074-2649
- ---------------------------------------------------------------------------------------------
UCI Distribution Plus Maintenance Service Contract $ 13,011.68
P.O. Box 3802
Burbank, CA 91504
- ---------------------------------------------------------------------------------------------
UFCW Local 1001, AFL-CIO 1996 - 1998 Collective Bargaining $ -0-
12838 SE 40th Place Agreement (Office Employees)
Bellevue, WA 98006
Post-petition agreement per order
dated 05/17/96. Listed as a matter of
prudence.
- ---------------------------------------------------------------------------------------------
UFCW Local 1001, AFL-CIO 1997-1999 Agreement $ -0-
12838 SE 40th Place
Bellevue, WA 98008 Post-petition agreement per order
dated 9/25/97. Listed as a matter of
prudence.
- ---------------------------------------------------------------------------------------------
Wells Fargo Armored Services Corp. Armored Car Services Contract $ 294.74
P.O. Box 4734
Pocatello, ID 83205
- ---------------------------------------------------------------------------------------------
Wells Fargo Armored Services Corp. Armored Car Services Contract $ -0-
2285 West California Ave.
Salt Lake City, UT 84104
- ---------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-6
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
William Dierickx Company Fax and Canon Copiers Maintenance $ 4,256.53
3075 112th Avenue N.E., Suite 100 Contract
P.O. Box 96046
Bellevue, WA 98004
- -----------------------------------------------------------------------------------------------
William M. Mercer Incorporated Employee Benefits Consulting $ -0-
P.O. Box 24787 Retainer Agreement
Seattle, WA 98124-0787
- -----------------------------------------------------------------------------------------------
Willows 124 Associates, Limited Partnership Corporate Offices $ -0-
c/o Newport Towers Limited Partnership Lease Date: 02/23/96
3605 132nd Avenue SE, Suite 300
Bellevue, WA 98006-1323 Post-petition lease. Listed as a matter
of prudence.
- -----------------------------------------------------------------------------------------------
Wells Fargo Bank Store #502 - Burien $ 142,680.57
PO Box 21927 (Mac #6540-141) Lease Date: 09/19/68
Seattle, WA 98111-3927
Contact: Mark Lusier
First Interstate Bank of Washington, NA
c/o Glenn R. Nelson
Oles, Morrison & Rinker
3300 Columbian Center
701 5th Avenue
Seattle, WA 98104
- -----------------------------------------------------------------------------------------------
Lake Forest Park Towne Center Store #506 - Forest Park $28,534.08
c/o Trammell Crow Company Lease Date: 06/13/88
Dept. 376
P.O. Box 34935
Seattle, WA 98124-1935
Contact: Tim Dickerson, Property Manager
- -----------------------------------------------------------------------------------------------
Terranomics Crossroads Association Store #508 - Crossroads $ 28,893.49
320 108th Ave. N.E., Suite 406 Lease Date: 12/20/63
Bellevue, WA 98004
Contact: Susan Benton, Property Manager
Edwin G. Woodward. Esq.
Wolfstone, Panchot & Bloch
301 Second Avenue, Suite 1500
Seattle, WA 98104-1577
- -----------------------------------------------------------------------------------------------
Tomlinson Black Management, Inc. Store #510 - Manito $ 29,674.32
107 South Howard, Suite 600 Lease Date: 11/07/85
Spokane, WA 99204-0373
Contact: Sheron Olson, Lease Administrator
Ernst Home Center, Inc.
15511 Sixth Avenue
Seattle, WA 98101
Contact: Douglas E. Newell
- -----------------------------------------------------------------------------------------------
Circle V Management Company Store #512 - Totem Lake $ 141,574.49
12620 120th Avenue NE, Suite 202 Lease Date: 01/16/73
Kirkland, WA 98034
Contact: Linda Schattenberger, Mall Manager
Joel G. Green
Green & Ockerman
9757 Juanita Drive NE, Suite 100
Kirkland, WA 96034
- -----------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-7
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
Shadle Shopping Center Store #514 - Shadle Park $ 2,907.56
South 107 Howard, Suite 414 Lease Date 07/05/73
Spokane, WA 99204
Contact: B.E. Coe, Vice President
Century Properties Fund XI
c/o Tomlinson Black Management, Inc.
107 South Howard, Suite 600
Spokane, WA 99204-0373
Contact: John M. Bennea
- --------------------------------------------------------------------------------------------
Hickel Investment Company Store #516 - Seward Highway $ -0-
Box 101700 Lease Date: 05/17/74
Anchorage, AK 99510-1700
Contact: Nick Pefanis
- ---------------------------------------------------------------------------------------------
Wesbuild, Inc. Store #518 - Westwood Village $ 20,411.04
D-10 Westwood Town Center Lease Date: 04/01/74
2500 SW Barton
Seattle, WA 98126
Contact: John Whitson, General Manager
Wesbild, Inc.
c/o David R. Riley
800 Fifth Avenue, Suite 4100
Seattle, WA 98104
- ---------------------------------------------------------------------------------------------
SeaTac Mall Association Store #520 - SeaTac Mall $ 10,047.44
1928 South SeaTac Mall Lease Date: 12/02/74
Federal Way, WA 98003
Contact: Elaine Mansoor, General Manager
Sea - Tac Mall Associates
c/o Ernie Zachary Park, Esq.
Bewley, Lassieben & Miller
13215 E. Penn Street, Suite 510
Whittier, CA 90602
- ---------------------------------------------------------------------------------------------
Fred Meyer, Inc. Store #522 - Pocatello $ 15,185.69
P.O. Box 42121 Lease Date: 01/07/76
Portland, OR 97242
Contact: Beverly Staulz
Joy Wright
Chris Matthews and Associates
c/o Pocatello Mall Office
800 Yellowstone
Pocatello, ID 83201
Contact: Jodie Bates, Property Manager
Daniel C. Vaughn
Cairncross & Hemplemann, P.S.
701 Fifth Avenue, Suite 7000
Seattle, WA 98104-7016
- ---------------------------------------------------------------------------------------------
Gavora, Inc. Store #524 - Fairbanks $ 64,128.01
Box 70021 Lease Date: 04/29/76
Fairbanks, AK 99701
Contact: Bill Whaley
- ---------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-8
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
Factoria Square Mall Store #526 - Factoria $ 39,735.17
1388 Sutter Street, Suite 730 Lease Date: 12/01/75
San Francisco, CA 94109
Contact: Paul Roggencamp
Craig Chang
Factoria Square L.P.
Brad Brigham
Jameson Babbitt Stiles & Lombard
999 Third Ave, Suite 1900
Seattle, WA 98104
- --------------------------------------------------------------------------------------------
Aetna Life Insurance Company Store #526 - Factoria $ -0-
151 Farmington Avenue Reciprocal Easement Agreement
Hartford, CT 06156
Attn: Carl Geupel
Ernst Home Center, Inc.
1511 Sixth Avenue
Seattle, WA 98101
Attn: Real Estate Department
Ellis Kantor
Factoria Square Mall
1388 Sutter Street, Suite 730
San Francisco, CA 94108
Contact: Craig Chang
Jacob M. Alkow
(Big 5 Sporting Goods)
United Merchandising Corp.
2525 East El Segundo Blvd
El Segundo, CA 90245-4632
Attn: Keith L. Moore
Mervyn's
22301 Foothill Blvd
Hayward, CA 90624
Attn: Senior Property Administrator
Target Stores
33 South Sixth Street
P.O. Box 1392
Minneapolis, MN 55440-1392
Attn: Mark B. Johnson
Payless Drug Stores Northwest, Inc.
9275 South West Peyton Lane
Wilsonville, OR 97070
Attn: Robert B. Sari
Safeway, Inc.
4th and Jackson Streets
Oakland, CA 94660
Attn: Sharman Braff
Senior Attorney
- --------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-9
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
Safeway, Inc. Store #526 - Factoria $ -0-
1000 124th Avenue, NE Reciprocal Easement Agreement
P.O. Box 90947 (continued)
Bellevue, WA 98009-0947
Attn: Richard L. Costanzo
Washington Mutual Savings Bank
Corporate Real Estate SAS0407
1191 Second Avenue
Seattle, WA 98101
Attn: Kent Wiegel
- --------------------------------------------------------------------------------------------
Wells Fargo Realty Advisors Funding, Inc. Store #528 - Northgate $ 6,759.79
111 Sutter Street, 17th Floor Lease Date: 11/01/77 (Hudesman)
San Francisco, CA 94104
Contact: Don Kuemmeler $ 23,732.53
(Debartolo)
David & Linda Hudesman
1620 43rd E
Seattle, WA 98112
Contact: Skip Gilbert
Northgate Mall Partnership
Cynthia M. Bartlett, Esq.
Debartolo Properties Management, Inc.
7620 Market Street
Youngstown, OH 44513
Principal Mutual Life Insurance Co
Dennis Ballard, attorney
711 High Street
Des Moines, IA 50392-0301
Principal Mutual Life Insurance Co
Phillip T. Hutchison, attorney
Casey & Pruzan
720 3rd Avenue, 18th floor
Seattle, WA 98014
- --------------------------------------------------------------------------------------------
Country Club Mall Store #530 - Idaho Falls $ -0-
c/o Consolidated Property Management Ltd. Lease Date: 06/21/76
168 N 9th Street, Suite 250
P.O. Box 2666 Previously assumed per order dated
Boise, ID 83701 08/08/95. Listed as a matter of
Contact: Linda Roberts prudence.
Country Club Mall Associates
c/o Diversified Equities Limited Partnership
34555 Chargin Boulevard
Moreland Hills, Ohio 44022
- --------------------------------------------------------------------------------------------
Wenatchee Valley Mall Store #532 - East Wenatchee $ 8,793.64
Eastmont Enterprises Lease Date: 01/16/76 (WVM Partners)
c/o Center Investments
PO Box 7219 $ 1,168.52
East Wenatchee, WA 98802-7219 (Merchant Dues)
Contact: Dan Barr, General Manager
- --------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-10
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
First Union Management Inc. Store #536 - Yakima $ 19,049.89
55 Public Square, Suite 1910 Lease Date: 03/23/78
Cleveland, OH 44113-1937
Contact: Lynn L. Boudon
- --------------------------------------------------------------------------------------------
Capital Mall Company Store #538 - Olympia $ 41,515.81
Capital Mall Lease Date: 09/30/77
324 Capital Mall
Olympia, WA 98502-5089
Contact: Gene Coldon, General Manager
Capital Mall Company
c/o Ernie Zachary Park, Esq.
Bewley, Lassleben & Miller
13215 E Penn Street, Suite 510
Whittier, CA 90602
- --------------------------------------------------------------------------------------------
Acquiport Seven Corporation Store #540 - Alderwood Mall $ 6,158.19
c/o The Edward J. DeBartolo Corp. Lease Date: 02/08/96
7655 Market Street
P.O. Box 3287 Post-petition lease per order dated
Youngstown, OH 44513-6085 01/23/96. Listed as a matter of
Contact: Robin Butler prudence
Benaroya Capital Company, LLC
1001 Fourth Avenue, Suite 4700
Seattle, WA 98154
David N. Lombard
Jameson Babbitt Stites & Lombard
999 Third Avenue, Suite 1900
Seattle, WA 98104
- --------------------------------------------------------------------------------------------
Acquiport Seven Corporation Store #540 - Alderwood Mall $ -0-
c/o The Edward J. DeBartolo Corp. Operating Agreement
7655 Market Street
P.O. Box 3287
Youngstown, OH 44513-6085
Contact: Robin Butler
Acquiport Seven Corporation
c/o Jones Lang Wootton Realty Advisors
101 East 52nd Street
New York, NY 10022
Attn: Mr. Charles Grossman
J.C. PENNY PROPERTIES, INC.
One Century Centre
1750 East Golf Road
Schaumburg, IL 60173-5049
J.C. PENNY COMPANY, INC.
1901 N. Roselle Road
Schaumburg, IL 60173-5049
Attn: Real Estate Counsel
- --------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-11
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
NORDSTROM, INC. Store #540 - Alderwood Mall $ -0-
1501 Fifth Avenue Operating Agreement (continued)
Seattle, WA 98101
Attn: President
NORDSTROM REALTY, INC.
c/o NORDSTROM, INC.
1501 Fifth Avenue
Seattle, WA 98101
Attn: President
Sears Roebuck & Co.
Sears Tower
Chicago, IL 60684
Attn: National Mgr, Real Estate Planning
Group, Department 824 RE
Sears Roebuck & Co.
Sears Tower
Chicago, IL 60684
Attn: General Counsel
Merchandise Group Department
The Bon, Inc.
Third Ave. & Pine Street
Seattle, WA 98181
Attn: Chairman
The Bon, Inc.
c/o Federated Department Stores, Inc.
7 West Seventh Street
Cincinnati, OH 45202
Attn: Real Estate Dept.
- --------------------------------------------------------------------------------------------
Palouse Empire Mall Associates Store #452 - Palouse Empire $ 77,315.80
c/o Barnes Management & Development Co. Lease Date: 06/22/78
Attn: Orville Barnes
W. 933 Third Avenue
Spokana, WA 99201
- --------------------------------------------------------------------------------------------
Northway Mall Store #544 - Northway Mall $ 22,963.65
3101 Penland Parkway, Suite M-1 Lease Date: 03/30/79
Anchorage, AK 99508-1955
Contact: Barbara Dickson, Assistant Mall Mgr
Northway Mall
c/o Rawson, Blum & Company
50 California Street, Suite 1400
San Francisco, CA 94111
Contact: Robert H. Barrett, Vice President
- --------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-12
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
TRF Management Corp. Store #546 - Wishkah Mall $ 11,335.68
P.O. Box 5727 Lease Date: 06/08/77
12400 SE 38th Street
Bellevue, WA 98006-0227
Contact: Scott Tapp, Property Acct.
Robert Burton, Receiver
Laurence E. Mason, Attorney for Receiver
Julin, Fosso, Sage, McBride & Mason
1001 4th Avenue, Suite 3900
Seattle, WA 98154-3720
Pacific Mutual Life Insurance Co.
c/o Marc Barreca
Prestion Gates & Ellis
5000 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7078
- ---------------------------------------------------------------------------------------------
Loveless Tollefson Properties Store #548 - Juneau $-0-
606 110th Ave. NE, Suite 206 Lease Date: 01/13/87
Bellevue, WA 98004
Contact: Bud Jaeger, Mall Manager Previously assumed per order dated
01/12/96. Listed as a matter of
prudence.
- ---------------------------------------------------------------------------------------------
Sol-Ken Enterprises Store #550 - Soldotna $ 1,463.58
35277 Kenai Spur Road Lease Date: 05/16/84
Soldotna, WA 99669
Contact: Earl C. Mundell
- ---------------------------------------------------------------------------------------------
Dimond Center Store #552 - Seward & Dimond $ 112,165.67
800 East Dimond Blvd., Suite 3-500 Lease Date: 07/09/81
Anchorage, AK 99515
Contact: Nancy Trinklein, Controller
- ---------------------------------------------------------------------------------------------
K.O. Erickson Trust Fund Store #556 - Port Angeles $ 8,333.00
2611 Broadway E Lease Date: 04/09/84
Seattle, WA 98102
Contact: David Storm, Managing Trustee
- ---------------------------------------------------------------------------------------------
Kitsap Mall Store #558 - Kitsap Mall $ 20,954.12
PO Box 2147 Lease Date: 08/07/84
10315 Silverdale Way NW
Silverdale, WA 98383
Contact: Bob Jones, General Manager
Winmar Company, Inc.
700 5th Avenue, Suite 2600
Seattle, WA 98104-5026
Attn: Lauri J. Langton
Patty Fernandez
- ---------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-13
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
J.C. PENNEY COMPANY, INC. Store # 558 - Kitsap Mall $-0-
P.O. Box 4015 Construction and Operating
Buena Park, CA 90624 Reciprocal Easement Agreement
Attn: Real Estate Counsel
J.C. PENNEY COMPANY, INC.
1901 N. Roselle Road
Schaumburg, IL 60173-5049
Attn: Real Estate Counsel
J.C. PENNEY COMPANY, INC.
The Penney Store
Kitsap Mall
Silverdale, WA 98383
Attn: Store Manager
Kitsap Associates Limited Partnership
c/o Winmar Company, Inc.
P.O. Box 21545
Seattle, WA 98111
Mervyn's
22301 Foothill Blvd
Hayward, CA 90624
Attn: Senior Property Administrator
Sears Roebuck & Co.
Sears Tower
Chicago, IL 60684
Attn: National Mgr, Real Estate Planning
Group
Department 824 RE
Sears Roebuck & Co.
Sears Tower
Chicago, IL 60684
Attn: General Counsel
Merchandise Group Department
The Bon, Inc.
Third Ave. & Pine Street
Seattle, WA 98181
Attn: Chairman
The Bon, Inc.
c/o Federated Department Stores, Inc.
7 West Seventh Street
Cincinnati, OH 45202
Attn: Real Estate Dept.
- ---------------------------------------------------------------------------------------------
TRF Management Corp. Store #562 - Wasilla $-0-
Cottonwood Creek Mall Lease Date: 04/20/84
1801 Parks Highway, Suite M-1
Wasilla, AK 99654 Previously assumed per order dated
Contact: Gudrun Gayman, Property Manager 11/09/95. Listed as a matter of
prudence.
- ---------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-14
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
Lewiston Center Store #564 - Lewiston $ 30,861.43
East 325 Sprague Avenue Lease Date: 06/07/84
Spokane, WA 99202
Contact: Gary Florence, Mall Mgr.
Joan Peterson
- ---------------------------------------------------------------------------------------------
Highland Hills Shopping Center Store #566 - Highland Hills $ 9,844.72
c/o Koehler, McFayden and Company Lease Date: 01/23/87
1601 Fifth Avenue, Suite 2210
Seattle, WA 98101
Contact: Dan Kettman, Controller
- ---------------------------------------------------------------------------------------------
A.P. Century V, L.P. Store #568 - Marysville $-0-
c/o Century Properties, Inc. Lease Date: 04/29/87
365 W. Passaic Street
Rochelle Park, NJ 07662 Previously assumed per order dated
Contact: Celeste Benzoni 02/23/95. Listed as a matter of
Controller prudence.
New Valley Corporation
P.O. Box 35090
Newark, NJ 07193-5090
- ---------------------------------------------------------------------------------------------
Fred Meyer, Inc./Roundup Co. Store #570 - Coeur D'Alene $ 46,444.66
P.O. Box 42121 Lease Date: 05/07/92
Portland, OR 97242
Contact: Beverly Stautz
- ---------------------------------------------------------------------------------------------
The Cataro Company Store #572 - Puyallup $ 33,415.43
2445 Belmont Avenue Lease Date: 02/16/88
P.O. Box 2186
Youngstown, OH 44504-0186
Contact: David Montevideo/Don Desalvo
South Hill Mall
P.O. Box 75032
Cleveland, OH 44101-2199
- ---------------------------------------------------------------------------------------------
The Edward J. Debartolo Corporation Store #586 - Tri-Cities $ 22,191.02
7655 Market Street Lease Date: 07/11/88
PO Box 3287
Youngstown, OH 44512
Contact: Don Williams, Mall Mgr.
R. Lynn Squire
Columbia Mall Partnership
Cynthia M. Bartlett, Esq.
Debartolo Properties Management, Inc.
7620 Market Street
Youngstown, OH 44513
Wells Fargo Realty Advisors Funding, Inc.
111 Sutter Street, 17th Floor
San Francisco, CA 94104
Contact: Don Kuemmeler
- ---------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-15
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
The King Company Store #594 - Corvallis $ 11,178.12
Rainier Cold Storage Lease Date: 1988
6004 Airport Way South
Seattle, WA 98108
Contact: Bob King, Owner
The King Company
c/o Keith Allred
Davis Wright Tremaine
2600 Century Square
1501 Fourth Avenue
Seattle, WA 98101
- ---------------------------------------------------------------------------------------------
Merlyn Doleman Store #594 - Corvallis (Parking Lot $-0-
464 Tahos Road Lease)
Orinda, CA 94583
Lease Date: 06/30/75
- ---------------------------------------------------------------------------------------------
Price Development Company Store #600 - Logan $ 18,067.64
1300 North Main Lease Date: 12/22/78
Logan, UT 84321
Contact: P. Todd Wightmar,
General Manager
Price Financing Partnership
35 Century Park Way
Salt Lake City, UT 84115
Contact: Marilyn M. Smedley
- ---------------------------------------------------------------------------------------------
Kmart Corporation Store #606 - Moses Lake $ 16,653.25
International Headquarters Lease Date: 04/07/93
Real Estate Department
3100 West Big Beaver Rd.
Troy, MI 48084-3163
Contact: Marilyn J. Thomas,
Property Administrator
- ---------------------------------------------------------------------------------------------
Mercury Development Store #608 - Astoria $ 15,989.32
7180 SW Fir Loop, Suite 100 Lease Date: 07/21/93
Tigard, OR 97223
Contact: David P. Zimmel,
President
Portland Fixture Limited
Partnership
13635 MW Cornell, #200
Portland, OR 97229
- ---------------------------------------------------------------------------------------------
CWO/TCEP II Joint Venture #1 Store #610 - Issaquah $-0-
c/o Trammell Crow Lease Date: 05/18/94
5601 Sixth Avenue South
PO Box 80326 Previously assumed per order dated
Seattle, WA 98108 07/08/95. Listed as a matter of
prudence.
- ---------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT G-16
<PAGE>
LIST OF EXECUTORY CONTRACTS REJECTED
Effective upon the Effective Date, the Debtor in Possession hereby
rejects all executory contracts and unexpired leases that exist between the
Debtor and any other entity which have not previously been rejected, except
the Debtor in Possession does not reject those executory contracts and
unexpired leases (i) which are listed in Exhibit G to the Plan and assumed
pursuant to Section VI.A of the Plan, or (ii) which are or have been
specifically assumed, or assumed and assigned, by the Debtor in Possession
with the approval of the Bankruptcy Court by separate proceeding in the
Chapter 11 Case. The executory contracts and unexpired leases rejected under
the Plan shall include, without limitation, those listed below. Inclusion
herein does not constitute an admission by the Debtor in Possession that an
executory contract or unexpired lease exists or is valid. As a matter of
prudence, the following list includes contracts and leases which may have
previously been rejected or canceled or assigned or which may have expired:
SEE ATTACHED LIST.
EXHIBIT H TO PLAN
DEBTOR'S MODIFIED AND RESTATED STUTMAN, TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 70
<PAGE>
LEASES AND EXECUTORY CONTRACTS REJECTED
1. Name and Mailing Address of other Parties to Lease or Contract
2. Description of Contract or Lease
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NAME & MAILING ADDRESS DESCRIPTION OF CONTRACT/LEASE
- ----------------------------------------------------------------------------------------------------
<S> <C>
Aaron, Peter Executive Employment Agreement
5015 133rd Avenue NE
Bellevue, WA 98005
- ----------------------------------------------------------------------------------------------------
Aaron, Peter Indemnification Agreement
5015 133rd Avenue NE
Bellevue, WA 98005
- ----------------------------------------------------------------------------------------------------
ADT Alarm Monitoring Contract for Stores
1916 Boren Avenue
Seattle, WA 98101
- ----------------------------------------------------------------------------------------------------
Air Plus Mechanical, Inc. Maintenance Service Contract
P.O. Box 3292
Spokane, WA 99220
- ----------------------------------------------------------------------------------------------------
Alascom, Inc. Telephone Services Contract
Processing Center
P.O. Box 196790
Anchorage, AK 99519-6790
- ----------------------------------------------------------------------------------------------------
Altus Finance, S.A., AIF II, Debt Registration Rights Agreement
L.P., Executive Life Dated as of October 30, 1992
Insurance Company of New York
- ----------------------------------------------------------------------------------------------------
Altus Finance, S.A., AIF II, Master Recapitalization Agreement
L.P., Executive Life Insurance
Company of New York, The Prudential
Assurance Company Limited, Morgens
Waterfall Vintiadis & Co., Inc.,
Merrill Lynch Phoenix Fund, Inc.,
Insurance Commissioner of the State of
California as Conservator for Pacific
Standard Life Insurance Co., New Street
Capital Corporation, T. Rowe High Yield
Fund, Inc., Warren F. Florkiewicz,
Melville B. Wier, John R. Sloan, Penn
Series High Yield Bond Fund, The
Thompson Company, Fidelity Management &
Research Company, The Philp Co., Jermome
Chazen, Wyn L. Lydecker, Western Pacific
Life Insurance Company, in Conservation,
John Hancock Capital Fund One
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H-1
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Apollo Retail Partners, L.P., Merrill Equity Registration Rights Agreement
Lynch Phoenix Fund, Inc., New Street Dated as of October 30, 1992
Capital Corporation, T. Rowe High Yield
Fund, Inc., Executive Life Insurance
Company of New York, The Thompson
Company, Penn Series High Yield Bond
Fund, John Hancock Capital Growth
Management,Inc., The Prudential
Assurance Company Limited, Jerome Chazen,
David E. Bowe, John R. Sloan, James M.
Harrison, The Philp Co., Western Pacific
Life Insurance Company, in Conservation,
Warren Florkiewicz, Melville B. Wier,
Morgens Waterfall Vintiadis & Co. Inc.,
Morgens Waterfall Vintiadis Investments
N.V., Morgans Waterfall Income Partners,
Betje Partners, Phoenix Partners,
Restart Partners L.P., Restart Partners
II, L.P., Restart Partners III, L.P., The
Bond Fund of the Common Fund
- ----------------------------------------------------------------------------------------------------
Apollo Retail Partners. L.P., Morgens Stockholder's Voting Agreement
Waterfall Vintiadis & Co. Inc.,
Morgens Waterfall Vintiadis Investments
N.V., Morgens Waterfall Income Partners,
Betje Partners, Pheonix Partners, Restart
Partners L.P., Restart Partners II, L.P.,
Restart Partners III, L.P., The Bond Fund
of the Common Fund, Merrill Lynch Phoenix
Fund, Inc., Insurance Commissioner of the
State of California as Conservator for
Pacific Standard Life Insurance Co., New
Street Capital Corporation, T. Rowe High
Yield Fund, Inc. Executive Life Insurance
Company of New York, The Thompson Company,
The Philp Co., Western Pacific Life
Insurance Company, in Conservation, Penn
Series High Yield Bond Fund, John Hancock
Capital Growth Management, Inc., The
Prudential Assurance Company Limited,
Jerome Chazen, Warren Florkiewicz,
Melville B. Wier, David E. Bowe, John R.
Sloan, James M. Harrison
- ----------------------------------------------------------------------------------------------------
Armored Express, Inc. Armored Car Services Contract
P.O. Box 7641
Olympia, WA 98507
- ----------------------------------------------------------------------------------------------------
AT&T Uniplan Telephone Services Contract
P.O. Box 8206 dated 8/30/94
Fox Valley, IL 60572-8206
- ----------------------------------------------------------------------------------------------------
Austin Chase Coffee License Agreement for Espresso
320 Fourth Street SW Coffee Cart
Seattle, WA 98117
- ----------------------------------------------------------------------------------------------------
Bank of America Capital Management, Inc. Lamonts Apparel, Inc.'s Non-qualified
Trustee Supplemental TRIP Benefit Plan
Box 84993
Seattle, WA 98124-6293
Lamonts Apparel, Inc. Supplemental (TRIP)
Benefit Plan (as Amended ) dated 11/15/94
12413 Willows Road, NE
Kirkland, WA 98034
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H-2
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Bankamerica State Trust Co Benefits Trust Custody &
Institutional Trust Services Management Agreement
Bank of America Capital Management, Inc.
P.O. Box 84993
Seattle, WA 98124
- ----------------------------------------------------------------------------------------------------
Bankers Trust Company, Trustee 13.5% Notes Indenture
Attn: Stanley Berg
Corporate Trust and Agency Group
Fourth Albany Street, 4th Floor
New York, NY 10015
- ----------------------------------------------------------------------------------------------------
Bekins Northwest Relocation Services Agreement
P.O. Box 30725
Seattle, WA 98103
- ----------------------------------------------------------------------------------------------------
Bilger, Arthur H. Indemnification Agreement
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
- ----------------------------------------------------------------------------------------------------
Bowe, David E. Indemnification Agreement
4446 Taos Road
Dallas, TX 75209
- ----------------------------------------------------------------------------------------------------
Cascade Olympic Credit, Inc. Collection Agency Service Contract
16150 NE 85th Street, Suite 214-215
Redmond, WA 98052
- ----------------------------------------------------------------------------------------------------
CCI Mechanical Service Maintenance Service Contract
PO Box 25788
Salt Lake City, UT 84125
CCI Mechanical Service
c/o Debt Acquisition Company of America III
2120 West Washington Street
San Diego, CA 92111
- ----------------------------------------------------------------------------------------------------
Commerce and Industry Ins. Co. Insurance Policy
American Home Assurance Co. (The following policy may not be
99 John Street, 21st Floor an executory contract, but is listed
New York, NY 10038 as a matter of prudence.)
Attn: Harry R. Bryant #WC 152-24-90 RA
- ----------------------------------------------------------------------------------------------------
Computer Repair Inc. Maintenance Service Contract
12524 130th Lane, NE
Kirkland, WA 98034
- ----------------------------------------------------------------------------------------------------
Continental Insurance Company Coverage: Property Damage
2900 First Interstate Center
999 Third Avenue, P.O. Box 24011
Seattle, WA 98124-9611
- ----------------------------------------------------------------------------------------------------
Copses, Peter P. Indemnification Agreement
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
- ----------------------------------------------------------------------------------------------------
DataBase Inc. MIS Contract
307 S 140th Street
Seattle, WA 98168-3431
DataBase Inc.
c/o Debt Acquisition Company of America III
2120 West Washington Street
San Diego, CA 92111
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H-3
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Finlay Fine Jewelry Corporation License Agreement
521 Fifth Avenue
New York, NY 10175 Previously terminated by agreement of the
Attn: Bonni G. Davis, Esq. parties. Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
First Trust National Association 10.25% Notes Indenture
180 East Fifth Street
St. Paul, MN 55101
- ----------------------------------------------------------------------------------------------------
Florkiewicz, Warren F. Indemnification Agreement
6908 E. Thomas Road
Scottsdale, AZ 85251
- ----------------------------------------------------------------------------------------------------
Giordano, Andrew A. Indemnification Agreement
P.O. 2383
Arlington, VA 22202
- ----------------------------------------------------------------------------------------------------
Harrison, James M. Indemnification Agreement
c/o Pangbums
2000 White Settlement Road
Fort Worth, TX 76107
- ----------------------------------------------------------------------------------------------------
Helms, Luke Indemnification Agreement
c/o Bank of America
555 California Street, 40th floor
San Francisco, CA 94104
- ----------------------------------------------------------------------------------------------------
Holznagel, Wallace Employment Agreement
8017 E. Via de Viva
Scottsdale, AZ 85258 Previously terminated by agreement of the
parties. Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Holznagel, Wallace Indemnification Agreement
8017 E. Via de Viva
Scottsdale, AZ 85258
- ----------------------------------------------------------------------------------------------------
Imagetech Savin Copier Lease
192 Nickerson Street, Suite 200
Seattle, WA 98109
Imagetech
c/o Debt Acquisition Company of
America III
2120 West Washington Street
San Diego, CA 92111
- ----------------------------------------------------------------------------------------------------
Industrial Indemnity Insurance Policy - Worker Compensation
1601 Fifth Avenue, Suite 1300 (The following policies may not be
Seattle, WA 98101 executory contracts, but are listed as a
matter of prudence.)
Policy #CR8816532 (5/1/92 - 5/1/93)
Policy #CR8816522 (5/1/92 - 5/1/93)
Policy #CR9590381 (5/1/93 - 5/1/94)
Policy #CR9590382 (5/1/93 - 5/1/94)
Policy #CR9590949 (5/1/94 - 5/1/95)
- ----------------------------------------------------------------------------------------------------
Infotech Corporation Computer Services Agreement
1511 Sixth Avenue
Seattle, WA 98101
- ----------------------------------------------------------------------------------------------------
Keen Realty Consulting Inc. Real Estate Services Contract
60 Cutter Mill Road, Suite 616
Great Neck, NY 11021 Post-petition agreement. Previously
terminated by agreement of the parties.
Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H-4
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Kulp, Frank (a) Executive Employment Agreement
10 Columbia Key (b) Resignation Agreement
Bellevue, WA 98006
Previously rejected per order dated
01/27/95. Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Kulp, Frank Indemnification Agreement
10 Columbia Key
Bellevue, WA 98006
- ----------------------------------------------------------------------------------------------------
Lamonts Apparel, Inc. 1992 Incentive Employee Stock Option Plan and all
and Nonstatutory Option Plan employee stock options issued by Lamonts.
12413 Willows Road, NE
Kirkland, WA 98034
- ----------------------------------------------------------------------------------------------------
Lamonts Apparel, Inc. Supplemental Non-qualified Supplemental Executive
Executive Retirement Plan (SERP) Retirement Plan
dated 11/15/94
12413 Willows Road, NE
Kirkland, WA 98034
- ----------------------------------------------------------------------------------------------------
Lanier Worldwide, Inc. Dictaphone and Dictation Machines Lease
One Transam Plaza Drive, Suite 550
Oakbrook Terra, IL 60181
- ----------------------------------------------------------------------------------------------------
Liebert Corporation MIS Contract
P.O. Box 70474
Chicago, IL 60673-0001
- ----------------------------------------------------------------------------------------------------
MacDonald-Miller AK, Inc. Maintenance Service Contract
3105 Lakeshore Dr. #8103
Anchorage, AK 99517
- ----------------------------------------------------------------------------------------------------
MacDonald-Miller Service, Inc. Maintenance Service Contract
7707 Detroit Ave. SW
Seattle, WA 98106
- ----------------------------------------------------------------------------------------------------
Makrianes, Jr., James K. Indemnification Agreement
c/o Ward Howell International, Inc.
99 Park Avenue, Suite 2000
New York, NY 10016
- ----------------------------------------------------------------------------------------------------
Matthews, Norman Consulting Agreement
650 Madison Avenue, 23rd floor
New York, NY 10022-1004 Previously rejected per order dated
02/15/95. Listed as a matter of prudence.
Matthews, Norman
c/o Debt Acquisition Company of
America II
2120 West Washington Street
San Diego, CA 9211
- ----------------------------------------------------------------------------------------------------
Matthews, Norman S. Indemnification Agreement
650 Madison Avenue, 23rd floor
New York, NY 10022-1004
- ----------------------------------------------------------------------------------------------------
Merit Mechanical, Inc. Maintenance Service Contract dated
P.O. Box 3395 11/31/94
Redmond, WA 98052
Merit Mechanical, Inc.
c/o Debt Acquisition Company of
America III
2120 West Washington Street
San Diego, CA 92111
- ----------------------------------------------------------------------------------------------------
Miles Financial Services, Inc. Advertising Graphics Systems Lease
Attn: Ron Schell
200 Bellardvale Street
Wilmington, MA 01887
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H-5
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
MMS Systems Inc. Software System License
88 South Finley Avenue
Baskin Ridge, NJ 07920
- ----------------------------------------------------------------------------------------------------
Monarch Marking Marking Machines Lease
P.O. Box 608
Dayton, OH 45401
- ----------------------------------------------------------------------------------------------------
Morris, Carolyn Indemnification Agreement
14670 SW Quail Lane, A102
Beaverton, OR 97007
- ----------------------------------------------------------------------------------------------------
Mountain West Audio, Inc. Maintenance Service Contract
PO Box 26628
Salt Lake City, UT 84126-0628
- ----------------------------------------------------------------------------------------------------
Muzak Maintenance Service Contract
1007 West 32nd Avenue
Anchorage, AK 99503
- ----------------------------------------------------------------------------------------------------
Muzak - Portland Maintenance Service Contract
12595 NE Marx Street
P.O. Box 3
Portland, OR 97230-0927
- ----------------------------------------------------------------------------------------------------
Muzak Ltd. Partnership Maintenance Service Contract
200 South Orcas
Seattle, WA 98108
- ----------------------------------------------------------------------------------------------------
National Security Service Inc. Armored Car Services Contract
980 S.E. Stephens Street
Roseburg, OR 97470
- ----------------------------------------------------------------------------------------------------
National Union Fire Insurance Retrospective Premium Agreement - One
Company Year Plan
99 John Street, 21st Floor (The following policy may not be an
New York, NY 10038 executory contract, but is listed as a
Attn: Harry R. Bryant matter of prudence.)
#WC 152 24 90
- ----------------------------------------------------------------------------------------------------
Newport Towers Limited Partnership (a) Tenant/Landlord Lease Agreement
3605 132nd Avenue SE, Suite 300 (b) Assignment and Assumption
Bellevue, WA 98006 (c) Satellite Dish Agreement
(d) First Amendment to Lease
Vyzis Company
Newport Tower
3605 132nd Ave SE Previously terminated by agreement of
Bellevue, WA 98006 the parties.
Contact: Corey Candioglos Listed as a matter of prudence.
Property Manager
- ----------------------------------------------------------------------------------------------------
Password Pagers Pager Lease
1303 West First Avenue, Suite 200
Spokane, WA 99204
- ----------------------------------------------------------------------------------------------------
Principal Mutual Life Insurance Administration of Group Health Insurance
Company Agreement (Medical/Dental/Vision/Short-
711 High Street Term Disability)
Des Moines, IA 50392-0001
- ----------------------------------------------------------------------------------------------------
PRJ Computer Software Maintenance Contract
1400 Marina Way South
Richmond, CA 94804
- ----------------------------------------------------------------------------------------------------
QRS Computer Services Contract
300 Drake's Landing Road
Greenbrae, CA 94904
- ----------------------------------------------------------------------------------------------------
RCM Corporation Real Estate Services Agreement
600 First Avenue, Suite 620
Seattle, WA 98104
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H-6
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
RCS Inc. Real Estate Services Contract
460 W. 34th Street
New York, NY 100011 Post-petition agreement. Previously
terminated by agreement of the parties.
Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Ressler, Anthony Indemnification Agreement
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
- ----------------------------------------------------------------------------------------------------
Scocimara, Eriberto R. Indemnification Agreement
c/o Scocimara & Company, Inc.
Two Greenwich Plaza
Greenwich, CT 06830
- ----------------------------------------------------------------------------------------------------
SDL Corporation Construction Contract
3150 Richards Road SE
P.O. Box 1685
Bellevue, WA 98009
- ----------------------------------------------------------------------------------------------------
Seafirst Bank Employer Account Agreement
main at Columbia Center
CASC 063800
701 Fifth Avenue
Seattle, WA 98104
- ----------------------------------------------------------------------------------------------------
Security Armored Express, Inc. Armored Car Services Contract
2500 North Cooke
Helena, MT 59604
- ----------------------------------------------------------------------------------------------------
Siegel, Eric B. Indemnification Agreement
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
- ----------------------------------------------------------------------------------------------------
Siegel, Mark Indemnification Agreement
1901 Avenue of the Stars, Suite 1545
Los Angeles, CA 90067
- ----------------------------------------------------------------------------------------------------
Sloan, John R. Indemnification Agreement
300 Crescent Court Suite 900
Dallas, TX 75201
- ----------------------------------------------------------------------------------------------------
Snyder, Leonard (a) Executive Employment Agreement
6277 N Calle Retreta Serena (b) Resignation Agreement
Tucson, AZ 85750
Previously rejected per order dated
01/27/95. Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Snyder, Leonard Indemnification Agreement
6277 N Calle Retreta Serena
Tucson, AZ 85750
- ----------------------------------------------------------------------------------------------------
Society National Bank Warrant Agreement and all warrants
c/o Key Corp Shareholder issued by Lamonts
Services, Inc.
1201 Elm Street, Suite 5050
Dallas, TX 75270
- ----------------------------------------------------------------------------------------------------
SOS Alarm Alarm Monitoring Agreement
10 West Jackson
Medford, OR 97501
SOS Alarm
c/o Debt Acquisition Company of
America III
2120 West Washington Street
San Diego, CA 92111
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H-7
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Soundcom, Inc: Sound system Equipment Lease
Attn: Dave
2701 California Avenue SW
Seattle, WA 98116
- ----------------------------------------------------------------------------------------------------
Sousley Sound and Communications Maintenance Service Contract
108 South 4th Avenue
Yakima, WA 98903-3482
- ----------------------------------------------------------------------------------------------------
Spokane, Earle J. Employment Agreement
5856 N. via Umbrosa
Tucson, AZ 85750-1352 Previously terminated by mutual agreement per
order dated 04/27/95. List as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Spokane, Earle J. Indemnification Agreement
5856 N. via Umbrosa
Tucson, AZ 85750-1352
- ----------------------------------------------------------------------------------------------------
T & M Vending Business Contract/Lease Agreement
10053 NE 17th Street (Vending Machines)
Bellevue, WA 98004
- ----------------------------------------------------------------------------------------------------
Tandem Computer Software/Hardware Maintenance
19191 Vallco Parkway, Loc 4-20 Contract
Cupertino, CA 95014-2594
- ----------------------------------------------------------------------------------------------------
Tandem Computer Software/Hardware Maintenance
10220 NE Points Drive, Suite 100 Contract
Kirkland, WA 98033-7854
- ----------------------------------------------------------------------------------------------------
Tandem Computers Inc. Computer Software/Hardware Maintenance
P.O. Box 6000, File #9661 Contract
San Francisco, CA 94160-9661
Tandem Computers Inc.
c/o Debt Acquisition Company of America III
2120 West Washington Street
San Diego, CA 92111
- ----------------------------------------------------------------------------------------------------
Tandem Computers Inc. Computer Software/Hardware Maintenance
19333 Vallco Parkway Contract
Cupertino, WA 95014
- ----------------------------------------------------------------------------------------------------
Technology Unlimited Inc. Check Encoder Service Contract
1179 Andover Park West
Tukwila, WA 98188
Technology Unlimited Inc.
c/o Debt Acquisition Company of America III
2120 West Washington Street
San Diego, CA 92111
- ----------------------------------------------------------------------------------------------------
Telepage NW Pagers Lease
Attn: Brett
617 Eastlake Ave. East
Seattle, WA 98109
- ----------------------------------------------------------------------------------------------------
Tele-Waves Pagers Pager Lease
PO Box 2909
Yakima, WA 98907-2909
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H-8
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Thompson Consulting Consulting Agreement
J. Sloan and Company
300 Crescent Court, Suite 900 Previously rejected per order dated 02/15/95.
Dallas, TX 75201 Listed as a matter of prudence.
Attn: John R. Sloan
J. Sloan and Company
c/o Debt Acquisition Company of America III
2120 West Washington Street
San Diego, CA 92111
- ----------------------------------------------------------------------------------------------------
Thompson, Jere W. Indemnification Agreement
c/o The Southland Corporation
2828 N. Haskell Avenue
Dallas, TX 75204
- ----------------------------------------------------------------------------------------------------
Thompson, John P. Indemnification Agreement
c/o The Southland Corporation
2828 N. Haskell Avenue
Dallas, TX 75204
- ----------------------------------------------------------------------------------------------------
Trane Oregon Service Co. Maintenance Service Contract
PO Box 23579 (Store #590)
Tigard, Oregon 97281
- ----------------------------------------------------------------------------------------------------
Trane Oregon Service Co. Maintenance Service Contract
PO Box 23579 (Store #580)
Tigard, Oregon 97281
- ----------------------------------------------------------------------------------------------------
United Systems, Inc. Maintenance Service Contract
1021 SW Klickitat Way, Suite 104
Seattle, WA 98134
- ----------------------------------------------------------------------------------------------------
Vintiadis, Polyvios Indemnification Agreement
Khakum Wood
Greenwich, CT 06831
- ----------------------------------------------------------------------------------------------------
Vyzis Company Purchase and Sale Agreement
3605 132nd Avenue SE, Suite 300
Bellevue, WA 98006-1323 Previously terminated by agreement of the parties.
Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
W.W.W. Retail, Inc. Sublease Agreement for Shoe Departments
9341 Courtland Drive
Rockford, MI 49351 Previously rejected per order dated 05/26/95.
Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Walsh Construction Co. Construction Contract
3015 SW First Ave.
Portland, OR 97201
- ----------------------------------------------------------------------------------------------------
Washington Credit, Inc. Collection Agency Service Contract
2001 152nd Ave. NE
Redmond, WA 98073-9729
- ----------------------------------------------------------------------------------------------------
Wier, Melville B. Indemnification Agreement
6908 E. Thomas Road
Scottsdale, AZ 85251
- ----------------------------------------------------------------------------------------------------
Wire Communications Telephone Services
4134 Ingra Street
Anchorage, AK 99503
- ----------------------------------------------------------------------------------------------------
Xerox Corporation Computer Hardware Maintenance Contract
PO Box 25074
Santa Ana, CA 92799
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H-9
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Xerox Corporation MIS Contract
P.O. Box 660506
Dallas, TX 75266-9937
- ----------------------------------------------------------------------------------------------------
Xerox Corporation MIS Contract
P.O. Box 25177
Santa Ana, CA 92799-5177
- ----------------------------------------------------------------------------------------------------
University Village Shopping Center Store #504 - University Village
2637 NE University Village, Suite 7 Lease Date: 05/27/82
Seattle, WA 98105
Contact: Mathew J. Griffin, Vice Pres. Terminated prior to bankruptcy. Listed as a matter
Josalyn Clements, Mall Manager of prudence.
- ----------------------------------------------------------------------------------------------------
Bear Creek Plaza, Oregon, Ltd. Store #534 - Bear Creek
Investment Analysts, Inc. Lease Date: 05/13/77
1415 Oriole Drive
Los Angeles, CA 90069 Previously rejected per order dated 03/24/95.
Attn: F.L. Smothers, Pres. Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Payne Properties and Development Corp. Store #555 - Downtown Spokane
905 West Riverside, Suite 406
Spokane, WA 99201 Previously rejected per order dated 03/24/95.
Attn: Edward A. "Al" Payne Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Vyzis Company Store #574 - Lakewood
3605 132nd SE, Suite 300 Lease Date: 1988
Bellevue, WA 98006
Contact: John Candaux Previously rejected per order dated 02/24/95.
Retail Acctg. Manager Listed as a matter of prudence.
Skip Gilbert
c/o Seattle Mortgage Company
1800 112th Avenue NE, Suite 300
Bellevue, WA 98004
Contact: Skip Gilbert
Co-Executor for the Estate of David Hudesman
- ----------------------------------------------------------------------------------------------------
Huna Totem Corporation Store #576 - Everett
Seattle Pacific Realty, Inc. Lease Date: 12/16/87
Greg Clos, Property Manager
1904 3rd Avenue, #710 Previously rejected per order dated 02/24/95.
Seattle, WA 98101 Listed as a matter of prudence.
Contact: Bianca Harrison, Vice President
- ----------------------------------------------------------------------------------------------------
The Good Guys, Inc. Store #578 - Washington Circle
7000 Marina Blvd. Lease Date: 11/22/88
Brisbane, CA 94005
Contact: Gregg Steele Previously terminated by agreement of the parties.
VP Real Estate Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
The Cafaro Company Store #580 - Vancouver Plaza
2445 Belmont Avenue Lease Date: 06/06/88
PO Box 2188
Youngstown, OH 44504-0188 Previously rejected per order dated 02/24/95.
Contact: Herb Brooks, Mall Manager Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Elliot Associates, Inc. Store #582 - Hillsboro
50 SW Pine Street #200 Lease Date: 03/15/88
Portland, OR 97204
Contact: Matt Sichel Previously rejected per order dated 12/20/96.
Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H-10
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
S.Lloyd Assoc., Ltd. Store #588 - Lloyd Center
c/o Heitman Prop. Oregon Lease Date: 08/09/90
Lloyd Center Mall
2201 Lloyd Center Previously rejected per order dated 01/27/95.
Portland, OR 97232 Listed as a matter of prudence.
Contact: Tim Earnest, Mall Manager
- ----------------------------------------------------------------------------------------------------
Jantzen Beach Center Store # 590 - Jantzen Beach
1405 Jantzen Beach Center Lease Date: 06/01/93
Portland, OR 97217
Contact: Jennifer J. Lewis Previously terminated by agreement of parties.
Property Accountant Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Valley River Center Store #592 - Eugene
Executive Offices Lease Date: 09/17/74
293 Valley River Center
Eugene, OR 97401 Previously rejected per order dated 04/05/96.
Contact: Richard L. Hansen Listed as a matter of prudence.
General Manager
- ----------------------------------------------------------------------------------------------------
Southgate Mall Associates Store #596 - Missoula
Management Office/Southgate Mall Lease Date: 04/06/89
Missoula, MT 59801
Contact: Douglas R. Anderson, General Previously rejected per order dated 12/20/96.
Manager Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
The Hahn Company Store #598 - Ogden
285-B Ogden City Mall Lease Dated: 01/30/89
Ogden, UT 84401
Contact: Kevin Ireland, Mall Manager Previously rejected per order dated 02/24/95.
Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Magic Valley Mall Store #602 - Twin Falls
1485 Pole Line Road East Lease Date: 06/13/91
Twin Falls, ID 83301
Contact: Brett White Previously rejected per order dated 12/20/96.
Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
University City Store #604 - University City
c/o McCarthy Management & Development Co. Lease Date: 06/07/91
W. 201 North River Drive, Suite 180
Spokane, WA 99201 Previously rejected per order dated 12/20/96.
Contact: Orville L. Barnes Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Price Development Company Store #701 - Boise
Boise Towne Square Lease Date: 03/26/91
350 North Milwaukee
Boise, ID 83788 Terminated prior to bankruptcy. Listed as a matter
Contact: Thayne Fisher, Asst. Mgr. of prudence.
Price Financing Partnership, LP.
35 Century Park-Way
Salt Lake City, UT 84115
Attn: Marilyn M. Smedley
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H-11
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Cottonwood Mall Company Store #702 - Salt Lake City
4835 S. Highland Drive Lease Date: 04/01/91
Salt Lake City, UT 84117
Contact: Jeff Machin, General Mgr. Terminated prior to bankruptcy. Listed as a matter
of prudence.
Price Financing Partnership, L.P.
35 Century Park-Way
Salt Lake City, UT 84115
Attn: Marilyn M. Smedley
- ----------------------------------------------------------------------------------------------------
University Mall Store #703 - Orem
E-205 University Mall Lease Date: 07/07/91
Orem, UT 84058
Contact: C. Robert Dallas Previously rejected per order dated 01/10/95.
Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Heitman Properties of Nebraska Ltd. Store #704 - Omaha
Oak View Mall Lease Date: 09/15/92
3001 S 144th St. Suite 2029
Omaha, NB 68144 Previously rejected per order dated 01/10/95.
Contact: Don Lachore Listed as a matter of prudence.
- ----------------------------------------------------------------------------------------------------
Melvin Simon and Associates, Inc. Store #705 - Bloomington, MN
Merchants Plaza Lease Date: 04/24/92
PO Box 7066
Indianapolis, IN 46207 Terminated prior to bankruptcy. Listed as a matter
Contact: Melodye Burner Grim of prudence.
John Wheeler, Mall Manager
Muriel Hall, Asst. Manager
Cindy Harsh, Property Accountant
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H-12
<PAGE>
MEMBERS OF INITIAL BOARD OF DIRECTORS
OF REORGANIZED DEBTOR
The initial Board of Directors of the Reorganized Debtor as of the
Effective Date will consist of Alan Schlesinger, Loren R. Rothschild, and
three additional individuals who are not insiders or employees of the Debtor
and who will be designated by the Debtor, with the approval of the
Committees, at or before the hearing on confirmation of the Plan.
EXHIBIT I TO PLAN
DEBTOR'S MODIFIED AND RESTATED STUTMAN,TREISTER & GLATT
PLAN OF REORGANIZATION PROFESSIONAL CORPORATION
UNDER CHAPTER 11 OF THE 3699 Wilshire Blvd., Suite 900
BANKRUPTCY CODE Los Angeles, CA 90010
Special Reorganization Counsel for
Debtor and Debtor in Possession
Page 71
<PAGE>
Judge: The Honorable Thomas T. Glover
Chapter: 11
Hearing Location: Park Place Building
1200 Sixth Avenue
Seattle, Washington
Room 416
Confirmation Hearing Date: December 18, 1997
Confirmation Hearing Time: 9:30 a.m.
Objection Date: December 12, 1997
UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
In re ) Case No. 95-00100
)
LAMONTS APPAREL, INC., )
a Delaware corporation, dba LAMONTS, )
LAMONTS FOR KIDS, fka TEXSTYRENE )
CORPORATION, a Delaware corporation, ) SUPPLEMENTED AND RESTATED
ARIS CORPORATION, a Delaware ) DISCLOSURE STATEMENT (AS AMENDED) RE
corporation, LAMONTS CORPORATION, a ) DEBTOR'S PLAN OF REORGANIZATION UNDER
Delaware corporation, and LAMONTS ) CHAPTER 11 OF THE BANKRUPTCY CODE
APPAREL, INC., a Washington )
corporation, )
)
Debtor. )
)
Taxpayer Identification )
No. 75-2076160 )
)
DEBTOR'S FORMER ADDRESS: )
3650 131st Avenue S.E. )
Bellevue, WA 98006 )
)
DEBTOR'S CURRENT ADDRESS: )
12413 Willows Road N.E. )
Kirkland, WA 98034 )
<PAGE>
TABLE OF CONTENTS
PAGE
----
I. INTRODUCTION...................................................... 1
II. SUMMARY........................................................... 5
A. The Debtor.................................................... 5
B. Background.................................................... 6
C. Recommendations............................................... 8
D. Overview Of The Plan.......................................... 8
1. FNBB Claim................................................ 9
2. General Unsecured Claims.................................. 9
3. Old Common Stock.......................................... 10
4. Priority Claims........................................... 10
5. Other Secured Claims...................................... 10
E. Selected Historical Financial Information..................... 10
III. RISK FACTORS...................................................... 18
A. Inherent Uncertainty In The Financial Projections............. 18
B. Leverage...................................................... 19
C. Competition................................................... 19
D. Market For New Common Stock And New Warrants.................. 20
E. Dividend Policy............................................... 20
F. Certain Economic Conditions And Recent Operating Performance.. 20
G. Restrictive Covenants......................................... 21
H. Dilution...................................................... 21
IV. BACKGROUND........................................................ 21
A. General....................................................... 21
B. Financial Difficulties........................................ 21
C. Prior Financial Restructurings................................ 21
i
<PAGE>
D. Operational Restructuring And New Management.................. 22
E. Debtor-in-Possession Administration And Financing............. 23
F. Negotiations With Committees.................................. 24
V. THE COMPANY....................................................... 24
A. General....................................................... 24
B. Properties.................................................... 25
C. Purchasing.................................................... 26
D. Distribution.................................................. 27
E. Store Operations.............................................. 27
F. Employees..................................................... 27
G. Competition................................................... 27
H. Trademarks.................................................... 28
I. Credit Policy................................................. 28
J. Return Policy................................................. 28
K. Seasonality................................................... 28
L. Inflation..................................................... 29
M. Regulations................................................... 29
N. Promotion And Marketing....................................... 29
O. Shoe Licensee................................................. 29
P. Change in Fiscal Year......................................... 29
Q. Legal Proceedings............................................. 30
R. Year 2000..................................................... 30
VI. THE PLAN OF REORGANIZATION........................................ 30
A. General....................................................... 31
B. Unclassified Claims........................................... 31
1. Administrative Expenses................................... 31
2. Priority Tax Claims....................................... 34
ii
<PAGE>
C. Classification And Treatment Of Claims And Interests.......... 34
1. Class 1 - Other Priority Claims........................... 34
2. Class 2 - FNBB Claim...................................... 35
3. Class 3 - Other Secured Claims............................ 36
4. Class 4 - General Unsecured Claims........................ 36
5. Class 5 - Old Common Stock................................ 37
D. Summary Of Certain Other Provisions Of The Plan............... 38
1. Compromise Of Subordination Disputes...................... 38
2. Executory Contracts And Unexpired Leases.................. 41
3. Amended And Restated Certificate Of Incorporation And
Bylaws.................................................... 43
4. Board Of Directors........................................ 43
5. Effective Date............................................ 43
6. Treatment Of Fractional Securities........................ 43
7. New Employee Stock Options................................ 43
8. Resale Of Securities...................................... 45
9. Retention of Jurisdiction................................. 46
10. Discharge of Debtor....................................... 46
11. Procedures With Respect To Old Common Stock,
Old 10-1/4% Notes, And Old 13-1/2% Notes.................. 47
12. Conditions Precedent...................................... 48
13. Amendment Or Revocation Of The Plan....................... 48
14. Allocation Of Consideration Distributed On Account Of
Allowed Class 4 Claims.................................... 48
15. Provisions For Treatment Of Disputed Administrative
Expenses And Disputed Claims.............................. 48
16. No Liability for Solicitation or Participation............ 49
17. Limitation Of Liability................................... 49
18. Rights Of Action; Preferences............................. 49
19. Continuation Of FNBB Claim And FNBB Liens................. 50
iii
<PAGE>
20. Revesting Of Assets....................................... 51
VII. CONFIRMATION PROCEDURE............................................ 51
A. Voting; Acceptance............................................ 52
B. Confirmation Hearing.......................................... 53
C. Best Interests Test........................................... 54
1. Chapter 7................................................. 55
2. Liquidation Analysis...................................... 56
D. Feasibility................................................... 57
E. Nonconsensual Confirmation.................................... 58
1. No Unfair Discrimination.................................. 58
2. Fair And Equitable Test................................... 58
VIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE
PLAN OF REORGANIZATION............................................ 59
A. Liquidation Under Chapter 7................................... 59
B. Alternative Plan Of Reorganization............................ 59
IX. VOTING PROCEDURES................................................. 60
A. Beneficial Owners............................................. 60
B. Brokerage Firms, Banks, Trust Companies And Other Nominees.... 61
C. Miscellaneous................................................. 61
X. CAPITALIZATION.................................................... 61
XI. DESCRIPTION OF FNBB FACILITY...................................... 63
A. Amount Of Facility............................................ 63
B. Borrowings.................................................... 63
C. Borrowing Base................................................ 63
D. Maturity...................................................... 63
E. Amortization of Term Loan..................................... 63
F. Rate And Payment Of Interest.................................. 63
G. Fees And Costs................................................ 64
iv
<PAGE>
H. Security...................................................... 64
I. New Class C Warrants And New Special Voting Common Stock...... 65
J. Affirmative And Negative Covenants............................ 65
K. Events Of Default............................................. 66
L. Cash Collateral............................................... 66
XII. DESCRIPTION OF NEW COMMON STOCK AND NEW SPECIAL VOTING
COMMON STOCK...................................................... 66
A. Special Voting Right Of Holders Of New Special Voting
Common Stock.................................................. 67
B. Amended And Restated Certificate Of Incorporation And
Amended And Restated Bylaws................................... 67
C. Transfer Agent And Registrar.................................. 68
XIII. DESCRIPTION OF NEW WARRANTS AND NEW CLASS C WARRANTS.............. 68
A. New Warrants.................................................. 68
1. Exercise; Purchase Price.................................. 68
2. Adjustments............................................... 68
3. Notice Of Proposed Actions................................ 69
4. Warrant Agent............................................. 69
B. New Class C Warrants.......................................... 69
1. Exercise; Exercise Price.................................. 70
2. Adjustments............................................... 70
3. Notice Of Proposed Actions................................ 71
C. Registration Rights........................................... 71
XIV. COMMON STOCK OWNERSHIP............................................ 71
A. Security Ownership Of Certain Beneficial Owners And
Management.................................................... 71
B. Dilution...................................................... 74
XV. MARKET AND TRADING INFORMATION.................................... 74
A. Old Common Stock.............................................. 74
B. Old 10-1/4% Notes And Old 13-1/2% Notes. ..................... 75
v
<PAGE>
XVI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................... 76
A. Introduction.................................................. 76
B. Federal Income Tax Consequences To Debtor And Its
Subsidiaries.................................................. 76
1. Tax Reorganization........................................ 76
2. Carryover And Availability Of The Debtor Consolidated
Group's Net Operating Losses.............................. 77
a. General.............................................. 77
b. Section 382.......................................... 77
3. Reduction Of Debtor's Indebtedness........................ 78
C. Tax Consequences To Creditors................................. 79
1. Claims Constituting Tax Securities........................ 79
a. Definition Of "Security" For Tax Purposes............ 79
b. Receipt Of Tax Securities............................ 80
c. Receipt Of Cash Or Debt Not Constituting Tax
Securities For Tax Securities........................ 80
d. Determination Of Character Of Gain................... 80
e. Tax Basis And Holding Period Of Items Received....... 81
f. Receipt Solely Of Boot............................... 81
2. Claims Not Constituting Tax Securities.................... 81
a. Gain/Loss On Exchange................................ 81
b. Tax Basis And Holding Period Of Items Received....... 81
c. Bad Debt Deduction On Discharge Of Claim............. 82
3. Receipt Of Interest....................................... 82
4. Other Tax Considerations.................................. 82
a. Market Discount...................................... 82
b. Original Issue Discount.............................. 82
c. Withholding.......................................... 83
d. Taxation Of Certain Reserves......................... 83
vi
<PAGE>
D. Tax Consequences To Shareholders.............................. 83
XVII. CERTAIN FINANCIAL PROJECTIONS..................................... 84
A. Projected Balance Sheet....................................... 84
B. Pro Forma Projections Of Income Statement, Balance
Sheet Data And Cash Flows..................................... 88
XVIII. MANAGEMENT........................................................ 92
A. General....................................................... 92
B. Executive Compensation........................................ 93
1. Summary Compensation Table................................ 93
2. Old Employee Stock Options................................ 96
3. New Employee Stock Options................................ 97
4. Qualified Pension Plans................................... 99
5. Nonqualified Pension Plans................................ 101
C. Employment Agreements......................................... 101
D. Indemnification Of Officers And Directors Of Reorganized
Debtor........................................................ 104
E. Employee Stock Option Plan; Description Of New Employee
Stock Options................................................. 104
1. Plan Administration....................................... 105
2. Shares Subject To The Employee Stock Option Plan.......... 106
3. Exercise Of New Employee Stock Options.................... 107
4. Payment Of Taxes.......................................... 107
5. Certain Tax Effects Of New Employee Stock Options......... 107
XIX. CERTAIN TRANSACTIONS.............................................. 108
XX. FEES AND EXPENSES................................................. 111
XXI. SUMMARY OF ADDITIONAL SOURCES OF INFORMATION...................... 111
XXII. RECOMMENDATION AND CONCLUSION..................................... 113
vii
<PAGE>
LIST OF ANNEXES
Annex A: The Plan
Annex B: Consolidated Financial Statements of the Debtor and Management's
Discussion and Analysis
Annex C: List of Senior Claims
Annex D: Schedule of Pending or Threatened Litigation
Annex E: Interim Findings of Fact and Conclusions of Law re Confirmation of
Debtor's Amended Plan of Reorganization under Chapter 11 of the
Bankruptcy Code
viii
<PAGE>
I.
INTRODUCTION
Lamonts Apparel, Inc., a Delaware corporation ("Lamonts," the
"Company," or the "Debtor"), filed a voluntary petition (the "Petition")
under chapter 11 ("Chapter 11") of title 11 of the United States Code, 11
U.S.C. section 101 et seq. (the "Bankruptcy Code"), on January 6, 1995 (the
"Petition Date"), for the purpose of implementing an operational and
financial restructuring of its business. The "Debtor's Modified and Restated
Plan of Reorganization under Chapter 11 of the Bankruptcy Code" (the "Plan")
has been negotiated with representatives of the Official Committee of
Creditors Holding Unsecured Claims (the "Unsecured Creditors' Committee"),
the Official Committee of Bondholders (the "Bondholders' Committee"), and the
Official Committee of Equity Security Holders (the "Equity Committee", and
collectively with the Unsecured Creditors' Committee and the Bondholders'
Committee, the "Committees") which have been appointed by the Office of the
United States Trustee pursuant to section 1102 of the Bankruptcy Code to
serve in the Chapter 11 Case. The Debtor submits this Supplemented and
Restated Disclosure Statement pursuant to section 1125 of the Bankruptcy Code
to holders of impaired Claims and holders of its outstanding common stock,
par value $ .01 per share ("Old Common Stock"), in connection with the
proceedings seeking confirmation of the Plan, which has been proposed by the
Debtor and filed with the Bankruptcy Court, a copy of which is attached as
Annex A hereto. Unless otherwise defined herein, all capitalized terms
contained herein shall have the meanings ascribed to them in the Plan.
This Supplemented and Restated Disclosure Statement (As Amended) re
Debtor's Plan of Reorganization under Chapter 11 of the Bankruptcy Code
("Disclosure Statement") sets forth information regarding the history of the
Debtor, its business, the filing of the Petition and the Plan, and
alternatives thereto. Its purpose is to provide the holders of impaired
Claims and Old Common Stock adequate information to assist them in making an
informed decision regarding acceptance or rejection of the Plan. Each holder
of an impaired Claim or Old Common Stock should read this Disclosure
Statement (including its Annexes) and the Plan (including its Exhibits) in
their entirety and consider them with such holder's legal and financial
advisors in connection with proceedings seeking confirmation of the Plan. No
person has been authorized by the Debtor to utilize for purposes of
solicitation any information concerning the Debtor or its business other than
the information contained or referred to herein.
Pursuant to the Bankruptcy Code, only holders of Allowed Claims in
Class 1 (Other Priority Claims) and Class 4 (General Unsecured Claims), and
holders of Old Common Stock, whose Equity Interests are classified as Class 5
(Classes 1, 4, and 5 being referred to collectively as the "Voting Classes"),
are entitled to vote on the Plan. Holders of Claims in Class 2 (FNBB Claim)
and Class 3 (Other Secured Claims) are not entitled to vote on the Plan and
are deemed to have accepted the Plan because their Claims are not impaired.
For a description of the Classes of Claims and of the Equity Interests and
their treatment under the Plan, see "The Plan of Reorganization --
Classification and Treatment of Claims and Interests."
Except as described below, the Plan may be confirmed only if
accepted by each Voting Class. The Bankruptcy Code defines "acceptance" (i)
with respect to a class of impaired Claims, as acceptance by holders of at
least two-thirds in dollar amount and more than one-half in number of the
Allowed Claims in such class whose holders cast ballots and (ii) with respect
to a class of impaired Equity Interests (in this case, the Old Common Stock),
as acceptance by holders of at least two-thirds of the Allowed Equity
Interests in such class whose holders cast
1
<PAGE>
ballots. Holders of impaired Claims and of Old Common Stock may vote either
to accept or to reject the Plan.
AS DISCUSSED BELOW, HOLDERS OF ALLOWED GENERAL UNSECURED CLAIMS,
HOLDERS OF ALLOWED OTHER PRIORITY CLAIMS, AND HOLDERS OF OLD COMMON STOCK
PREVIOUSLY VOTED ON THE "DEBTOR'S AMENDED PLAN OF REORGANIZATION UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE" (THE "PRIOR PLAN"), WHICH WAS FILED BY THE
DEBTOR ON OCTOBER 23, 1996, AND THE BANKRUPTCY COURT FOUND AT A CONFIRMATION
HEARING ON THE PRIOR PLAN HELD ON JANUARY 6, 1997, THAT THE PRIOR PLAN WAS
ACCEPTED BY THE REQUISITE MAJORITIES OF ALL VOTING CLASSES. THE PLAN IS A
MODIFICATION AND RESTATEMENT OF THE PRIOR PLAN PURSUANT TO SECTION 1127(a) OF
THE BANKRUPTCY CODE, AND, AS PROVIDED IN SECTION 1127(d) OF THE BANKRUPTCY
CODE, ANY HOLDER OF A CLAIM OR EQUITY INTEREST OF A VOTING CLASS THAT VALIDLY
ACCEPTED OR REJECTED THE PRIOR PLAN IS DEEMED TO ACCEPT OR REJECT, AS THE
CASE MAY BE, THE PLAN, UNLESS, AS SET FORTH IN THE ORDER AND NOTICE WHICH
ACCOMPANIES THIS DISCLOSURE STATEMENT, SUCH HOLDER CHANGES SUCH HOLDER'S
PREVIOUS ACCEPTANCE OR REJECTION WITHIN THE TIME PERIOD THAT HAS BEEN FIXED
BY THE BANKRUPTCY COURT. See "Summary -- Background," "Confirmation
Procedure," and "Voting Procedures."
THE DEBTOR BELIEVES THAT THE PLAN PROVIDES THE BEST FEASIBLE
RECOVERIES TO THE HOLDERS OF IMPAIRED CLAIMS AND TO THE HOLDERS OF OLD COMMON
STOCK AND THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF SUCH
HOLDERS. THE DEBTOR THEREFORE RECOMMENDS THAT HOLDERS OF IMPAIRED CLAIMS AND
HOLDERS OF OLD COMMON STOCK ACCEPT THE PLAN.
------
THE UNSECURED CREDITORS' COMMITTEE AND THE BONDHOLDERS' COMMITTEE
HAVE APPROVED THE PLAN AND HAVE RECOMMENDED ACCEPTANCE OF THE PLAN BY HOLDERS
OF GENERAL UNSECURED CLAIMS. ----------
THE EQUITY COMMITTEE PREVIOUSLY APPROVED THE PRIOR PLAN AND
RECOMMENDED ACCEPTANCE OF THE PRIOR PLAN BY HOLDERS OF OLD COMMON STOCK.
----------
(THE MEMBERS OF THE EQUITY COMMITTEE HAVE SINCE RESIGNED.)
The Plan provides for the payment in full of Allowed Other Priority
Claims, and the Debtor therefore expects acceptance of the Plan by holders of
such claims.
In the event of any rejection of the Plan by one or more impaired
classes, the Debtor reserves the right to request that the Bankruptcy Court
confirm the Plan in accordance with section 1129(b) of the Bankruptcy Code,
which permits confirmation of the Plan notwithstanding rejection by one or
more impaired classes if the Court finds that the Plan does not discriminate
unfairly and is "fair and equitable" with respect to the rejecting class or
classes.
For a more detailed description of the requirements for acceptance
of the Plan and of the criteria for confirmation notwithstanding rejection by
certain classes, see "Confirmation Procedure."
Attached as Annexes to this Disclosure Statement are copies of the
following:
1. The Plan (Annex A);
2. Consolidated Financial Statements of the Debtor and
Management's Discussion and Analysis (Annex B);
2
<PAGE>
3. List of Senior Claims (Annex C);
4. Schedule of Pending or Threatened Litigation (Annex D); and
5. Interim Findings of Fact and Conclusions of Law re
Confirmation of Debtor's Amended Plan of Reorganization under Chapter 11 of
the Bankruptcy Code (the "Interim Findings and Conclusions") (Annex E).
Also accompanying this Disclosure Statement are copies of the
following:
1. The Order of the Bankruptcy Court approving this Disclosure
Statement and providing notice of the confirmation hearing, the deadlines and
procedures for voting and for objecting to confirmation of the Plan, and
related matters (the "Order and Notice"); and
2. The form for changing previous acceptance or rejection of the
Prior Plan or for voting for the first time on the Plan (the "Modification
Ballot").
Forms of certain documents referred to in the Plan are contained in
a separate Plan Documentary Supplement which has been filed with the Clerk of
the Bankruptcy Court. Such Plan Documentary Supplement may be inspected in
the office of the Clerk of the Bankruptcy Court, Park Place Building, 1200
Sixth Avenue, Seattle, Washington. Holders of Claims and Old Common Stock
may obtain copies of the Plan Documentary Supplement or excerpts therefrom by
placing an order for copies from Nightrider, Attention: Tom Strange, 1401
Third Avenue, Suite 200, Seattle, Washington 98101, telephone number (205)
233-9066; or upon written request to the Debtor at its principal offices,
12413 Willows Road N.E., Kirkland, Washington 98034, Attention: Debbie
Brownfield, Chief Financial Officer.
The Bankruptcy Court has approved this Disclosure Statement as
containing information of a kind and in sufficient detail, as far as is
reasonably practicable in light of the nature and history of the Debtor and
the condition of its books and records, adequate to enable hypothetical,
reasonable investors typical of the holders of impaired Claims and Old Common
Stock to make an informed judgment as to whether to accept or reject the
Plan. APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT, HOWEVER, CONSTITUTE A
DETERMINATION BY THE BANKRUPTCY COURT AS TO THE FAIRNESS OR THE MERITS OF THE
PLAN.
THE ISSUANCE OF SHARES OF NEW COMMON STOCK, NEW WARRANTS, AND
CERTAIN OTHER SECURITIES TO HOLDERS OF CLAIMS AND EQUITY INTERESTS PURSUANT
TO THE PLAN WILL NOT BE REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION") UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES OR "BLUE SKY" LAW; SUCH
NEW COMMON STOCK, NEW WARRANTS, AND CERTAIN OTHER SECURITIES WILL BE ISSUED
IN RELIANCE UPON THE EXEMPTION FROM SECURITIES ACT AND EQUIVALENT STATE LAW
REGISTRATION PROVIDED BY SECTIONS 1145(a)(1) AND (2) OF THE BANKRUPTCY CODE.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE
STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT.
THIS DOCUMENT WAS COMPILED FROM INFORMATION OBTAINED BY THE DEBTOR
FROM NUMEROUS SOURCES BELIEVED TO BE ACCURATE TO THE BEST OF THE DEBTOR'S
KNOWLEDGE, INFORMATION, AND BELIEF. HOWEVER, NOTHING CONTAINED HEREIN SHALL
OR SHALL BE DEEMED TO BE AN ADMISSION OR A
3
<PAGE>
DECLARATION AGAINST INTEREST BY THE DEBTOR FOR PURPOSES OF ANY EXISTING OR
FUTURE LITIGATION.
EXCEPT AS OTHERWISE EXPRESSLY STATED HEREIN, NOTHING CONTAINED
HEREIN SHALL BE ATTRIBUTABLE TO OR IS DERIVED FROM OR REPRESENTED TO BE
ACCURATE BY THE COMMITTEES, BY ANY HOLDER OF A CLAIM OR OLD COMMON STOCK, OR
BY ANY OF THEIR RESPECTIVE ADVISORS, NOR HAVE THE COMMITTEES, ANY SUCH HOLDER
OR ANY SUCH ADVISOR INDEPENDENTLY VERIFIED THE INFORMATION SET FORTH HEREIN.
ALTHOUGH THE DEBTOR'S PROFESSIONAL ADVISORS HAVE ASSISTED IN THE
PREPARATION OF THIS DISCLOSURE STATEMENT BASED UPON FACTUAL INFORMATION AND
ASSUMPTIONS RESPECTING FINANCIAL, BUSINESS, AND ACCOUNTING DATA PROVIDED BY
THE DEBTOR, THEY HAVE NOT INDEPENDENTLY VERIFIED THE INFORMATION SET FORTH
HEREIN AND MAKE NO REPRESENTATION AS TO THE ACCURACY THEREOF.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: The information
contained under the caption "Certain Financial Projections" and certain other
statements contained or incorporated by reference herein, including, without
limitation, statements containing the words "believes," "anticipates,"
"expects," and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause the actual results,
performance, or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following: national and local general economic and
market conditions; demographic changes; liability and other claims asserted
against the Company; competition; the loss of significant customers or
suppliers; fluctuations in operating results; changes in business strategy or
development plans; business disruptions; the ability to attract and retain
qualified personnel; ownership of Common Stock; volatility of stock price;
and other factors referenced herein. Certain of these factors are discussed
in more detail elsewhere herein, including, without limitation, under the
captions "Risk Factors," "The Company," "Capitalization," and "Certain
Financial Projections". GIVEN THESE UNCERTAINTIES, THOSE READING THIS
DISCLOSURE STATEMENT ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS. The Company disclaims any obligation to update
any such factors or to publicly announce the result of any revisions to any
of the forward-looking statements contained or incorporated by reference
herein to reflect untrue events or developments.
After carefully reviewing this Disclosure Statement and the Plan,
including the respective Annexes and Exhibits, each holder of an impaired
Claim or Old Common Stock should decide whether to change such holder's
previous acceptance or rejection of the Prior Plan (or, if such holder did
not previously vote on the Prior Plan, such holder should vote on the Plan).
Any such changed vote or new vote should be indicated on the enclosed
Modification Ballot and returned in the envelope provided. If you have a
Claim in more than one Voting Class, or if you hold both Claims and Old
Common Stock, you should utilize a separate Modification Ballot for each
Claim and for your Old Common Stock if you wish to change your previous
acceptance or rejection or vote for the first time. IF YOU PREVIOUSLY VOTED
TO ACCEPT OR REJECT THE PRIOR PLAN AND DO NOT WISH TO CHANGE YOUR VOTE, NO
ACTION IS NECESSARY.
4
<PAGE>
TO BE COUNTED, YOUR MODIFICATION BALLOT MUST BE COMPLETELY FILLED
IN, SIGNED, AND TRANSMITTED IN THE MANNER SPECIFIED IN THE MODIFICATION
BALLOT SO THAT IT IS RECEIVED BY THE VOTING DEADLINE SPECIFIED IN THE
MODIFICATION BALLOT. PLEASE FOLLOW CAREFULLY ALL INSTRUCTIONS CONTAINED IN
THE MODIFICATION BALLOT. ANY MODIFICATION BALLOTS RECEIVED WHICH DO NOT
INDICATE EITHER AN ACCEPTANCE OR REJECTION OF THE PLAN OR WHICH INDICATE BOTH
AN ACCEPTANCE AND REJECTION OF THE PLAN WILL NOT BE COUNTED. See "Voting
Procedures."
DO NOT RETURN YOUR SECURITIES WITH YOUR MODIFICATION BALLOT.
If you have any questions about the procedure for voting, or if you
did not receive a Modification Ballot, received a damaged Modification
Ballot, or have lost your Modification Ballot, or if you would like any
additional copies of this Disclosure Statement, please write to Ryan, Swanson
& Cleveland, 1201 Third Avenue, Suite 3400, Seattle, Washington 98101,
Attention: Anne K. Dudley, Legal Assistant, or call (206) 464-4224.
The Bankruptcy Court has scheduled a hearing on confirmation of the
Plan (the "Confirmation Hearing") on the date and at the place specified in
the Order and Notice accompanying this Disclosure Statement. The Bankruptcy
Court has directed that objections, if any, to confirmation of the Plan be
served and filed on or before the date specified in the Order and Notice in
the manner described under "Confirmation Procedure - Confirmation Hearing."
The Confirmation Hearing may be continued from time to time by the Bankruptcy
Court without further notice except for the announcement of the continuation
date made at the Confirmation Hearing or at any subsequent continued
Confirmation Hearing.
II.
SUMMARY
The following is a summary of certain information contained
elsewhere in this Disclosure Statement. Reference is made to, and this
Summary is qualified in its entirety by reference to, the more detailed
information contained herein and in the Annexes hereto. Holders of impaired
Claims or Old Common Stock are urged to read this Disclosure Statement and
the Annexes hereto in their entirety. Capitalized terms used but not defined
herein have the meanings ascribed thereto in the Plan attached hereto as
Annex A.
A. THE DEBTOR.
The Debtor is a Northwest-based regional retailer of moderately
priced casual apparel. The Company, which has been operating in the
Northwest for approximately 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 38 stores in five states and employs
approximately 1,600 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
5
<PAGE>
and converted them into foam cups and containers, insulation products,
packing materials, and custom-molded packaging products. Apparel's
predecessor was incorporated in Washington in May 1923. On October 30, 1992,
Apparel was merged with and into the Company and the name of the Company was
changed to Lamonts Apparel, Inc.
B. BACKGROUND.
As a result of financial difficulties, during the second half of
its 1992 fiscal year, the Company and its financial advisors commenced
negotiations with certain of the Company's creditors and stockholders
regarding a restructuring of the Company's indebtedness. On October 30,
1992, the Company completed a comprehensive recapitalization (the
"Recapitalization") pursuant to which, among other things, the Company issued
an aggregate of $75.0 million in principal amount of its 10-1/4% Senior
Subordinated Notes due 1999 (the "Old 10-1/4% Notes"). As a result of the
Recapitalization, the Company's funded debt was reduced by $63.6 million.
On December 1, 1993, the Company completed a capital infusion and
debt reduction plan (the "Infusion") that further reduced the Company's debt.
The transaction included, among other things, the repurchase of $13.0
million aggregate principal amount of Old 10-1/4% Notes, at par, together
with accrued interest through the repurchase date, and the concurrent
amendment of the terms of the Old 10-1/4% Notes that remained outstanding to,
among other things, prospectively reduce the interest rate of such Old
10-1/4% Notes from 11-1/2% (the original rate at issuance) to 10-1/4%.
On June 10, 1994, the Company further amended the terms of the Old
10-1/4% Notes to provide, among other things, that interest payments due on
the Old 10-1/4% Notes through November 1, 1995 could be paid, at the
Company's option, either in cash, at a rate of 12% per annum, or in
additional Old 10-1/4% Notes ("PIK Interest"), at a rate of 13% per annum.
In accordance with the amendment, the Company elected to issue additional Old
10-1/4% Notes at the PIK Interest rate of 13% for the November 1, 1994
interest payment. Interest continued to accrue on the Old 10-1/4% Notes
until the date of filing of the Chapter 11 Case. In addition, on June 10,
1994, the Company issued warrants (the "Old Warrants") initially to purchase
up to an aggregate of approximately 2 million shares of Old Common Stock (or
approximately 10% of the Old Common Stock then outstanding after giving
effect to the exercise of such Old Warrants) to the holders of the Old
10-1/4% Notes. The Old Warrants provided that they could be exercised on or
prior to June 10, 1999, at an initial exercise price of $1.00 per share of
Old Common Stock. As of the date hereof, none of the Old Warrants have been
exercised.
On October 18, 1994, the holders of all outstanding Old 10-1/4%
Notes (i) granted the Company the option to exchange the Old 10-1/4% Notes
for shares of Old Common Stock, representing approximately 70% of the Old
Common Stock outstanding immediately following the exchange, and $50.0
million aggregate liquidation preference of a new series of preferred stock
of the Company, and (ii) released the collateral securing the Old 10-1/4%
Notes and generally subordinated the Company's obligations under the Old
10-1/4% Notes so that they are junior to trade payables and certain other
liabilities, subject to certain exceptions. The Company could exercise its
option to exchange the Old 10-1/4% Notes on or prior to March 31, 1995.
However, on March 27, 1995, the Company received an extension from the
holders of the Old 10-1/4% Notes to extend indefinitely the time within which
the Company may exercise its option to require the holders to exchange their
Old 10-1/4% Notes; provided, however, that a majority of the holders of the
Old 10-1/4% Notes may terminate such extension upon 60 days notice to the
6
<PAGE>
Company. See "The Plan Of Reorganization -- Summary Of Certain Other
Provisions Of The Plan -- Compromise Of Subordination Disputes" for a
discussion of the treatment of such option.
Despite the foregoing, the Company's financial position continued
to deteriorate through 1994. The Company's ability to service its debt and
to obtain trade credit was dependent on its performance, which continued to
fall short of projected results. In response to its deteriorating financial
condition, the Company determined that a more significant financial and
operational restructuring was necessary. Accordingly, on January 6, 1995,
the Company filed the Petition and commenced the Chapter 11 Case.
Lamont's new management, which began operating the Company in
November of 1994, believes that Lamonts has made substantial progress in
improving its business operations in the period since the commencement of the
Chapter 11 Case. The Company has closed unprofitable stores, eliminated
unprofitable merchandise lines, added a home decor line, replaced its shoe
licensee, and reduced operating expenses. The Company has also refocused its
merchandising strategy on casual apparel and expects to continue to build its
merchandise categories in the Men's, Children's, Misses, and Special Sizes
areas and to promote nationally recognized brands. In addition, the new
management team has implemented new merchandising strategies designed to:
(i) improve the quality of merchandise offered while maintaining price points
geared to the Company's customer base; (ii) reduce cash operating expenses;
and (iii) reduce inventory levels and increase inventory turns to improve the
Company's performance. As a result, the age and quality of inventory have
improved significantly. The Company also has initiated a policy to markdown
and clear out any unsold merchandise within its respective season.
In order to emerge from Chapter 11, the Debtor engaged in
negotiations with the Committees with a view to effecting a financial
restructuring. After extensive discussions, the Debtor and the Committees
negotiated a financial restructuring contemplating the satisfaction of
General Unsecured Claims with New Common Stock and New Warrants. The Prior
Plan incorporated the results of those negotiations and was designed
significantly to reduce and restructure the Debtor's outstanding
indebtedness.
The Prior Plan and a disclosure statement in respect of the Prior
Plan (the "Prior Disclosure Statement") were filed with the Bankruptcy Court
and, after notice and a hearing on October 24, 1996, the Bankruptcy Court
approved the Prior Disclosure Statement. The Prior Plan, the Prior
Disclosure Statement, ballots, and other solicitation materials approved by
the Bankruptcy Court were distributed to all known holders of Claims and
Equity Interests and other parties in interest. A confirmation hearing with
respect to the Prior Plan commenced on January 6, 1997, and the Bankruptcy
Court determined that the Prior Plan was accepted by (i) 100% of the holders
of Class 1 Other Priority Claims who timely voted to accept or reject the
Prior Plan, (ii) the holders of Class 4 General Unsecured Claims totaling
approximately 99.3% in dollar amount and 95.7% in number of such Claims of
holders who timely voted to accept or reject the Prior Plan, and (iii) the
holders of Class 5 Old Common Stock totaling approximately 97.7% in amount of
shares of holders who timely voted to accept or reject the Prior Plan.
Pursuant to a "Stipulation re Procedures for Confirmation of Plan;
and Order Thereon" among the Debtor and the Committees, which was approved by
the Bankruptcy Court on December 20, 1996, the Debtor demonstrated at the
confirmation hearing on January 6, 1997 that all confirmation requirements
have been satisfied, except for certain "Deferred Confirmation Requirements"
specified in that stipulation, and the Bankruptcy Court entered the Interim
Findings and Conclusions. At the request of the Debtor and the Committees,
the Bankruptcy Court
7
<PAGE>
deferred final confirmation of the Prior Plan in order to afford the parties
time to explore opportunities to raise additional working capital.
After negotiations among the Debtor, FNBB, and the Surety, FNBB
extended, and the Surety guarantied, an additional credit facility in the
form of a term loan (the "Term Loan") to the Debtor in the principal amount
of $10 million, resulting in an increase in the maximum amount of the
Company's line of credit from $32 million to $42 million. See "Description
of FNBB Facility." The Plan is a modification and restatement of the Prior
Plan to take into account, inter alia, the Term Loan and the New Class C
Warrants and New Special Voting Common Stock to be issued to the Surety as
contemplated by the FNBB Facility. The Debtor and the Committees are now
seeking final confirmation of the Plan.
C. RECOMMENDATIONS.
The Debtor believes that the Plan provides the best feasible
recoveries to holders of impaired Claims and to the holders of Old Common
Stock and is in the best interests of such holders. ACCORDINGLY, THE DEBTOR
RECOMMENDS THAT ALL SUCH HOLDERS ACCEPT THE PLAN.
THE UNSECURED CREDITORS' COMMITTEE AND THE BONDHOLDERS' COMMITTEE
HAVE APPROVED THE PLAN AND HAVE RECOMMENDED ACCEPTANCE OF THE PLAN BY HOLDERS
OF GENERAL UNSECURED CLAIMS.
THE EQUITY COMMITTEE PREVIOUSLY APPROVED THE PRIOR PLAN AND
RECOMMENDED ACCEPTANCE OF THE PRIOR PLAN BY HOLDERS OF OLD COMMON STOCK.
(THE MEMBERS OF THE EQUITY COMMITTEE HAVE SINCE RESIGNED.)
D. OVERVIEW OF THE PLAN.
THE FOLLOWING OVERVIEW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE PLAN, WHICH IS ATTACHED HERETO AS ANNEX A. IN THE EVENT OF ANY
INCONSISTENCY, THE PLAN WILL CONTROL. FOR A MORE DETAILED DESCRIPTION, SEE
"THE PLAN OF REORGANIZATION," "CAPITALIZATION," "DESCRIPTION OF FNBB
FACILITY," "DESCRIPTION OF NEW COMMON STOCK AND NEW SPECIAL VOTING COMMON
STOCK," "DESCRIPTION OF NEW WARRANTS AND NEW CLASS C WARRANTS," AND
"MANAGEMENT -- EMPLOYEE STOCK OPTION PLAN; DESCRIPTION OF NEW EMPLOYEE STOCK
OPTIONS."
The principal features of the Plan are as follows:
The Plan provides for Lamonts to issue New Common Stock and New
Warrants in exchange for and in satisfaction of certain existing Claims and
Old Common Stock, and to issue New Class C Warrants and New Special Voting
Common Stock to the Surety, as provided in the FNBB Facility, in partial
exchange for the FNBB Claim and in consideration for the guaranty of the Term
Loan by the Surety. All equity securities outstanding as of the Effective
Date will be canceled and extinguished. Specifically, a total of 9,000,000
shares of New Common Stock are to be issued pursuant to the Plan as of the
Effective Date. In addition, New Class A Warrants exercisable for the
purchase of 2,203,320 shares of New Common Stock, New Class B Warrants
exercisable for the purchase of 800,237 shares of New Common Stock, New Class
C Warrants exercisable for the purchase of 3,429,588 shares of New Common
Stock, and 10 shares of New Special Voting Common Stock are to be issued
pursuant to the Plan as of the Effective Date. Further, the Gordian Warrants
are to be issued pursuant to the Plan as of the 120th day following the
Effective Date. Lamonts will also issue, on the terms and conditions set
forth in the Plan, New Employee Stock Options for distribution to specified
employees of the Reorganized
8
<PAGE>
Debtor, who will receive (i) options initially exercisable for the purchase
of 1,000,000 shares of New Common Stock with an initial exercise price of
$1.00 per share; (ii) additional options to purchase 333,729 shares of New
Common Stock, as described below, to prevent dilution resulting from the
issuance of the New Warrants, and (iii) New Class C Warrants to purchase
381,065 shares of New Common Stock, as described below, to prevent dilution
resulting from the issuance of the New Class C Warrants to the Surety.
Holders of Allowed Claims and Allowed Equity Interests will be
treated in the following manner:
1. FNBB CLAIM.
The FNBB Claim will be treated in accordance with all of the
provisions of the FNBB Facility, and all of the legal, equitable, and
contractual rights to which FNBB and the Surety are entitled under the FNBB
Facility will be left unaltered. As provided under the FNBB Facility, on the
Effective Date or as soon thereafter as is practicable, the Surety will
receive, in partial exchange for the FNBB Claim, both of the following: (i)
New Class C Warrants exercisable for the purchase of 3,429,588 shares of New
Common Stock, and (ii) 10 shares of New Special Voting Common Stock,
representing all of the authorized shares of the New Special Voting Common
Stock. In addition, as of the Effective Date, in conjunction with the
issuance of such securities, the Surety will be entitled to the benefits of
the Grant of Registration Rights contained the Plan Documentary Supplement,
which will be deemed an obligation of the Reorganized Debtor, subject to the
limitations contained therein.
2. GENERAL UNSECURED CLAIMS.
On the Effective Date or as soon thereafter as is practicable, each
holder of an Allowed General Unsecured Claim will receive, in exchange for
and satisfaction of such Claim, all of the following: (i) its Pro Rata Share
of 8,800,000 shares of New Common Stock (representing approximately 97.78% of
the primary shares of New Common Stock which will be issued and outstanding
as of the Effective Date or approximately 51.32% of the fully diluted shares
of New Common Stock assuming exercise of all New Warrants, all New Class C
Warrants, and all New Employee Stock Options), (ii) its Pro Rata Share of New
Class A Warrants exercisable for the purchase of 2,203,320 shares of New
Common Stock (representing a number of shares equal to approximately 24.48%
of the primary shares of New Common Stock which will be issued and
outstanding as of the Effective Date or approximately 12.85% of the fully
diluted shares of New Common Stock assuming exercise of all New Warrants, all
New Class C Warrants, and all New Employee Stock Options), and (iii) its Pro
Rata Share of New Class B Warrants exercisable for the purchase of 700,237
shares of New Common Stock (representing a number of shares equal to
approximately 7.78% of the primary shares of New Common Stock which will be
issued and outstanding as of the Effective Date or approximately 4.08% of the
fully diluted shares of New Common Stock assuming exercise of all New
Warrants, all New Class C Warrants, and all New Employee Stock Options). See
"Common Stock Ownership -- Dilution." A portion of the securities otherwise
distributable to certain specified holders of Allowed General Unsecured
Claims will instead be distributed to certain other specified holders of
Allowed General Unsecured Claims (primarily trade creditors) who are entitled
to the benefits of settlements under the Plan of disputes regarding
subordination provisions of the respective indentures governing the Old
10-1/4% Notes and the Old 13-1/2% Notes. See "The Plan of Reorganization -
Summary of Certain Other Provisions of the Plan - Compromise of Subordination
Disputes." In addition, as of the Effective Date, in conjunction with the
issuance of such securities, certain holders of the New Common Stock and the
New Warrants will be entitled to the benefits of the Grant of Registration
Rights contained in
9
<PAGE>
the Plan Documentary Supplement, which will be deemed an obligation of the
Reorganized Debtor, subject to the limitations contained therein. The
Unsecured Creditors' Committee and the Bondholders' Committee have each
approved the treatment of holders of Allowed General Unsecured Claims under
the Plan and the compromise of the subordination disputes provided for under
the Plan.
3. OLD COMMON STOCK.
All outstanding shares of Old Common Stock will be canceled, and,
on the Effective Date or as soon thereafter as is practicable, each holder of
Old Common Stock of record as of the Effective Date will receive in exchange
therefor (i) its Pro Rata Share of 200,000 shares of New Common Stock
(representing approximately 2.22% of the primary shares of New Common Stock
which will be issued and outstanding as of the Effective Date or
approximately 1.17% of the fully diluted shares of New Common Stock assuming
exercise of all New Warrants, all New Class C Warrants, and all New Employee
Stock Options), and (ii) its Pro Rata Share of New Class B Warrants
exercisable for the purchase of 100,000 shares of New Common Stock
(representing a number of shares equal to approximately 1.11% of the primary
shares of New Common Stock which will be issued and outstanding as of the
Effective Date or approximately 0.58% of the fully diluted shares of New
Common Stock assuming exercise of all New Warrants, all New Class C Warrants,
and all New Employee Stock Options). See "Common Stock Ownership --
Dilution." In addition, as of the Effective Date, in conjunction with the
issuance of such securities, certain holders of the New Common Stock and the
New Warrants will be entitled to the benefits of the Grant of Registration
Rights contained in the Plan Documentary Supplement, which will be deemed an
obligation of the Reorganized Debtor, subject to the limitations contained
therein. The Equity Committee previously approved the treatment of holders
of Equity Interests under the Prior Plan.
4. PRIORITY CLAIMS.
Allowed Priority Claims (other than Priority Tax Claims) are to be
paid in full, in cash, on the Effective Date or as soon thereafter as is
practicable, or as may otherwise be agreed by the holder of any such Claim.
Allowed Priority Tax Claims will be treated in the same manner, except for
those Allowed Deferred Payment Tax Claims listed in Exhibit E to the Plan,
which will be paid by the Reorganized Debtor in equal quarterly installments
with interest over a period not exceeding six years after the date of
assessment of each such Claim, as provided in section 1129(a)(9)(C) of the
Bankruptcy Code.
5. OTHER SECURED CLAIMS.
Allowed Secured Claims, other than the FNBB Claim, will be
reinstated and paid in accordance with their terms.
E. SELECTED HISTORICAL FINANCIAL INFORMATION.
The following tables set forth certain selected historical
financial data for the Company and should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto
included in Annex B hereto. The following financial data is not necessarily
comparable for the periods presented because of the effects of, among other
things, the consummation of the Recapitalization in October 1992 and the
Company's change in fiscal year end in 1995. However, for purposes of
comparing the data for the 1995 fiscal year, the Company has provided data
for the comparable prior year period which are derived from unaudited
financial records of the Company. The selected historical financial
information of the Company at February 1, 1997, February 3, 1996, October 29,
1994, October 30, 1993, and
10
<PAGE>
October 31, 1992 and for the years then ended has been derived from the
historical consolidated financial statements of the Company audited by
Coopers & Lybrand LLP, independent auditors. The summary financial and
operating information for the 52 weeks ended January 28, 1995, the Quarter
ended January 28, 1995, the six months ended August 2, 1997 and August 3,
1996, and the two months ended October 4, 1997 and October 5, 1996 has not
been audited and does not include all disclosures required by generally
accepted accounting principles.
11
<PAGE>
LAMONTS APPAREL, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 weeks ended 53 weeks ended 52 weeks ended Quarter ended
Feb. 1, 1997 Feb. 3, 1996 Jan. 28, 1995 Jan. 28, 1995
(unaudited) (unaudited)
-------------------------------------------------------------
<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
-------------------------------------------------------------
Earnings (loss) from continuing
operations before other income/
(expense), reorganization expenses,
income tax provision/(benefit), and
extraordinary item (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, income tax
provision/(benefit), and extraordinary
item (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 provision/(benefit) and
extraordinary item (17,298) (24,875) (69,823) (25,135)
Income tax provision/(benefit) -- -- (400) --
-------------------------------------------------------------
Loss from continuing operations before
extraordinary item (17,298) (24,875) (69,423) (25,135)
Gain (loss) from discontinued operations,
net of income taxes -- -- -- --
Extraordinary item-gain on extinguishment
of debt (3) -- -- -- --
-------------------------------------------------------------
Net earnings (loss) ($17,298) ($24,875) ($69,423) ($25,135)
-------------------------------------------------------------
-------------------------------------------------------------
NET EARNINGS (LOSS) PER COMMON SHARE
Loss from continuing operations before
extraordinary item (0.97) (1.39) (4.13) (1.41)
Gain (loss) from discontinued operations,
net of income taxes -- -- -- --
Extraordinary item - gain on
extinguishment of debt -- -- -- --
-------------------------------------------------------------
Net earnings (loss) per common share ($0.97) ($1.39) ($4.13) ($1.41)
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
12
<PAGE>
LAMONTS APPAREL, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 weeks ended 53 weeks ended 52 weeks ended Quarter ended
Feb. 1, 1997 Feb. 3, 1996 Jan. 28, 1995 Jan. 28, 1995
(unaudited) (unaudited)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
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' equity (deficit) (59,553) (42,556) (17,509) (17,509)
</TABLE>
13
<PAGE>
LAMONTS APPAREL, INC.
(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 (1) $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
Impairment of long-lived assets -- -- --
Store Closure Costs 7,200 -- --
--------------------------------------------------
Operating costs 107,161 95,340 97,088
--------------------------------------------------
Earnings (loss) from continuing operations before
other income/(expense), reorganization expenses,
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
reorganization expenses, income tax
provision/(benefit), and extraordinary item (44,925) (13,871) (18,868)
Reorganization expenses -- -- --
--------------------------------------------------
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 (loss) 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 (loss) 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
</TABLE>
14
<PAGE>
LAMONTS APPAREL, INC.
(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>
BALANCE SHEET DATA (at end of period)
- -------------------------------------------
Working capital $ 9,938 $ 43,060 $ 52,327
Total assets 152,589 183,709 195,339
Liabilities subject to settlement under reorganization
proceedings -- -- --
Long term debt and obligations under 80,642 93,130 94,615
capital leases, net of current maturities
Stockholders' equity (deficit) 7,560 36,208 46,773
</TABLE>
LAMONTS APPAREL, INC.
FOOTNOTES TO SELECTED HISTORICAL FINANCIAL DATA
(1) The additional week in the 1995 fiscal year accounted for $2.2 million of
revenues.
(2) Non-cash interest expense is comprised of amortization of discounts on the
Company's long term debt and interest paid through issuance of additional
debt.
(3) Extraordinary item reflects gain on cancellation of debt associated with
the Recapitalization.
15
<PAGE>
LAMONTS APPAREL, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED TWO MONTHS ENDED
---------------- ----------------
August 2, 1996 August 3, 1997 October 4, 1997 October 5, 1996
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
- ---------------------------------
Revenues $87,131 $87,579 $35,843 $35,098
Cost of merchandise sold 56,038 55,954 22,883 22,428
------------------------------------------------------------------------
Gross profit 31,093 31,625 12,960 12,670
------------------------------------------------------------------------
Operating and administrative expenses 30,727 32,977 11,194 10,981
Depreciation and amortization 3,761 4,037 1,230 1,347
Impairment of long-lived assets -- 4,170 -- --
Store closure costs -- -- -- --
------------------------------------------------------------------------
Operating costs 34,488 41,184 12,424 12,328
------------------------------------------------------------------------
Earnings (loss) from continuing operations (3,395) (9,559) 536 342
before other income/(expense),
reorganization expenses, income tax
provision/(benefit), and extraordinary item
Other income (expense):
Interest expense
- Cash (2,440) (2,445) (880) (877)
- Non-cash -- -- -- --
Other income (expense) 4 5 1 2
------------------------------------------------------------------------
Loss from continuing operations before (5,831) (12,009) (343) (533)
reorganization expenses, income tax
provision/(benefit), and extraordinary item
Reorganization expenses 994 1,655 332 493
------------------------------------------------------------------------
Loss from continuing operations before (6,825) (13,664) (675) (1,026)
income tax provision/(benefit) and
extraordinary item
Income tax provision/(benefit) -- -- -- --
------------------------------------------------------------------------
Loss from continuing operations before (6,825) (13,664) (675) (1,026)
extraordinary item
Gain (loss) from discontinued operations,
net of income taxes -- -- -- --
Extraordinary item -- gain on
extinguishment of debt (3) -- -- -- --
------------------------------------------------------------------------
Net earnings (loss) ($6,825) ($13,664) ($675) ($1,026)
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
16
<PAGE>
LAMONTS APPAREL, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED TWO MONTHS ENDED
---------------- ----------------
August 2, 1996 August 3, 1997 October 4, 1997 October 5, 1996
<S> <C> <C> <C> <C>
NET EARNINGS (LOSS) PER COMMON
- ------------------------------
SHARE
- -----
Loss from continuing operations before
extraordinary item (0.38) (0.76) (0.04) (0.06)
Gain (loss) from discontinued operations,
net of income taxes -- -- -- --
Extraordinary item -- gain on
extinguishment of debt -- -- -- --
-------------------------------------------------------------------------
Net earnings (loss) per common share ($0.38) ($0.76) ($0.04) ($0.06)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average number of shares 17,900,053 17,900,053 17,900,053 17,900,053
BALANCE SHEET DATA (at end of period)
- -------------------------------------
Working capital $ (6,940) $ (2,487) $ 3,668 $ (2,278)
Total assets 100,353 106,726 102,854 107,383
Liabilities subject to settlement under
reorganization proceedings 102,415 103,733 103,339 103,609
Long term debt and obligations under
capital leases, net of current maturities 2,846 2,808 12,843 2,808
Stockholders' equity (deficit) (66,353) (56,192) (67,019) (57,208)
</TABLE>
17
<PAGE>
III.
RISK FACTORS
IN ADDITION TO RISKS INHERENTLY INVOLVED IN SECURITIES ISSUED
PURSUANT TO A PLAN OF REORGANIZATION, NUMEROUS SPECIAL FINANCIAL RISKS ARE
ASSOCIATED WITH THE PLAN AND MUST BE CAREFULLY CONSIDERED IN DETERMINING
WHETHER TO ACCEPT THE PLAN. The following is intended as a summary of
certain material risks associated with the Plan and the future operations of
the Reorganized Debtor but is not exclusive and must be supplemented by an
analysis and evaluation of the Plan and this Disclosure Statement as a whole
by each holder of an impaired Claim and each holder of Old Common Stock with
such person's advisors.
A. INHERENT UNCERTAINTY IN THE FINANCIAL PROJECTIONS.
The financial projections set forth in this Disclosure Statement
are based on numerous assumptions, including confirmation and consummation of
the Plan in accordance with its terms, the anticipated future performance of
the Company, industry performance, general business and economic conditions,
and other matters, many of which are beyond the control of the Company and
some or all of which may not materialize. The Company's new management has
developed, and the Company is implementing, changes in merchandising,
advertising, and pricing strategies. There is no assurance, however, as to
the timing or extent to which these changes will produce the desired effect.
In addition, unanticipated events and circumstances occurring subsequent to
the date the Disclosure Statement was approved by the Bankruptcy Court may
affect the actual financial results of the Company's operations. These
variations may be material and may adversely affect the ability of the
Company to pay the obligations owing to certain creditors entitled to
distributions under the Plan and other post-Effective Date indebtedness.
Because the actual results achieved throughout the periods covered by
projections may vary from the projected results, the projections should not
be relied upon as a guaranty, representation, or other assurance of the
actual results that will occur.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: The information
contained under the caption "Certain Financial Projections" and certain other
statements contained or incorporated by reference herein, including, without
limitation, statements containing the words "believes," "anticipates,"
"expects," and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause the actual results,
performance, or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following: national and local general economic and
market conditions; demographic changes; liability and other claims asserted
against the Company; competition; the loss of significant customers or
suppliers; fluctuations in operating results; changes in business strategy or
development plans; business disruptions; the ability to attract and retain
qualified personnel; ownership of Common Stock; volatility of stock price;
and other factors referenced herein. Certain of these factors are discussed
in more detail elsewhere herein, including, without limitation, under the
captions "The Company," "Capitalization," and "Certain Financial
Projections". GIVEN THESE UNCERTAINTIES, THOSE READING THIS DISCLOSURE
STATEMENT ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. The Company disclaims any obligation to update any such factors
or to publicly announce the result of any revisions to any of the
forward-looking
18
<PAGE>
statements contained or incorporated by reference herein to reflect untrue
events or developments.
B. LEVERAGE.
After giving effect to the reduction in its outstanding debt
pursuant to the Plan, the Reorganized Debtor will have a reduced, but
nevertheless substantial, degree of leverage. After giving effect to the
Plan and the financial and operational restructuring effected pursuant
thereto and in connection therewith, the Reorganized Debtor's consolidated
ratio of total debt to equity on the Effective Date (assuming an Effective
Date of January 31, 1998) is projected to be approximately 2.4:1. See
"Capitalization" and "Certain Financial Projections - Pro Forma Balance
Sheet." If the Reorganized Debtor is unable to generate sufficient cash flow
from operations in the future, or if it fails to satisfy the financial
covenants contained in the FNBB Facility, it could face default on its
restructured obligations.
The leveraged nature of the Reorganized Debtor's capital structure
will have several important effects on the Company and its operations,
including the following: (i) the Company will continue to have significant
cash requirements for debt service; (ii) the financial covenants and other
restrictions contained in the FNBB Facility will require the Company to meet
certain financial tests and will limit its ability to borrow additional funds
or to dispose of assets; (iii) because the Company's indebtedness under the
FNBB Facility will bear interest at a floating rate, the Company will be
sensitive to any increase in prevailing interest rates; (iv) as a result of
the Company's debt service requirements and restrictions imposed under the
terms of the FNBB Facility, funds available for capital expenditures and
dividends will be limited; and (v) the Company's ability to meet its debt
service obligations and to reduce its total debt will be dependent upon its
future performance, which, in turn, will be subject to general economic
conditions and to financial, business, and other factors affecting its
operations, including factors beyond its control.
The Term Loan will mature on December 26, 1999, or, if earlier,
upon the maturity of the Revolver (with provision for two one-year extensions
on the terms and conditions set forth in the FNBB Facility.) Although the
Company will be required to make principal payments on the Term Loan
commencing on October 31, 1998, the Term Loan provides for the repayment of
the outstanding balance in a lump-sum or "balloon" payment at maturity. In
addition, FNBB could demand repayment prior to the maturity date of the Term
Loan or the Revolver if certain events of default were to occur. See
"Description of FNBB Facility." The ability of the Company to repay such
indebtedness at maturity or otherwise may depend upon the ability of the
Company either to refinance or extend such indebtedness, to repay such
indebtedness with proceeds of other capital transactions, such as the
issuance of equity capital, or to sell assets. There can be no assurance
that such refinancing or extension will be available on reasonable terms or
at all, that additional capital will be issued, or that a sale of assets will
occur. The inability to repay such indebtedness could have a material
adverse effect on the Reorganized Debtor.
C. COMPETITION.
The retail business in which the Company is involved is highly
competitive, and the Company has certain competitors with substantially
greater resources than the Company. Numerous other companies, including
publicly and privately held independent stores and small chains, and
department stores, also provide competition on a national and regional basis.
In addition, the competitive environment is often affected by factors beyond
a particular retailer's control, such as shifts in consumer preferences,
changes in style, business environment,
19
<PAGE>
population trends, and traffic control. Although management attempts to
anticipate and respond to changes in consumer preferences and changes in
styles, and believes that the Company competes successfully, the Reorganized
Debtor could face difficulties in continuing to compete successfully. See
"The Company - Competition."
D. MARKET FOR NEW COMMON STOCK AND NEW WARRANTS.
The Old Common Stock is traded in the over-the-counter market and,
until January 20, 1995, was listed on the NASDAQ Stock Market's SmallCap
Market. As a result of the filing, the Old Common Stock is no longer listed.
Prior to the date hereof, there has been a limited public trading market for
the Old Common Stock. There is no active trading market for the New Common
Stock, the New Warrants, or the New Class C Warrants. Although the Company
intends to utilize its reasonable best efforts to continue its compliance
with requirements of applicable securities laws and to facilitate trading of
the New Common Stock, there can be no assurance that any market will develop
for the New Common Stock, the New Warrants, or the New Class C Warrants, as
to liquidity of any such market, the ability of holders to sell such
securities, or the price at which holders would be able to sell such
securities.
E. DIVIDEND POLICY.
The Company has never declared or paid cash dividends on its Old
Common Stock or any other equity security. In addition, the FNBB Facility
contains certain covenants that directly and indirectly restrict the ability
of the Company to pay dividends. Such restrictions prohibit the payment of
cash dividends on the New Common Stock and the New Special Voting Common
Stock for the foreseeable future. See "Description of FNBB Facility."
F. CERTAIN ECONOMIC CONDITIONS AND RECENT OPERATING PERFORMANCE.
The Company's business is dependent upon a high volume of sales
and, with respect to its mall stores, sales are derived, in part, from a high
volume of mall traffic. Volume of sales and mall traffic may be adversely
affected by local, regional, or national economic downturns, new competition,
and, in the case of its mall stores, by the closing of "anchor" stores.
Revenues have been adversely affected by, among other things, (i) the general
lower demand for apparel experienced by the Company and many other apparel
retailers, (ii) the economy in the Seattle/Tacoma market, and (iii) the
increase in discounter/mass merchandiser retail space in the Company's
markets. Management believes that sales may continue to be adversely
affected by the foregoing, among other factors. Additionally, management
believes that there may be continued pressure on gross profit in order to
maintain a competitive position in the Company's markets. There can be no
assurance that the above factors or a future economic downturn would not have
a material adverse impact on the Company.
Management believes that the Company's profitability was also
adversely affected by the Company's previous merchandising strategies.
Consequently, new management has developed and implemented numerous new
merchandising strategies, which are designed to: (i) improve the quality of
merchandise offered while maintaining price points geared to the Company's
customer base; (ii) organize merchandising efforts in key departments on an
integrated basis in order to streamline operations and focus responsibility
for merchandise presentation and a more attractive mix of quality, price and
availability; (iii) reduce or eliminate low-margin items and departments and
add higher margin goods; and (iv) improve inventory mix to reduce the need
for inventory markdowns. In addition, the Company adopted a policy to
markdown and clear out unsold merchandise with specific "out" dates set by
classification. There can be no assurance, however, that the above strategies
will continue to result in improved profitability.
20
<PAGE>
G. RESTRICTIVE COVENANTS.
The FNBB Facility includes affirmative and negative covenants which
substantially restrict many aspects of the Company's operations and finances.
Such covenants include, without limitation, a prohibition on dividends and
restrictions on capital expenditures and the incurrence of indebtedness. The
covenants will reduce the Company's operational and financial flexibility and
its ability to respond to changing retail conditions and take advantage of
attractive business opportunities. See "Description of FNBB Facility."
H. DILUTION.
The New Common Stock to be issued as of the Effective Date under
the Plan is subject to dilution by the additional shares of New Common Stock
issuable upon exercise of the New Class A Warrants, the New Class B Warrants,
the New Class C Warrants, the New Employee Stock Options, and the Gordian
Warrants. See "Common Stock Ownership - Dilution." Moreover, the
Reorganized Debtor will have the right to issue additional securities
(including without limitation under the Employee Stock Option Plan) in the
future upon compliance with applicable law, the Amended and Restated
Certificate of Incorporation, and the Amended and Restated Bylaws, which
could result in further dilution.
IV.
BACKGROUND
A. GENERAL.
Lamonts is a Northwest-based retailer with 38 stores in five
states. The Company offers an assortment of moderately priced fashion apparel
and accessories at competitive prices for the entire family. Lamonts
purchases finished goods from approximately 1,200 vendors and uses a
distribution center in Kent, Washington for processing and warehousing
merchandise for distribution to its stores. Lamonts employs approximately
1,600 people in salaried, hourly, or part-time positions. Lamonts' revenues
for the fiscal year ending February 1, 1997, were approximately $204 million.
As of February 1, 1997, Lamonts' total assets and liabilities, at book
value, approximated $93.3 million and $152.8 million, respectively. Lamonts
is a publicly-held company; its stock is traded on the over-the-counter
market.
B. FINANCIAL DIFFICULTIES.
In the years prior to the commencement of the Chapter 11 Case,
Lamonts had experienced significant financial difficulties. In addition to
being overburdened by debt, Lamonts' competitive position had deteriorated
over the prior three years. Revenues had declined from approximately $258
million in 1992 to approximately $251 million in 1993 and to approximately
$238 million in 1994. Comparable store sales had declined by 3.8% from 1992
to 1993 and by 6.4% from 1993 to 1994. Lamonts' deteriorating financial
performance was a result of several factors, including increased competition
and regional economic conditions. Lamonts had also failed to respond
adequately to changes in consumer demand and had failed to adopt necessary
buying disciplines and merchandising strategies appropriate to new market
conditions.
C. PRIOR FINANCIAL RESTRUCTURINGS.
As a result of financial difficulties, during the second half of
its 1992 fiscal year, the Company and its financial advisors commenced
negotiations with certain of the Company's creditors and stockholders
regarding a restructuring of the Company's indebtedness. On
21
<PAGE>
October 30, 1992, the Company completed the Recapitalization pursuant to
which, among other things, the Company issued an aggregate of $75.0 million
in principal amount of its Old 10-1/4% Notes. As a result of the
Recapitalization, the Company's funded debt was reduced by $63.6 million.
On December 1, 1993, the Company completed the Infusion which
included, among other things, the repurchase of $13.0 million aggregate
principal amount of Old 10-1/4% Notes, at par, together with accrued interest
through the repurchase date, and the concurrent amendment of the terms of the
Old 10-1/4% Notes that remained outstanding to, among other things,
prospectively reduce the interest rate of such Old 10-1/4% Notes from 11-1/2%
(the original rate at issuance) to 10-1/4%.
On June 10, 1994, the Company further amended the terms of the Old
10-1/4% Notes to provide, among other things, that interest payments due on
the Old 10-1/4% Notes through November 1, 1995 could be paid, at the
Company's option, either in cash, at a rate of 12% per annum, or in
additional 10-1/4% Notes, at a rate of 13% per annum. In accordance with the
amendment, the Company elected to issue additional Old 10-1/4% Notes at the
PIK Interest rate of 13% for the November 1, 1994 interest payment. Interest
continued to accrue on the Old 10-1/4% Notes until the Petition Date. In
addition, on June 10, 1994, the Company issued the Old Warrants initially to
purchase up to an aggregate of approximately 2 million shares of Old Common
Stock (or approximately 10% of the Old Common Stock outstanding after giving
effect to the exercise of such Old Warrants) to the holders of the Old
10-1/4% Notes. The Old Warrants could be exercised on or prior to June 10,
1999, at an initial exercise price of $1.00 per share of Old Common Stock.
As of August 2, 1997, none of the Old Warrants had been exercised.
On October 18, 1994, the holders of all outstanding Old 10-1/4%
Notes (i) granted the Company the option to exchange the Old 10-1/4% Notes
for shares of Old Common Stock, representing approximately 70% of the Old
Common Stock outstanding immediately following the exchange, and $50.0
million aggregate liquidation preference of a new series of preferred stock
of the Company, and (ii) released the collateral securing the Old 10-1/4%
Notes and generally subordinated the Company's obligations under the Old
10-1/4% Notes so that they are junior to trade payables and certain other
liabilities, subject to certain exceptions. The Company could exercise its
option to exchange the Old 10-1/4% Notes on or prior to March 31, 1995.
However, on March 27, 1995, the Company received an extension from the
holders of the Old 10-1/4% Notes to extend indefinitely the time in which the
Company may exercise its option to require the holders to exchange their Old
10-1/4% Notes; provided, however, that a majority of the holders of the Old
10-1/4% Notes may terminate such extension upon 60 days notice to the
Company. See "The Plan Of Reorganization -- Summary Of Certain Other
Provisions Of The Plan -- Compromise Of Subordination Disputes" for a
discussion of the treatment of such option.
Despite the foregoing, the Company's financial position continued
to deteriorate through its 1994 fiscal year. The Company's ability to
service its debt and to obtain trade credit was dependent on its performance,
which continued to fall short of projected results. In response to its
deteriorating financial condition, the Company determined that a more
significant financial and operational restructuring was necessary.
Accordingly, on the Petition Date, Lamonts commenced the Chapter 11 Case.
D. OPERATIONAL RESTRUCTURING AND NEW MANAGEMENT.
In the summer of 1994, the Board of Directors of Lamonts commenced a
nationwide search through a leading retail executive recruiter for a new Chief
Executive Officer. As a result, in October 1994, Lamonts offered the position
of Chairman and Chief Executive
22
<PAGE>
Officer to Alan Schlesinger, who was then employed as the Senior Vice
President/General Merchandise Manager at May Co. Mr. Schlesinger joined
Lamonts on November 22, 1994.
Mr. Schlesinger and his new management team immediately initiated
an aggressive plan to increase sales and eliminate old and less saleable
inventory. They developed and implemented new merchandising and marketing
strategies and buying disciplines designed to increase sales and improve
operating margins. These strategies included improving the quality of the
goods offered while maintaining Lamonts' traditional price points; reducing
and eventually eliminating low margin merchandise and departments; reducing
inventory levels; and increasing inventory turns. Lamonts also initiated a
new policy to mark down and clear out old and obsolete merchandise. The
Company has refocused its merchandising strategy on casual apparel and
expects to continue to build its merchandise categories in the Men's,
Children's, Misses, and Special Sizes areas and to promote nationally
recognized brands. Moreover, aggressive actions were taken to decrease
Lamonts' operating costs and, beginning in 1994, Lamonts analyzed the
performance of each of its stores and determined that a number of stores
should be closed because of poor performance.
E. DEBTOR-IN-POSSESSION ADMINISTRATION AND FINANCING.
The Debtor believes that, since the Petition Date, it and its
representatives have complied with applicable requirements of the Bankruptcy
Code and Bankruptcy Rules and of the United States Trustee. At all times since
the Petition Date, the Debtor has retained control of the operation and
management of its business and properties as Debtor in Possession.
Until June 4, 1996, the Company obtained its debtor in possession
financing from Foothill Capital Corporation ("Foothill"), which had
previously provided the Company's prepetition working capital financing.
Pursuant to its loan and security agreement with Foothill dated February 17,
1995 (the "Foothill Facility"), the Company was able to borrow up to $32
million in revolving loans, including up to $15 million of letters of credit.
Borrowings under the Foothill Facility, together with cash flow from
operations, were used by the Company to finance general working capital
requirements, including purchases of inventory and other expenditures
permitted under the Foothill Facility. The Foothill Facility was secured by
inventory and certain other assets and was an allowed administrative expense
claim with priority over certain other administrative expenses in the Chapter
11 Case. The Foothill Facility was extended from its initial maturity date
of May 17, 1996, and would have expired on the earlier of (i) August 17,
1996, with provisions for two additional quarterly renewals, or (ii) the
effective date of a plan of reorganization.
In an effort to improve its liquidity, reduce its financing costs,
and obtain necessary post-confirmation financing, Lamonts, with the approval
of the Committees, established a new financing relationship with FNBB under
which FNBB would, among other things: (i) enhance the availability of funds
to Lamonts, primarily by increasing the inventory advance rates beyond those
utilized under the borrowing base formulas under the Foothill Facility; (ii)
lend funds at a significantly lower overall financing cost than under the
Foothill Facility; and (iii) commit to continue financing Lamonts for a term
of two years after confirmation of a plan of reorganization. On June 4,
1996, the Company entered into the FNBB Facility after obtaining the approval
of the Bankruptcy Court and used a portion of the proceeds of the initial $32
million revolving line of credit under the FNBB Facility to repay in full its
obligations to Foothill. On September 26, 1997, the FNBB Facility was
amended and restated with the approval of the Bankruptcy Court to provide the
Company with the Term Loan, guarantied by the Surety, resulting in an
increase in the maximum amount of the Company's line of credit from $32
million to $42 million. For a detailed description of the FNBB Facility, see
"Description of FNBB Facility."
23
<PAGE>
F. NEGOTIATIONS WITH COMMITTEES.
Lamonts, with the assistance of its accountants and financial
advisors, Coopers & Lybrand, L.L.P., developed a detailed five-year business
plan and projections (the "Projections"). The Projections were distributed,
on a confidential basis, to the Committees and to their attorneys and
accountants in order to provide the basis for the parties' negotiation of a
plan of reorganization. The Projections were subsequently revised to reflect
updated results of operations and market trends.
Lamonts has, since the Petition Date, made every effort to
establish a constructive and cooperative relationship with the Committees and
their members. As a result, Lamonts and the Committees have been able to
resolve all issues between them that have arisen to date regarding the
administration of the Chapter 11 Case by discussions and without the need for
judicial intervention. In those few instances where there has been initial
disagreement among Lamonts and the Committees, matters have been
satisfactorily resolved by discussions. Accordingly, the parties have been
free to focus their attention on the negotiation of a plan of reorganization
for the ultimate resolution of the Chapter 11 Case.
After extensive discussions, the Debtor and the Committees
negotiated a financial restructuring contemplating the satisfaction of
General Unsecured Claims with New Common Stock and New Warrants.
In the course of the Plan negotiations, the Unsecured Creditors'
Committee and the Bondholders' Committee contended that holders of Old Common
Stock should receive no consideration under any plan and that a plan could be
confirmed over the objection of the Equity Committee. The Equity Committee
denied that a plan could be confirmed without the acceptance of holders of
Old Common Stock. After due consideration of their respective litigation
positions, the Committees and the Debtor agreed upon a mutually-satisfactory
treatment of holders of Old Common Stock.
After these extensive negotiations, Lamonts and the Committees
ultimately reached agreement on the Prior Plan, and all three Committees
approved the Prior Plan and recommended its acceptance by their respective
constituencies. On August 22, 1997, subsequent to acceptance of the Prior
Plan by all Voting Classes, but before the modification of the Prior Plan,
the members of the Equity Committee resigned from that committee. The
Unsecured Creditors' Committee and the Bondholders' Committee have approved
the modifications to the Prior Plan and recommend acceptance of the Plan by
their respective constituencies.
V.
THE COMPANY
A. GENERAL.
The Company has been operating in the Northwest for approximately
thirty years and is well known 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. 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 Apparel from
LH Group, Inc., a subsidiary of Northern
24
<PAGE>
Pacific Corporation. Prior to the completion of the divestiture of its
original core business in August 1989, the Company manufactured expandable
polystyrene beads and converted them into foam cups and containers,
insulation products, packing materials, and custom-molded packaging products.
Apparel's predecessor was incorporated in Washington in May 1923. On
October 30, 1992, Apparel was merged with and into the Company, and the name
of the Company was changed to Lamonts Apparel, Inc.
The Company's principal office was, until May of 1996, located at
3650 131st Avenue, S.E., Bellevue, Washington 98006. In May 1996, as part
of its cost cutting efforts, the Company relocated its principal office to
12413 Willows Road N.E., Kirkland, WA 98034. Its telephone number is
(425) 814-5700.
B. PROPERTIES.
The Company considers its ability to maintain attractive, high
traffic store locations to be a critical element of its business and a key
determinant of Lamonts' future growth and profitability. Lamonts' stores are
designed to maximize selling space while providing a fashionable, pleasant
shopping environment.
The Company currently operates 38 stores in the following locations:
<TABLE>
<CAPTION>
<S> <C> <C>
Alaska 7 Washington 23 Utah 1
- ----------------------- -------------------------- -------------------
Anchorage: 3 stores Seattle area: 6 stores Logan
Fairbanks Bellevue/Eastside: 4 stores
Juneau Spokane: 2 stores Oregon 2
Soldotna Tacoma: 2 stores -------------------
Wasilla Aberdeen Astoria
Marysville Corvallis
Idaho 5 Moses Lake
- ----------------------- Olympia
Coeur d'Alene Port Angeles
Idaho Falls Silverdale
Lewiston Tri-Cities
Moscow Wenatchee
Pocatello Yakima
</TABLE>
Of the 38 stores, 15 are located in regional malls, 14 are located
in community malls, 3 are located in strip centers, and 6 are located in
free-standing locations.
All of the Company's operating stores (except one which is an owned
building, subject to an operating ground lease) are currently located in
leased facilities. 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 from 20,700 to 80,000 square
feet, with a typical store averaging approximately 47,000 square feet. The
interiors of Lamonts' stores are
25
<PAGE>
attractively decorated and are organized to maximize traffic flow and
merchandise exposure. Signage and service facilities, such as fitting rooms
and customer service areas, are designed to create a pleasant and convenient
shopping environment.
During 1994, the Company determined that three of its Portland,
Oregon stores and all five Lamonts For Kids children's stores should be
closed because of poor performance. In October 1994, the Company closed an
additional store in the greater Seattle area as the lease was not renewed.
Also, in connection with its operational restructuring, the Company received
permission from the Bankruptcy Court to close six additional underperforming
stores in early 1995. The six stores closed were located in Vancouver,
Everett, and Lakewood, Washington; Medford, Oregon; Ogden, Utah; and the
downtown outlet center in Spokane, Washington.
The Company opened a new 36,000 square foot store in March 1995 in
a 465,000 square foot shopping center in Issaquah, Washington. This is the
Company's fourth store in the eastside area of the Seattle market.
In January 1996, the Company received permission from the
Bankruptcy Court to close an underperforming store located in Eugene, Oregon,
and the Company conducted going out of business sales at this store through
March 1996. The Company attempted to market the building, which it owned, but
was unable to locate a purchaser, and ownership of the building reverted to
the owner of the underlying land.
In February 1996, the Company entered into a sale-leaseback
transaction involving the land and building at the Company's Alderwood store
in Washington. The Company sold the property for $5 million and leased the
property back for a 20 year period, plus option terms.
In October 1996, the Company received permission from the
Bankruptcy Court to close four additional underperforming stores located in
University City (Spokane), Washington; Twin Falls, Idaho; Missoula, Montana;
and Hillsboro, Oregon.
Management is continually evaluating store locations and operations
to determine whether to close, downsize, or relocate stores that do not meet
performance objectives. Management has no current plans to close any of the
remaining 38 Lamonts stores.
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. The initial term of the lease expires
February 1998, and there is one three-year extension option. The Company is
currently considering potential alternatives to the existing facility.
C. PURCHASING.
The Company's centralized buying organization includes general
merchandise managers, divisional merchandise managers, and buyers responsible
for maintaining vendor relationships. New management teams within the
merchandising departments have been assembled subsequent to the Petition
Date. In addition, the Company's membership in Frederick Atkins, Inc.
("Atkins"), merchandising consultant, provides it with industry research and
the ability to use Atkins' private label import program. Additionally, the
Company backs certain of its direct import purchases with letters of credit
issued through Atkins. Costs associated with the letters of credit are based
on a fixed percentage of each draw plus a non-interest bearing deposit of 17%
of annual usage.
26
<PAGE>
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 highly dependent upon its ability to obtain trade credit.
D. DISTRIBUTION.
The Company utilizes a 100,000 square foot, contractor-operated
distribution center dedicated to the Company for centralized receiving and
marking (ticketing). Through its distribution 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 has an initial term
running through February 1998, with one three-year extension option, is
guaranteed by the Company. The Company is currently considering potential
alternatives to the existing facility.
E. STORE OPERATIONS.
The Company's store management team consists of a senior 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.
F. EMPLOYEES.
The Company has approximately 1,600 employees, approximately
two-thirds of whom are part-time. Approximately 275 employees working in
Seattle, Washington stores are represented by the United Food and Commercial
Workers Union pursuant to a contract that expires June 12, 1999. That
contract was ratified by the union's bargaining unit on August 17, 1997, and
was approved by the Bankruptcy Court on September 25, 1997. Approximately 40
employees work in the Wenatchee, Washington store and are represented by the
United Food and Commercial Workers Union; they have no negotiated bargaining
agreement, and the employees work under the same working conditions as the
Company's non-union employees. There are approximately 20 employees working
in the 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 that its employee relations are good.
G. COMPETITION.
Lamonts competes with other specialty retail apparel stores,
department stores, and discount/mass merchandisers on the basis of product
range, quality, fashion, price, and service. The Company differentiates
itself from its competitors by positioning itself as a focused specialty
retailer with emphasis on casual wear and high quality branded products, as
well as its private label "Northwest Outfitters". Principal competitors in
one or more of the Company's market areas include The Bon Marche (a division
of Federated Stores, Inc.), Nordstrom, J.C. Penney Co., Inc., Sears Roebuck
and Company, and Mervyn's (a division of Dayton-Hudson Corporation). Many of
the Company's competitors have substantially greater financial resources than
the Company. See "Risk Factors -- Competition."
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<PAGE>
H. TRADEMARKS.
The Company currently owns various registered trademarks which are
part of its proprietary brand imports program. Management believes that,
although such trademarks are significant, the Company's business is not
dependent on any of such rights.
I. CREDIT POLICY.
The Company offers its customers various methods of payment
including cash, check, Lamonts charge card, certain major credit cards, and a
lay-away plan. The Company's charge card base encompasses approximately
435,000 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 "Alliance Agreement"), Alliance Data
Systems owns the receivables generated from purchases made by customers using
the Lamonts charge card.
The Alliance Agreement provides that the Company will be charged a
discount fee of 1.95% of Net Sales, as that term is defined in the Alliance
Agreement. Additionally, the Alliance 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 total maximum fee of 3% of the
Net Sales for the subject year. In the event of store closures, the Alliance
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 Alliance Agreement may be terminated by either party after June
22, 1999, upon 180 days prior written notice. The Company paid National City
Bank of Columbus and Alliance Data Systems $0.1 million for bad debt expense
and $0.9 million in fees during Fiscal 1996.
J. RETURN POLICY.
It is the Company's policy to exchange or issue a credit if a
customer is not completely satisfied with any Lamonts purchase. Management
believes that the Company's customer return policy and experience is
consistent with industry practices.
K. SEASONALITY.
The Company's sales are seasonal, with the fourth quarter being its
strongest quarter as a result of the Christmas Season. The table below sets
forth the effect of seasonality on the Company's business for its 1996 fiscal
year and the comparable prior year period:
28
<PAGE>
<TABLE>
<CAPTION>
1ST QTR 2ND QTR 3RD QTR 4TH QTR TOTAL
------- ------- ------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
TWELVE MONTHS ENDED FEB. 1, 1997
Revenues $37,922 $49,657 $50,705 $65,318 $203,602
%Contribution 18.6% 24.4% 24.9% 32.1%
TWELVE MONTHS ENDED FEB. 3, 1996
Revenues $36,682 $47,711 $49,802 $65,353 $199,548
%Contribution 18.4% 23.9% 24.9% 32.8%
</TABLE>
L. INFLATION.
The primary items affected by inflation include the cost of
merchandise, utilities, and labor. Retail sales prices are generally set to
reflect such inflationary increases, the effects of which cannot be readily
determined. Management of the Company believes that inflationary factors
have had a minimal effect on the Company's operations during the past three
years.
M. REGULATIONS.
The Company is subject to Federal, state, and local laws and
regulations affecting retail apparel stores generally. The Company believes
that it is in substantial compliance with these laws and regulations.
N. PROMOTION AND MARKETING.
Sales promotion and inventory allocation decisions are made
centrally by Lamonts' corporate staff. The Company generally maintains
uniformity with respect to inventory, pricing decisions, selection of
promotional goods, and markdown policies throughout all of its locations.
Lamonts advertises primarily through radio, television, newspaper
inserts, direct mail, and charge statement inserts. The Company's
promotional strategy is to target specific merchandise products and consumer
groups, including holders of its proprietary credit card, for sale events.
O. SHOE LICENSEE.
The Company has granted a license for its family shoe department to
Shoe Corporation of America. Sales of the licensee approximated 6% of the
Company's 1996 fiscal year revenues, but are not reflected in such revenues
for financial reporting purposes because income derived by the Company from
the rental fees charged to the licensee is reported as an offset to operating
expenses.
P. CHANGE IN FISCAL YEAR.
On March 9, 1995, the Company elected to change its fiscal year end
from the Saturday closest to October 31 to the Saturday closest to January 31
in order to enhance comparability of the Company's results of operations with
other apparel retailers.
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<PAGE>
Q. LEGAL PROCEEDINGS.
The Company is from time to time involved in routine litigation
incidental to the conduct of its business. Attached as Annex D is a listing
of all litigation pending or threatened against the Company as of the date
hereof. In the opinion of management, the ultimate outcome of all such
matters should not have a material adverse effect on the financial position
of the Company, but, if decided adversely to the Debtor, could have a
material effect upon the distributions under the Plan by increasing the total
amount of Allowed General Unsecured Claims or upon the operating results
during the period in which such litigation is resolved.
R. YEAR 2000.
The Company has evaluated the significance of the year 2000 on its
existing computer systems and is currently taking steps to ensure that its
computer systems will not be adversely affected by the occurrence of the year
2000. The Company will spend approximately $500,000 in the current fiscal
year and $500,000 in the next fiscal year to make its computer systems year
2000 compliant, which the Company expects to be completed by the middle of
1999.
VII.
THE PLAN OF REORGANIZATION
The Plan is the result of substantial negotiations among the
Company and the Committees. The Debtor and the Committees believe that,
through the Plan, the holders of impaired Claims and holders of Old Common
Stock will obtain a substantially greater recovery than would be available if
the Debtor's assets were liquidated under the Bankruptcy Code or if any other
feasible alternatives were pursued. The Debtor and the Committees further
believe that the Plan will afford the Company the opportunity and ability to
continue in business as a going concern, thereby benefiting creditors,
shareholders, employees, vendors, other parties in interest, customers, and
the general public.
THE DEBTOR BELIEVES THAT THE PLAN PROVIDES THE BEST FEASIBLE
RECOVERIES TO THE HOLDERS OF IMPAIRED CLAIMS AND TO THE HOLDERS OF OLD COMMON
STOCK AND THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF SUCH
HOLDERS. THE DEBTOR THEREFORE RECOMMENDS THAT HOLDERS OF IMPAIRED CLAIMS AND
HOLDERS OF OLD COMMON STOCK ACCEPT THE PLAN.
THE UNSECURED CREDITORS' COMMITTEE AND THE BONDHOLDERS' COMMITTEE
HAVE APPROVED THE PLAN AND HAVE RECOMMENDED ACCEPTANCE OF THE PLAN BY HOLDERS
OF GENERAL UNSECURED CLAIMS.
THE EQUITY COMMITTEE PREVIOUSLY APPROVED THE PRIOR PLAN AND
RECOMMENDED ACCEPTANCE OF THE PRIOR PLAN BY HOLDERS OF OLD COMMON STOCK.
(THE MEMBERS OF THE EQUITY COMMITTEE HAVE SINCE RESIGNED.)
THE SUMMARY OF THE PLAN SET FORTH BELOW IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MORE DETAILED PROVISIONS SET FORTH IN THE PLAN,
THE TERMS OF WHICH ARE CONTROLLING. The Plan is attached hereto as Annex A
and forms a part of this Disclosure Statement. Capitalized terms used but
not defined herein shall have the meanings ascribed thereto in the Plan.
30
<PAGE>
A. GENERAL.
In accordance with the Bankruptcy Code, the Plan classifies Claims
and Equity Interests separately and provides, separately for each class,
either that the Claims or Equity Interests in such class are unimpaired or
that holders of such Claims or Equity Interests will receive various types of
consideration (such as restructured obligations, New Common Stock, New
Warrants, New Class C Warrants, and/or cash), thereby giving effect to the
different rights of the holders of Claims and Equity Interests of each class.
The treatment of Allowed Claims under the Plan will be in full settlement,
satisfaction, and discharge of all such Claims. On the Effective Date, the
Debtor will be discharged from all Claims that have arisen before
confirmation of the Plan, except for payments, distributions, and obligations
provided for in the Plan or in the Confirmation Order.
B. UNCLASSIFIED CLAIMS.
1. ADMINISTRATIVE EXPENSES.
Administrative Expenses are costs or expenses of administration of
the Chapter 11 Case allowed under Sections 503(b) and 507(a)(1) of the
Bankruptcy Code. These Claims include, but are not limited to, (i) actual
and necessary postpetition costs and expenses of preserving the Debtor's
estate, (ii) actual and necessary postpetition costs and expenses of
operating the Debtor's business, (iii) postpetition indebtedness or
obligations duly incurred or assumed by the Debtor in Possession in
connection with the conduct of its postpetition business or for the
postpetition acquisition or lease of property or the rendition of
postpetition services, (iv) any compensation and reimbursement of expenses to
the extent allowed under section 330, 331, or 503 of the Bankruptcy Code, and
(v) fees or charges assessed against the Debtor's estate under section 1930
of title 28 of the United States Code.
In general, under the Plan, each holder of an Allowed
Administrative Expense will be paid in full as soon as practicable after the
later of (a) the Effective Date and (b) the date such Administrative Expense
becomes an Allowed Administrative Expense, unless such holder agrees to a
different treatment. However, any Allowed Administrative Expenses
representing liabilities incurred in the ordinary course of postpetition
business by the Debtor in Possession (including postpetition trade
obligations, routine postpetition payroll obligations, and postpetition tax
obligations) will be assumed and paid by the Reorganized Debtor in the
ordinary course of business in accordance with the terms and conditions of
the particular transactions and any agreements relating thereto.
All payments to professionals for compensation in respect of
services rendered prior to the Effective Date and for reimbursement of
expenses incurred in connection therewith will be made in accordance with the
procedures established by the Bankruptcy Code and the Bankruptcy Rules
relating to the payment of interim and final compensation and expenses. The
Bankruptcy Court will review and determine all such requests for compensation
and reimbursement of expenses.
The Debtor expects that the following professionals employed in the
Chapter 11 Case will seek the approval of the Bankruptcy Court pursuant to
Section 503(b)(2) of the Bankruptcy Code of compensation or reimbursement of
expenses:
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Andrews & Kurth L.L.P. Counsel for Equity Committee
Bogle & Gates P.L.L.C. Local Counsel for Bondholders' Committee
Coopers & Lybrand L.L.P. Accountants and Financial Advisors for Debtor in Possession
Davis Wright Tremaine Local Counsel for Equity Committee
Ernst & Young, L.L.P. Accountants and Financial Advisors for Unsecured Creditors'
Committee
Farleigh, Wada & Witt, P.C., and Black, Helterline Oregon Counsel for Debtor in Possession
Goodwin, Procter & Hoar L.L.P. Counsel for Bondholders' Committee
Graham & James L.L.P./ Local Counsel for Unsecured Creditors' Committee
Riddell Williams P.S., and Stoel Rives L.L.P.
Ryan, Swanson & Cleveland, PLLC Counsel for Debtor in Possession
Siegel, Sommers & Schwartz L.L.P. Counsel for Unsecured Creditors' Committee
Skadden, Arps, Slate, Meagher & Flom LLP Special Corporate Counsel for Debtor in Possession
Stutman, Treister & Glatt Professional Corporation Special Reorganization Counsel for Debtor in Possession
Thomas, Head & Greisen Alaska Accountants for Debtor in Possession
Young & Feldman Alaska Counsel for Debtor in Possession
</TABLE>
The Debtor estimates that the aggregate amount of all interim and
final allowances of compensation and reimbursement of expenses of the
foregoing professionals during the Chapter 11 Case will be approximately
$7,900,000, of which approximately $7,300,000 will have been paid as interim
compensation (or retainers applied to interim compensation) prior to the
Effective Date. The foregoing amounts include both services related to the
conduct of the Chapter 11 Case and services unrelated to the conduct of the
Chapter 11 Case, such as routine audits, non-bankruptcy litigation, store
leases, and matters involving compliance with applicable labor laws, tax
laws, securities laws, and other non-bankruptcy laws and regulations. Actual
allowances will be as determined by the Bankruptcy Court.
In addition to the foregoing professionals, in accordance with the
"Stipulation re Employment of Gordian Group, L.P.; and Order Thereon" (the
"Gordian Stipulation") which was approved by the Bankruptcy Court on October
11, 1996, Gordian Group, L.P. ("Gordian") will be issued, on the 120th
calendar day following the Effective Date, in exchange for its Administrative
Expense Claims for compensation for services rendered as investment banker
for the Debtor in Possession, warrants (the "Gordian Warrants") for the
purchase of New Common Stock. The term of the Gordian Warrants will be 5
years from their issuance date. The number of shares of New Common Stock for
which the Gordian Warrants will be exercisable in the aggregate will be equal
to 200,000 divided by the "Normalized Share Price." The exercise price will
be the Normalized Share Price per share. The Normalized Share Price will be
equal to the average of the "Closing Prices" of New Common Stock for the 45
trading days commencing on the 45th calendar day following the Effective
Date. For purposes of determining the Normalized Share Price, the Closing
Price will mean (i) the closing sales price per share on the national
securities exchange on which the New Common Stock is principally traded, or
(ii) if the shares are then
32
<PAGE>
traded in an over-the-counter market, the average of the closing bid and
asked prices on such market, or (iii) if the shares are not then traded on a
national securities exchange or in an over-the-counter market, then such
value as the Board of Directors of the Reorganized Debtor shall in good faith
reasonably determine; if Gordian disagrees with such determination, then an
investment banking firm shall be mutually agreed upon, engaged, and
compensated by the Reorganized Debtor for a definitive determination of the
Normalized Share Price. The Plan provides that the securities law exemption
of section 1145 of the Bankruptcy Code will apply to the Gordian Warrants and
the securities issued upon the exercise thereof. The Gordian Warrants will be
governed in all respects by the Gordian Warrant Agreement substantially in
the form set forth in the Plan Documentary Supplement and by the Gordian
Stipulation. In addition to the Gordian Warrants, the Gordian Stipulation
provides for the payment to Gordian of a "Success Fee" in the amount of
$475,000. The obligations of the Debtor and Gordian under the Gordian
Stipulation will survive confirmation of the Plan and will continue in effect
after the Effective Date.
The Debtor has been advised by Bankers Trust Company ("BT"), a
member of the Bondholders' Committee and the Indenture Trustee for the Old
13 1/2% Notes, that it intends to file a Claim for an Administrative Expense
pursuant to section 503(b) of the Bankruptcy Code based upon its making a
substantial contribution in the Chapter 11 Case. BT has agreed to reduce
significantly the Claim which it might otherwise assert to $16,000, and the
Debtor and the Committees have advised BT that they do not intend to object
to such reduced amount. BT has advised the Debtor that, if such
Administrative Expense is allowed, BT does not intend to assert a charging
lien upon the New Common Stock to be distributed pursuant to the Plan to
holders of Old 13 1/2% Notes.
On April 21, 1997, the Bankruptcy Court entered an order awarding
to Si-Lloyd Associates, the landlord under the rejected lease for a former
Lamonts store, an Administrative Expense Claim in the amount of $127,847.20
and directing Lamonts to deposit that amount in a segregated,
interest-bearing account within thirty days following the confirmation of a
plan of reorganization. An appeal from that order by Lamonts, and a
cross-appeal from that order by Si-Lloyd Associates, are both pending in the
United States Bankruptcy Appellate Panel of the Ninth Circuit.
In May 1997, the United States Internal Revenue Service filed an
Administrative Expense Claim which alleged unpaid postpetition WT-FICA taxes,
interest, and penalties in the total amount of $240,028.69. Lamonts believes
that it has filed all required returns and paid all required WT-FICA taxes.
Lamonts' objection to this Claim is pending. The Internal Revenue Service has
advised Lamonts that it expects either to withdraw its Claim or to reduce it to
less than $500.
All quarterly fees due and payable to the Office of the United States
Trustee pursuant to section 1930(a)(6) of title 28 of the United States Code
will be duly paid in full on or before the Effective Date, as required by
section 1129(a)(12) of the Bankruptcy Code. Lamonts projects that $10,000 will
be payable to the Office of the United States Trustee for the quarter including
the Effective Date. The Reorganized Debtor will remain responsible for timely
payment of such quarterly fees due and payable after the Effective Date and
until the Chapter 11 Case is closed, pursuant to section 1930(a)(6) of title 28
of the United States Code. After the Effective Date and until the Chapter 11
Case is closed, the Reorganized Debtor will file with the Office of the United
States Trustee required monthly financial reports including a statement of all
disbursements, whether or not pursuant to the Plan.
33
<PAGE>
2. PRIORITY TAX CLAIMS.
Priority Tax Claims include the Allowed Claims of governmental
units entitled to a priority in right of payment under Section 507(a)(8) of
the Bankruptcy Code. The Debtor estimates that the aggregate amount of
Allowed Priority Tax Claims will be in the range of $825,000 to $1,000,000.
Pursuant to the Plan, each Allowed Priority Tax Claim, except the
Deferred Payment Tax Claims listed on Exhibit E to the Plan, will be paid in
full, in cash, on the Effective Date or as soon thereafter as is practicable,
except to the extent the holder of such Claim agrees to a different treatment
or specifies a later payment date. Each Deferred Payment Tax Claim listed on
Exhibit E to the Plan will be satisfied by the Reorganized Debtor in deferred
Cash payments, over a period not exceeding six years after the date of
assessment of such Claim, of a value, as of the Effective Date, equal to the
amount of such Allowed Priority Tax Claim, as provided in section
1129(a)(9)(C) of the Bankruptcy Code. Each Deferred Payment Tax Claim will
be paid in equal installments of principal, with the first of such
installments to be made three months after the later of (i) the Effective
Date and (ii) the date on which an order allowing such Claim becomes a Final
Order, and with each successive installment to be made at three month
intervals thereafter. Interest will accrue on the unpaid principal balance
of such Claim from and after the Effective Date at the interest rate
specified by the applicable tax law for delay in the payment of taxes
(including, as applicable, sections 6621 and 6622 of the Internal Revenue
Code (defined below)), without penalty, unless a different rate is specified
by the Bankruptcy Court after notice thereof to the claimant and the Debtor
and a hearing, and will be payable in arrears at the time of payment of each
principal installment. Any Deferred Payment Tax Claim may be prepaid at any
time without penalty or premium, and any such prepayments will be applied to
future principal installments in order of maturity. The Deferred Payment Tax
Claim of the United States of America on behalf of the Internal Revenue
Service will be further governed by the "Stipulation re Resolution of
Objection to Plan by United States Internal Revenue Service" filed in the
Chapter 11 Case. Allowed Priority Tax Claims will not include any interest
accruing subsequent to the Petition Date or any penalties, and all
postpetition interest and all penalties will be disallowed.
C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.
1. CLASS 1 - OTHER PRIORITY CLAIMS.
Class 1 Claims are any Claims against the Debtor entitled to priority
in accordance with Section 507(a) of the Bankruptcy Code (other than Priority
Tax Claims and Administrative Expenses) and include, among others:
(a) unsecured Claims for accrued employee compensation earned within 90 days
prior to the Petition Date, to the extent of $4,000 per employee;
(b) contributions to employee benefit plans arising from services rendered
within 180 days prior to the Petition Date, but only for such plans to the
extent of (i) the number of employees covered by such plans multiplied by
$4,000, less (ii) the aggregate amount paid to such employees from the estate
for wages, salaries or commissions; and (c) Claims by individual consumer
customers in respect of deposits for goods, in an amount of up to $1,800 per
individual.
Pursuant to the Plan, Allowed Claims in Class 1 are to be paid in cash
in full on the Effective Date or as soon as practicable thereafter, except to
the extent the holder agrees to a different treatment. The Debtor was previously
authorized by the Bankruptcy Court to honor certain of such employee and
customer Claims in the ordinary course of business. The Debtor estimates that
the aggregate amount of remaining Allowed Other Priority Claims will not exceed
$29,000. The foregoing estimate does not include a Claim for retrospective
premiums for
34
<PAGE>
workers' compensation insurance which has been asserted, but not yet filed,
by Industrial Indemnity Company in an amount less than $50,000, a portion of
which is alleged to be entitled to priority under Section 507(a)(4) of the
Bankruptcy Code. Lamonts disputes such Claim.
2. CLASS 2 - FNBB CLAIM.
The Class 2 Claim is the Claim of FNBB and the Surety under the
FNBB Facility. Under the Plan, the FNBB Claim, including without limitation
any unpaid accrued interest, fees, costs, and charges, will be paid in
accordance with all of the provisions of the FNBB Facility, and all of the
legal, equitable, and contractual rights to which FNBB and the Surety are
entitled under the FNBB Facility will be left unaltered.
As provided under the FNBB Facility, on the Effective Date or as
soon thereafter as is practicable, the Surety will receive, in partial
exchange for its Class 2 Claim, both of the following: (i) New Class C
Warrants exercisable for the purchase of 3,429,588 shares of New Common Stock
(representing a number of shares equal to approximately 38.11% of the primary
shares of New Common Stock which will be issued and outstanding as of the
Effective Date or approximately 20.00% of the fully diluted shares of New
Common Stock assuming exercise of all New Warrants, all New Class C Warrants,
and all New Employee Stock Options), and (ii) 10 shares of New Special Voting
Common Stock (representing a nominal percentage of equity ownership of the
Reorganized Debtor but all of the authorized shares of the New Special Voting
Common Stock) possessing the special voting rights described below in
"Description of New Common Stock and New Special Voting Common Stock." See
"Common Stock Ownership -- Dilution." Also see "Capitalization" and
"Description of New Warrants and New Class C Warrants."
The Plan provides that the New Class C Warrants and the New Special
Voting Common Stock which the Surety will receive on the Effective Date
pursuant to the FNBB Facility will be in partial exchange for the Class 2
Claim. Under the terms of the FNBB Facility, if the New Class C Warrants and
the New Special Voting Common Stock were not to be issued to the Surety as
contemplated by the Plan or if the other conditions set forth in the FNBB
Facility were not to be met, then (i) the FNBB Facility would not convert to
exit financing, (ii) credit extended to the Debtor under the FNBB Facility
would become due and payable upon or prior to the Effective Date, (iii) such
credit would be required to be paid in full in order for the Class 2 Claim to
remain unimpaired, and (iv) the closing fee of $500,000 previously paid by
the Debtor at the closing of the Term Loan would be non-refundable. Upon
issuance by Lamonts of the New Class C Warrants and the New Special Voting
Common Stock to the Surety as contemplated by the Plan and compliance by
Lamonts with the other conditions in the FNBB Facility for the provision of
exit financing, the Class 2 Claim will remain unimpaired, with the debtor in
possession facility obligations of Lamonts under the FNBB Facility being
exchanged for the exit facility obligations of Lamonts under the FNBB
Facility. Moreover, the $500,000 closing fee for the Term Loan will have
been fully paid for the entirety of the first year of the Term Loan. See
"Description of FNBB Facility."
It is anticipated that the issuance of the New Class C Warrants and
the New Special Voting Common Stock to the Surety will be effected in
reliance upon an exemption from registration under Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public offering.
As of the Effective Date, in conjunction with the issuance to the Surety of
the New Class C Warrants, the Surety will be entitled to the benefits of the
Grant of Registration Rights contained in the Plan Documentary Supplement,
which will be deemed an obligation of
35
<PAGE>
the Reorganized Debtor, subject to the limitations contained therein. See
"Summary of Certain Other Provisions of the Plan -- Resale of Securities."
The Debtor projects that, immediately before the Effective Date,
the estimated outstanding amount of the Class 2 Claim will be approximately
$27,600,000, and that, immediately after the Effective Date, the estimated
amount owed under the FNBB Facility will be approximately $31,000,000. Under
the terms of the FNBB Facility, the Debtor is required to obtain both FNBB's
and the Surety's written approval of the Plan.
FNBB is to provide the post-Effective Date secured revolving line
of credit and Term Loan financing for the Reorganized Debtor on the terms and
conditions set forth in the FNBB Facility. See "Description of FNBB
Facility."
3. CLASS 3 - OTHER SECURED CLAIMS.
Class 3 consists of all Allowed Secured Claims, other than the FNBB
Claim. Under the Plan, any defaults with respect to an Allowed Other Secured
Claim that occurred either before or after the Petition Date, other than
defaults of a kind specified in section 365(b)(2) of the Bankruptcy Code,
will be cured on the Effective Date; the maturity of each such Claim will be
reinstated as the maturity existed before any defaults; the holder of each
such Claim will be compensated on the Effective Date for any damages incurred
as a result of any reasonable reliance by such holder on any contractual
provision or applicable law that entitled the holder to accelerate maturity
of the Claim; and the other legal, equitable, and contractual rights of the
holder of such Allowed Other Secured Claim will not be otherwise altered.
Certain personal property lease obligations may be construed to be Other
Secured Claims. Including such lease obligations, the Debtor estimates that
the aggregate outstanding amount of Allowed Claims in Class 3, as of the
Effective Date, will be in the range of $150,000 to $200,000.
4. CLASS 4 - GENERAL UNSECURED CLAIMS.
Class 4 consists of the Allowed General Unsecured Claims. General
Unsecured Claims are all allowed unsecured Claims other than Administrative
Expenses, Priority Tax Claims, and Other Priority Claims, and include,
without limitation, (a) Claims of trade creditors for goods and services
provided to the Debtor prior to the Petition Date, (b) Claims of holders of
Old 10-1/4% Notes, (c) Claims of holders of Old 13-1/2% Notes, and (d) Claims
of parties to executory contracts and unexpired leases which are rejected by
the Debtor. The latter category includes any Allowed Claims of the lessors
under rejected leases of stores closed by the Debtor. The Debtor estimates
that the aggregate outstanding amount of Allowed Claims in Class 4, as of the
Effective Date, will be in the range of $88,900,000 to $92,500,000.
Under the Plan, on the Effective Date or as soon thereafter as is
practicable, each holder of an Allowed General Unsecured Claim will receive,
in exchange for and satisfaction of such Claim, all of the following: (i)
its Pro Rata Share of 8,800,000 shares of New Common Stock (representing
approximately 97.78% of the primary shares of New Common Stock which will be
issued and outstanding as of the Effective Date or approximately 51.32% of
the fully diluted shares of New Common Stock assuming exercise of all New
Warrants, all New Class C Warrants, and all New Employee Stock Options), (ii)
its Pro Rata Share of New Class A Warrants exercisable for the purchase of
2,203,320 shares of New Common Stock (representing a number of shares equal
to approximately 24.48% of the primary shares of New Common Stock which will
be issued and outstanding as of the Effective Date or approximately 12.85% of
the fully diluted shares of New Common Stock assuming exercise of all New
Warrants, all New Class C Warrants, and all New Employee Stock Options), and
(iii) its Pro Rata Share of New Class B Warrants exercisable for the purchase
of 700,237 shares of
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New Common Stock (representing a number of shares equal to approximately
7.78% of the primary shares of New Common Stock which will be issued and
outstanding as of the Effective Date or approximately 4.08% of the fully
diluted shares of New Common Stock assuming exercise of all New Warrants, all
New Class C Warrants, and all New Employee Stock Options). See "Common Stock
Ownership -- Dilution." Also see "Capitalization," "Description of New
Common Stock and New Special Voting Common Stock," and "Description of New
Warrants and New Class C Warrants."
A portion of the securities otherwise distributable to certain
specified holders of Allowed General Unsecured Claims will instead be
distributed to certain other specified holders of Allowed General Unsecured
Claims (primarily trade creditors) who are entitled to the benefits of
settlements under the Plan of disputes regarding subordination provisions of
the respective indentures governing the Old 10-1/4% Notes and the Old 13-1/2%
Notes. See "Summary of Certain Other Provisions of the Plan -- Compromise of
Subordination Disputes."
As of the Effective Date, in conjunction with the issuance to
holders of General Unsecured Claims of the New Common Stock and the New
Warrants, certain holders of the New Common Stock and the New Warrants will
be entitled to the benefits of the Grant of Registration Rights contained in
the Plan Documentary Supplement, which will be deemed an obligation of the
Reorganized Debtor, subject to the limitations contained therein. See
"Summary of Certain Other Provisions of the Plan -- Resale of Securities."
5. CLASS 5 - OLD COMMON STOCK.
Class 5 consists of the Allowed Equity Interests of holders of Old
Common Stock. Under the Plan, on the Effective Date or as soon thereafter as
is practicable, each holder of record as of the Effective Date of an Allowed
Equity Interest will receive, in exchange for and satisfaction of such Equity
Interest, both of the following: (i) its Pro Rata Share of 200,000 shares of
New Common Stock (representing approximately 2.22% of the primary shares of
New Common Stock which will be issued and outstanding as of the Effective
Date or approximately 1.17% of the fully diluted shares of New Common Stock
assuming exercise of all New Warrants, all New Class C Warrants, and all New
Employee Stock Options), and (ii) its Pro Rata Share of New Class B Warrants
exercisable for the purchase of 100,000 shares of New Common Stock
(representing a number of shares equal to approximately 1.11% of the primary
shares of New Common Stock which will be issued and outstanding as of the
Effective Date or approximately 0.58% of the fully diluted shares of New
Common Stock assuming exercise of all New Warrants, all New Class C Warrants,
and all New Employee Stock Options). See "Common Stock Ownership --
Dilution." Also see "Capitalization," "Description of New Common Stock and
New Special Voting Common Stock," and "Description of New Warrants and New
Class C Warrants."
As of the Effective Date, in conjunction with the issuance to
holders of Old Common Stock of the New Common Stock and the New Warrants,
certain holders of the New Common Stock and the New Warrants will be entitled
to the benefits of the Grant of Registration Rights contained in the Plan
Documentary Supplement, which will be deemed an obligation of the Reorganized
Debtor, subject to the limitations contained therein. See "Summary of
Certain Other Provisions of the Plan -- Resale of Securities."
Holders of Old Employee Stock Options and holders of Old Warrants
who, in each case, shall have exercised prior to the Effective Date such
holders' rights to purchase Old Common Stock in accordance with the
provisions of such Old Employee Stock Options or Old Warrants, as the case
may be, will be treated under the Plan with respect to the Old Common
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Stock so purchased in the manner specified in the Plan for the treatment of
holders of Old Common Stock. Holders of unexercised Old Employee Stock
Options or unexercised Old Warrants will receive no consideration under the
Plan, and all such Old Employee Stock Options and Old Warrants unexercised as
of the Effective Date will be rejected.
D. SUMMARY OF CERTAIN OTHER PROVISIONS OF THE PLAN.
1. COMPROMISE OF SUBORDINATION DISPUTES.
The Plan provides for the compromise of the disputes regarding the
application and effect of the respective subordination provisions of both the
indenture, as amended, for the Old 10-1/4% Notes (the "Old 10-1/4%
Indenture"), and the indenture, as amended, for the Old 13-1/2% Notes (the
"Old 13-1/2% Indenture"). A complete resolution, by litigation, of these
controversies and disputes would be time-consuming and expensive, and the
value of Lamonts' estate would likely deteriorate substantially as a result.
After extensive negotiations, the parties have agreed to settle these
disputes on the terms set forth in the Plan.
The Old 10-1/4% Indenture provides, in relevant part, as follows:
"All principal of, premium, if any, and interest on the Notes . . .
shall be and hereby are expressly made subordinate and junior in right
of payment to all Senior Claims . . . to the extent and in the manner
provided in these subordination provisions. . . ."
In the event of insolvency proceedings, the Old 10-1/4% Indenture
provides, in relevant part:
"All Senior Claims shall be paid in full . . . before any payment or
distribution, whether in cash, securities or other property, shall be
made to any holder of [Old 10-1/4% Notes] on account of such [Notes]
(excluding payments made with Junior Securities)."
"Junior Securities" are defined by the Old 10-1/4% Indenture as
including "Capital Stock."
The Old 10-1/4% Indenture defines "Senior Claims" as follows:
"'Senior Claims' means (i) all Indebtedness of the Company unless,
under the instrument evidencing the same or under which the same is
outstanding, it is expressly provided that such Indebtedness is junior
and subordinate to other Indebtedness or Obligations of the Company;
and (ii) all accounts payable and other obligations to trade creditors
representing the balance deferred and unpaid of the purchase price of
property or services."
The representatives of holders of Senior Claims have contended that
holders of Senior Claims are entitled to payment in full before any
consideration can be distributed to holders of Old 10-1/4% Notes; the
representatives of holders of Old 10-1/4% Notes have contended that the
shares of New Common Stock constitute Junior Securities under the Old 10-1/4%
Indenture and, therefore, are excluded from the operation of the
subordination provisions.
In order to resolve the ongoing disputes between the holders of
Senior Claims and the holders of Old 10-1/4% Notes, and in full settlement
and satisfaction of all subordination rights claimed by holders of all Claims
which constitute Senior Claims, (i) a portion of the New Common Stock
otherwise distributable as of the Effective Date to the holders of Old
10-1/4% Notes absent this compromise will instead be distributed on a Pro
Rata Basis to holders of Allowed Senior Claims to the extent that holders of
Allowed Senior Claims will receive, in the
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aggregate, the number of shares of New Common Stock set forth in Exhibit F to
the Plan, and (ii) all New Class A Warrants and New Class B Warrants
otherwise distributable to the holders of Senior Claims absent this
compromise will instead be distributed on a Pro Rata Basis to holders of Old
10-1/4% Notes. Thus, the effect of the compromise will be that the holders
of Old 10-1/4% Notes will receive fewer, and the holders of Allowed Senior
Claims will receive more, shares of the New Common Stock to be issued as of
the Effective Date than they would absent this compromise; and the New Class
A Warrants and the New Class B Warrants will be issued to holders of Old
10-1/4% Notes rather than to holders of Allowed Senior Claims so that holders
of Allowed Senior Claims will not receive any of the New Warrants. This
compromise takes fully into account the relative priorities of the Claims
affected in connection with the contractual subordination provisions relating
to the Old 10-1/4% Notes. Accordingly, all holders of Claims will be deemed,
as of the Effective Date, to have waived any and all contractual
subordination rights which they might otherwise have with respect to the Old
10-1/4% Notes and the Old 10-1/4% Indenture and shall be deemed, as of the
Effective Date, permanently enjoined from enforcing or attempting to enforce
any such rights with respect to the distributions under the Plan to the
holders of the Old 10-1/4% Notes. In addition, this compromise takes fully
into account the Debtor's right, if any, to exercise the previously granted
option to exchange preferred and common stock for the Old 10-1/4% Notes.
Exhibit F to the Plan specifies the number of shares of New Common
Stock to which holders of allowed Senior Claims will be entitled under the
terms of the compromise. That number will vary, depending upon the total
amount of Senior Claims actually allowed in the Chapter 11 Case. The
Debtor's best estimate is that approximately $14,150,000 to $15,650,000 in
Senior Claims will ultimately be allowed, based upon the Debtor's analysis of
the proofs of claim which have been timely filed in the Chapter 11 Case, a
comparison of such proofs of claim to the Company's own books and records,
and orders entered to date resolving certain of such proofs of claim. If the
Debtor's estimate proves to be accurate, then the aggregate number of shares
to which holders of Allowed Senior Claims would be entitled as set forth on
Exhibit F would be either 4,800,000 or 4,970,000. However, there can be no
assurance that the Debtor's estimate will accurately predict the actual total
amount of Senior Claims which will ultimately be allowed by the Bankruptcy
Court.
For purposes of the implementation of the compromise of the
subordination disputes regarding the Old 10-1/4% Indenture, Annex C to this
Disclosure Statement specifies those Claims that have been filed or are
deemed filed in the Chapter 11 Case which will, to the extent ultimately
allowed, be treated as Allowed Senior Claims. Such Annex C to this
Disclosure Statement has been modified (by the addition or deletion of
particular Senior Claims) from Annex C to the Prior Disclosure Statement.
The deadline which was fixed by the Bankruptcy Court for any objections to
the contents of Annex C to the Prior Disclosure Statement was December 6,
1996, no such objections were filed, and no such objections would now be
timely. In the event that any party in interest contends that any
modification to Annex C is incorrect, such party must file with the
Bankruptcy Court and serve upon counsel for the Debtor and each of the
Committees a written statement and an accompanying declaration in support
thereof specifying the alleged error in the addition to or deletion from
Annex C effected by such modification, no later than 10 calendar days before
the date scheduled for the commencement of the Confirmation Hearing on the
Plan. Failure timely to file and serve such statement will result in the
determination that those Claims specified in Annex C to this Disclosure
Statement as Senior Claims constitute all of the Senior Claims and will, to
the extent allowed, be treated as Allowed Senior Claims under Section V.E.1
of the Plan. The Debtor and the Committees reserve the right to respond to
any objection filed by any party in interest, and
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any disputes with respect to whether a Claim constitutes an Allowed Senior
Claim will be resolved by the Bankruptcy Court.
The Old 13-1/2% Indenture provides, in relevant part, as follows:
"The Company agrees, and each [holder of Old 13-1/2% Notes] by
accepting [an Old 13-1/2% Note] agrees, that the indebtedness
evidenced by the [Old 13-1/2% Notes] is subordinated in the right of
payment to the extent and in the manner provided in [Article 10 of the
Old 13-1/2% Indenture] to the prior payment in full in cash of all
Senior Indebtedness of the Company, and that the subordination is for
the benefit of the holders of Senior Indebtedness of the Company."
The Old 13-1/2% Indenture defines "Senior Indebtedness", in relevant
part, as follows:
"'Senior Indebtedness of the Company' means all Indebtedness (present
or future) created, incurred, assumed or guaranteed by the Company
(and all renewals, extensions or refundings thereof) including,
without limitation, Indebtedness incurred, and all fees, expenses and
other obligations payable, pursuant to the BNY Revolving Credit
Agreement and all renewals, extensions and refundings thereof, unless
the instrument under which such Indebtedness is created, incurred,
assumed or guaranteed expressly provides that such Indebtedness is not
senior or superior in right of payment to the [Old 13-1/2% Notes].
Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness of the Company shall not include . . . any Indebtedness
incurred for the purchase of goods or materials or for services
obtained in the ordinary course of business and which constitutes a
trade payable."
In order to resolve the ongoing disputes between the holders of
Senior Indebtedness and the holders of Old 13-1/2% Notes, and in full
settlement and satisfaction of all subordination rights claimed by holders of
Allowed Claims which constitute Senior Indebtedness, (i) only 16,500 shares
of New Common Stock distributable as of the Effective Date to holders of Old
13-1/2% Notes will be retained by the holders of Old 13-1/2% Notes, (ii) all
other shares of New Common Stock otherwise distributable as of the Effective
Date to the holders of Old 13-1/2% Notes absent this compromise will instead
be distributed on a Pro Rata Basis to holders of Allowed Senior Indebtedness,
and (iii) all New Class A Warrants and New Class B Warrants otherwise
distributable to the holders of Old 13-1/2% Notes absent this compromise will
instead be distributed on a Pro Rata Basis to holders of Allowed Senior
Indebtedness. This compromise takes fully into account the relative
priorities of the Claims affected in connection with the contractual
subordination provisions relating to the Old 13-1/2% Notes. Accordingly, all
holders of Claims will be deemed, as of the Effective Date, to have waived
any and all contractual subordination rights which they might otherwise have
with respect to the Old 13-1/2% Notes and the Old 13-1/2% Indenture, and will
be deemed, as of the Effective Date, permanently enjoined from enforcing or
attempting to enforce any such rights with respect to the distributions under
the Plan to the holders of the Old 13-1/2% Notes.
For purposes of the implementation of the compromise of the
subordination disputes regarding the Old 13-1/2% Indenture, only the Claims of
the holders of Old 10-1/4% Notes will be treated as Allowed Senior Indebtedness.
The deadline which was fixed by the Bankruptcy Court for any objections to such
treatment was December 6, 1996, no such objections were filed, and no such
objections would now be timely.
In considering the proposed compromises at the Confirmation Hearing on
the Prior Plan, the Bankruptcy Court evaluated (i) the probability of success in
the litigation; (ii) the
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difficulties, if any, to be encountered in the matter of collection; (iii)
the complexity of the litigation involved, and the expense, inconvenience and
delay necessarily attending to it; and (iv) the paramount interest of the
creditors and a proper deference to their reasonable views in the premises.
In the present case, all four factors for Bankruptcy Court approval of
the compromises are satisfied:
(i) Probability of success. The parties have evaluated the
probability of success, the merits of the litigation, and the risks inherent
with litigation. Based upon their analysis, the parties have determined that
the settlements reached are reasonable in light of the prospects of success in
litigation. There is no guarantee that the either side would prevail.
Additionally, any litigation with respect thereto would be expensive and time
consuming and not in the best interest of the estate.
(ii) Difficulties with collection. Collection is not a factor;
therefore this element is not applicable.
(iii) Complexity of the litigation. The issues involved are
complex and would involve protracted litigation. Such litigation would
undoubtedly delay confirmation of a consensual plan. Thus, approval of the
compromises will avoid the time, delay, and expenses attendant to such
litigation.
(iv) Interests of Creditors. Upon resolution of the claims, the
disputes between the parties will have been resolved, and the Debtor will be
able to facilitate the orderly implementation of the Plan. In order to obviate
any further delays, the Debtor believes that the compromises are in the best
interest of the creditors. Moreover, the Committees have negotiated and
approved the compromises.
In the Interim Findings and Conclusions, the Bankruptcy Court found
that the compromise of subordination disputes provided in the Plan is fair and
reasonable and is in the best interest of the estate, creditors, and
shareholders of the Debtor.
2. EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
Subject to the approval of the Bankruptcy Court, the Bankruptcy Code
empowers the Debtor in Possession to assume, assume and assign, or reject
executory contracts and unexpired leases. As a general matter, an "executory
contract" is a contract under which material performance (other than the payment
of money) is due by each party. If an executory contract or unexpired lease is
rejected by the Debtor in Possession, the other party to the agreement may file
a Claim for any damages incurred by reason of the rejection. In the case of
rejection of employment agreements and leases of real property, such damage
Claims are subject to certain limitations imposed by the Bankruptcy Code. If an
executory contract or unexpired lease is assumed, the Debtor generally has the
obligation to perform its obligations thereunder in accordance with the terms of
such agreement. If an executory contract is assumed and assigned, the assignee
generally has the obligation to perform the obligations of the Debtor thereunder
in accordance with the terms of such agreement.
The Plan provides that entry of the Confirmation Order by the
Bankruptcy Court will constitute approval, pursuant to section 365(a) of the
Bankruptcy Code, of the Debtor's rejection or assumption of its executory
contracts and unexpired leases as provided in the Plan. Executory contracts and
unexpired leases to be assumed pursuant to the Plan are listed in Exhibit G
thereto. All executory contracts and unexpired leases which have not previously
been rejected and which are not assumed, either pursuant to the Plan or by
separate proceeding in the Chapter 11 Case,
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are deemed rejected pursuant to the Plan. Exhibit H to the Plan contains a
non-exclusive list of executory contracts and unexpired leases to be rejected
under the Plan.
Exhibit G to the Plan specifies the Cure Payment amounts, if any,
which the Debtor believes are required to be paid on the Effective Date in
accordance with sections 365(b)(1)(A) & (B) of the Bankruptcy Code in connection
with the assumption of the executory contracts and unexpired leases listed
therein. Exhibit G to the Plan has been modified in certain respects from
Exhibit G to the Prior Plan. The deadline which was fixed by the Bankruptcy
Court for any objections to the Cure Payment amounts set forth in Exhibit G to
the Prior Plan was December 6, 1996, and no further objections to such Cure
Payment amounts would now be timely. In the event that any party to a listed
contract or lease affected by any modification to Exhibit G contends that the
Cure Payment amount as so modified is incorrect, such party must serve upon
counsel for the Debtor and each of the Committees and file with the Bankruptcy
Court a written statement and an accompanying declaration in support thereof
specifying the amounts allegedly owing under sections 365(b)(1)(A) and (B) of
the Bankruptcy Code no later than 10 calendar days before the date scheduled for
the commencement of the Confirmation Hearing on the Plan. Failure to file and
serve such statement will result in the determination that the Reorganized
Debtor's tender of the Cure Payment, as specified in Exhibit G to the Plan, on
the Effective Date, will provide cure and compensation for any and all defaults
and unpaid obligations under such assumed executory contract or unexpired lease.
The Debtor and the Committees reserve the right to respond to any objection
filed by any party to an executory contract or unexpired lease and/or to reject
any executory contract or unexpired lease or assume such contract or unexpired
lease by complying with section 365(b) of the Bankruptcy Code, if the other
party to any executory contract or unexpired lease establishes that the Cure
Payment is greater than the amount specified in Exhibit G to the Plan. To the
extent that the Debtor disagrees with any objection filed by any party to an
executory contract or unexpired lease, the Debtor will request that the
Bankruptcy Court declare that the Cure Payment is as stated by the Debtor, and
any disputes which cannot be resolved by the parties will be determined by the
Bankruptcy Court.
The Plan provides that certain specified employment policies and
certain specified compensation and benefit plans, policies, and programs of
the Debtor applicable generally to its employees, including, without
limitation, certain specified health care plans, disability plans, collective
bargaining agreements, incentive plans, qualified pension plans, and life and
accidental death and dismemberment insurance plans, are treated as executory
contracts under the Plan and are assumed by the Debtor. Similarly,
employment agreements with certain members of management will be assumed by
the Debtor, as amended, extended, and restated on the Effective Date. See
"Management -- Employment Agreements." The Debtor's obligation to indemnify
former officers and directors is rejected under the Plan. See "Management --
Indemnification Of Officers And Directors Of Reorganized Debtor." The
Debtor's obligations under two non-qualified pension plans are also rejected
under the Plan. See "Management -- Executive Compensation -- Nonqualified
Pension Plans."
All Allowed Claims arising from the rejection of executory contracts
or unexpired leases, whether under the Plan or by separate proceeding, will be
treated as Class 4 Claims under the Plan.
All Claims arising from the rejection of executory contracts or
unexpired leases, whether under the Plan or by separate proceeding, must be
filed with the Bankruptcy Court on or before such date as the Bankruptcy Court
has fixed or may fix by express order with respect to Claims arising from the
rejection of specified executory contracts and unexpired leases, or, if no such
date is or has been fixed, on or before the first Business Day which is at least
fifteen
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calendar days after the mailing of notice of entry of the Confirmation
Order. Any such Claims which are not filed within such time will be forever
barred from assertion against the Debtor, its estate, the Reorganized Debtor,
and its property.
3. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND
BYLAWS.
Pursuant to the Plan, the Certificate of Incorporation of the
Debtor will be amended and restated in substantially the form set forth in
the Plan Documentary Supplement (the "Amended and Restated Certificate of
Incorporation"), and the Bylaws of the Debtor will be amended and restated in
substantially the form included in the Plan Documentary Supplement (the
"Amended and Restated Bylaws"). The Amended and Restated Certificate of
Incorporation includes provisions limiting the liability of directors of the
Reorganized Debtor, and the Amended and Restated Bylaws provide for mandatory
indemnification of the Reorganized Debtor's agents (including present
officers and directors) for past and future acts to the maximum extent
permitted by applicable law. The Amended and Restated Certificate of
Incorporation prohibits the Reorganized Debtor from issuing non-voting equity
securities, as required by section 1123(a)(6) of the Bankruptcy Code. See
"Description of New Common Stock and New Special Voting Common Stock." In
addition, the Amended and Restated Certificate of Incorporation authorizes
the issuance of the New Special Voting Common Stock, which provides certain
special voting rights to the holders thereof upon the occurrence of certain
triggering events relating to the FNBB Facility. See "Description of New
Common Stock and New Special Voting Common Stock."
4. BOARD OF DIRECTORS.
Under the Plan, the initial Board of Directors of the Reorganized
Debtor (the "New Board") will consist of the individuals to be designated as
set forth in Exhibit I to the Plan, including Alan Schlesinger, Loren R.
Rothschild, and three additional individuals who are not insiders or
employees of the Debtor and who will be designated by the Debtor, with the
approval of the Committees, at or before the Confirmation Hearing. See
"Management."
5. EFFECTIVE DATE.
The Effective Date is the later of (i) the first Business Day on
which no stay of the Confirmation Order is and remains in effect and which is
at least one Business Day after the date on which all conditions to
effectiveness of the Plan have been satisfied or waived, and (ii) January 31,
1998. See "Conditions Precedent." On the Effective Date or as soon
thereafter as is practicable, the Debtor will deposit with the Disbursing
Agent the New Common Stock, the New Special Voting Common Stock, the New
Warrants, the New Class C Warrants, and the cash to be distributed as of the
Effective Date pursuant to the Plan. See "Confirmation Procedure --
Feasibility."
6. TREATMENT OF FRACTIONAL SECURITIES.
No fractional shares of New Common Stock and no fractional New
Warrants will be issued or distributed pursuant to the Plan. Instead, the
number of shares of New Common Stock and/or number of New Warrants to be
distributed to the holder of an Allowed Claim or Allowed Equity Interest will
be rounded to the nearest whole number (with fractions equal to exactly
one-half being rounded up). No consideration will be provided in lieu of the
fractional shares that are rounded down and therefore are not issued.
7. NEW EMPLOYEE STOCK OPTIONS.
Pursuant to the Plan, the Reorganized Debtor will, as of the Effective
Date, adopt the Employee Stock Option Plan, authorizing the grant of options to
purchase shares of New
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Common Stock to key employees and directors. Pursuant to the Plan, the
Reorganized Debtor will issue as of and after the Effective Date, from time
to time, New Employee Stock Options allocated and vesting as set forth in
this Disclosure Statement under "Management," for distribution to specified
employees of the Reorganized Debtor. The New Employee Stock Options will be
initially exercisable for the purchase of 1,333,729 shares of New Common
Stock and will consist of: (i) options exercisable for the purchase of
1,000,000 shares of New Common Stock with an initial exercise price of $1.00
per share; (ii) to prevent dilution resulting from the issuance of the New
Class A Warrants, options exercisable for the purchase of an additional
244,813 shares of New Common Stock with an initial exercise price of $0.01
per share, exercisable only on or after the date on which the New Class A
Warrants become exercisable; and (iii) to prevent dilution resulting from the
issuance of the New Class B Warrants, options exercisable for the purchase of
an additional 88,915 shares of New Common Stock with an initial exercise
price of $0.01 per share, exercisable only on or after the date on which the
New Class B Warrants become exercisable. The number of New Employee Stock
Options described in clauses (ii) and (iii) above will be issued on a Pro
Rata Basis and the number that may be exercised by any holder shall bear the
same proportion (based on the total number of such options granted to such
holder) to the number of New Employee Stock Options described in clause (i)
above that have been exercised by such holder (based on the total number of
such options granted to such holder). In addition, to prevent dilution
resulting from the issuance of the New Class C Warrants to the Surety, each
holder of New Employee Stock Options will be issued, on a Pro Rata Basis and
with the same vesting schedule as such holder's respective New Employee Stock
Options, New Class C Warrants initially exercisable for the purchase of
381,065 shares of New Common Stock with an exercise price equivalent to that
of the New Class C Warrants to be issued to the Surety. The New Employee
Stock Options and the New Class C Warrants are subject to adjustment to
prevent dilution upon the occurrence of certain specified events, excluding
exercise of the New Employee Stock Options, the New Class A Warrants, the New
Class B Warrants, the New Class C Warrants, or the Gordian Warrants. The
term of the New Employee Stock Options will be 10 years. See "Management --
Employee Stock Option Plan; Description Of New Employee Stock Options" and
"Description of New Warrants and New Class C Warrants." The number of shares
issuable upon exercise of the New Employee Stock Options and the New Class C
Warrants described above will represent 10.00% of the fully diluted shares of
New Common Stock (assuming exercise of all New Warrants, all New Class C
Warrants, and all New Employee Stock Options), of which approximately 7.78%
will represent shares of New Common Stock issuable upon exercise of the New
Employee Stock Options and approximately 2.22% will represent shares of New
Common Stock issuable upon exercise of the New Class C Warrants. See "Common
Stock Ownership -- Dilution."
Under the terms of the Employee Stock Option Plan, the Reorganized
Debtor will have available, in addition to the New Employee Stock Options to be
issued pursuant to the Plan, an additional 375,000 shares (subject to adjustment
to prevent dilution upon certain events, excluding any exercise of New Class A
Warrants, New Class B Warrants, New Class C Warrants, Gordian Warrants, or New
Employee Stock Options) of New Common Stock for possible grants of additional
stock options from time to time after the Effective Date if, and to the extent,
the disinterested committee administering the Employee Stock Option Plan may
determine that such additional grants would be in the best interest of the
Reorganized Debtor. If options for all shares available under the Employee
Stock Option Plan were to be issued and exercised, such shares would represent
9.75% (or 11.93%, including the shares issuable upon exercise of the New Class C
Warrants issued to key employees and directors in conjunction therewith) of the
fully
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diluted shares of New Common Stock assuming the exercise of all New Warrants,
all New Class C Warrants, and all New Employee Stock Options. See "Common
Stock Ownership -- Dilution."
THE PLAN AND THE DISCLOSURE STATEMENT WILL BE DEEMED TO BE A
SOLICITATION TO THE HOLDERS OF OLD COMMON STOCK AND TO THE HOLDERS OF NEW
COMMON STOCK, NEW WARRANTS, AND NEW CLASS C WARRANTS FOR APPROVAL OF THE
EMPLOYEE STOCK OPTION PLAN, AND THE ENTRY OF THE CONFIRMATION ORDER WILL
CONSTITUTE APPROVAL OF THE PLAN, FOR PURPOSES OF COMPLIANCE WITH RULE
16b-3(a) PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
(THE "1934 ACT"). Future employee stock plans or grants will be implemented
by the New Board if and as the New Board determines such plans to be
appropriate as a means to provide management with additional incentives.
8. RESALE OF SECURITIES.
In reliance upon an exemption from the registration requirements of
the Securities Act and state and local securities laws afforded by section
1145 of the Bankruptcy Code, the issuance of the New Common Stock and the New
Warrants to holders of Claims and Equity Interests pursuant to the Plan will
not require registration or qualification under the Securities Act or any
state or local securities laws. In addition, subject to certain exceptions,
any such securities issued pursuant to the Plan may be resold by any holder
without registration under the Securities Act pursuant to the exemption
provided by Section 4(1) of the Securities Act, unless the holder is an
"underwriter" with respect to such securities, as that term is defined in the
Bankruptcy Code (a "statutory underwriter"). Section 1145(b) of the
Bankruptcy Code defines "underwriter" for purposes of the Securities Act as
one who (i) purchases a claim with a view to distribution of any security to
be received in exchange for the claim, or (ii) offers to sell securities
issued under a plan for the holders of such securities, or (iii) offers to
buy securities issued under a plan from persons receiving such securities, if
the offer to buy is made with a view to distribution of such securities, or
(iv) is a controlling person of the issuer of the securities.
ENTITIES WHO BELIEVE THEY MAY BE STATUTORY UNDERWRITERS ARE ADVISED
TO CONSULT THEIR OWN COUNSEL WITH RESPECT TO THE POSSIBLE AVAILABILITY OF
EXEMPTIONS WHICH MAY BE PROVIDED BY SECTION 1145 OR OTHER APPLICABLE LAW.
In addition, the securities issued under the Plan generally may be
resold by the recipients thereof without registration on the state level
pursuant to various exemptions provided by the respective laws of the several
states. HOWEVER, RECIPIENTS OF SECURITIES ISSUED UNDER THE PLAN ARE ADVISED
TO CONSULT WITH THEIR OWN COUNSEL AS TO THE AVAILABILITY OF ANY SUCH
EXEMPTION FROM REGISTRATION UNDER STATE LAW IN ANY GIVEN INSTANCE AND AS TO
ANY APPLICABLE REQUIREMENTS OR CONDITIONS TO THE AVAILABILITY THEREOF.
It is anticipated that the issuance of the New Class C Warrants and
the New Special Voting Common Stock to the Surety will be effected in
reliance upon an exemption from registration under Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public offering.
On the Effective Date and after giving effect to the distribution of
New Common Stock pursuant to the Plan, each holder of an Allowed Class 4 Claim
or Allowed Class 5 Interest which beneficially owns, together with its
affiliates, in excess of ten percent (10%) of the issued and outstanding shares
of New Common Stock (a "10% Holder"), and the Surety as a holder of New Class C
Warrants, will have the benefit of the Grant of Registration Rights included in
the Plan Documentary Supplement (the "Registration Rights"). See "Common Stock
Ownership." The Registration Rights provide that the Reorganized Debtor is
obligated to
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cause a "shelf" registration statement (the "Shelf Registration") covering
(i) the shares of New Common Stock issued to the 10% Holders pursuant to the
Plan, (ii) the New Class A Warrants and New Class B Warrants issued to the
10% Holders pursuant to the Plan, (iii) the New Class C Warrants issued to
the Surety pursuant to the Plan, and (iv) the shares of New Common Stock
issuable pursuant to such New Class A Warrants, New Class B Warrants, and New
Class C Warrants (collectively, the "Registrable Securities") to be effective
no later than 45 days after the Effective Date and to maintain the
effectiveness of such Shelf Registration for the period provided by the
Registration Rights. In addition, the Registration Rights provide to the 10%
Holders and the Surety and their respective assignees and transferees, if
any, (a) "piggyback" registration rights which give such parties the right to
cause the Reorganized Debtor to include the Registrable Securities, on
customary terms, in certain registrations of securities of the Reorganized
Debtor, and (b) the right to liquidated damages under certain circumstances
should the Reorganized Debtor fail to cause the Shelf Registration to become
effective or suspend or fail to maintain the effectiveness of the Shelf
Registration.
The foregoing summary of the Registration Rights is qualified in
its entirety by reference to the Registration Rights itself, which will be
controlling. Persons who believe that they may be 10% Holders and the Surety
are encouraged to read the Registration Rights carefully for a complete
statement of the rights granted thereby and the conditions, limitations, and
restrictions pertaining thereto.
The Company expects to file a registration statement on Form S-8
with the Securities and Exchange Commission with respect to the shares of New
Common Stock issuable upon the exercise of the New Class C Warrants and New
Employee Stock Options to be granted to officers, directors, and employees of
the Company. Shares of New Common Stock issued after the effective date of
such registration statement upon the exercise of such warrants and options
may be resold by the recipient thereof without restriction to the extent that
such shares are held by persons who are not affiliates (as that term is
defined in Rule 144 promulgated under the Securities Act) of the Company.
Although the Company intends to utilize its reasonable best efforts
to continue its compliance with the reporting requirements of applicable
securities laws and to facilitate trading of the New Common Stock, there can
be no assurance that any market will develop for the New Common Stock or for
the New Warrants or for the New Class C Warrants, as to liquidity of any such
market, the ability of holders of sell such securities, or the price at which
holders would be able to sell such securities.
9. RETENTION OF JURISDICTION.
The Plan provides for the retention by the Bankruptcy Court of
jurisdiction over the Chapter 11 Case as specified in the Plan.
10. DISCHARGE OF DEBTOR.
On and after the Effective Date, the Plan will bind the Debtor and
all holders of Claims and Old Common Stock, whether or not they accept the
Plan, and will also discharge the Debtor from all debts that arose before
Confirmation, except as provided in the Plan and in the Confirmation Order.
The rights afforded in the Plan and the treatment of all Claims and
Equity Interests therein will be in exchange for and in complete satisfaction,
discharge, and release of any and all Claims and Equity Interests of any nature
whatsoever, including any interest accrued on such claims whether before or
after the Petition Date, against the Debtor and the Debtor in Possession,
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or any of their assets or properties. Except as otherwise provided in the
Plan, on the Effective Date, the Debtor will be deemed discharged and
released to the fullest extent permitted by section 1141 of the Bankruptcy
Code from all Claims and Equity Interests, including, but not limited to,
demands, liabilities, Claims, and interests that arose before the
Confirmation Date and all debts of the kind specified in sections 502(g),
502(h), or 502(i) of the Bankruptcy Code, whether or not: (a) a proof of
claim or proof of interest based on such debt or interest is filed or deemed
filed pursuant to section 501 of the Bankruptcy Code, (b) a Claim or Equity
Interest based on such debt or interest is Allowed pursuant to section 502 of
the Bankruptcy Code, or (c) the holder of a Claim or Equity Interest based on
such debt or interest has accepted the Plan. In addition, all persons and
entities will be deemed precluded from asserting against the Reorganized
Debtor, its successors, or its assets or properties any other or further
Claims or Equity Interests based upon any act or omission, transaction, or
other activity of any kind or nature that occurred prior to the Confirmation
Date. The Confirmation Order will act as a discharge of any and all claims
against and all debts and liabilities of the Debtor, as provided in sections
524 and 1141 of the Bankruptcy Code, and such discharge will void any
judgment against the Debtor at any time obtained to the extent that it
relates to a Claim discharged.
Except as otherwise provided in the Plan, the documents executed
pursuant to the Plan, or the Confirmation Order, on and after the Effective
Date, all persons and entities who have held, currently hold, or may hold a
debt, Claim, or interest discharged pursuant to the terms of the Plan shall
be deemed permanently enjoined from taking any of the following actions on
account of any such discharged debt, Claim, or interest: (a) commencing or
continuing in any manner any action or other proceeding against the Debtor,
the Reorganized Debtor, its successors, or its property; (b) enforcing,
attaching, executing, collecting, or recovering in any manner any judgment,
award, decree, or order against the Debtor, the Reorganized Debtor, its
successors, or its property; (c) creating, perfecting, or enforcing any lien
or encumbrance against the Debtor, the Reorganized Debtor, its successors, or
its property; (d) asserting any setoff, right of subrogation, or recoupment
of any kind against any obligation due to the Debtor, the Reorganized Debtor,
its successors, or its property; and (e) commencing or continuing any action,
in any manner, in any place that does not comply with or is inconsistent with
the provisions of the Plan. Any person or entity injured by any willful
violation of such injunction will recover actual damages, including costs and
attorneys' fees, and, in appropriate circumstances, may recover punitive
damages, from the willful violator.
The discharge will not apply to the FNBB Claim or the FNBB Liens,
which will survive and continue and be governed by the FNBB Facility.
11. PROCEDURES WITH RESPECT TO OLD COMMON STOCK,
OLD 10-1/4% NOTES, AND OLD 13-1/2% NOTES.
Pursuant to Bankruptcy Rule 3021, as of the Effective Date, the
transfer ledgers for the Old 10-1/4% Notes, the Old 13-1/2% Notes, and the
Old Common Stock will be closed, and there will be no further changes in the
holders of record of such securities. The Disbursing Agent will have no
obligation to recognize any transfer of such securities occurring after the
Effective Date, but will instead be entitled to recognize and deal for all
purposes under the Plan with only those holders of record stated on the
applicable transfer ledgers as of the Effective Date.
As of the Effective Date, the Old Employee Stock Options, the Old
Warrants, and the Debtor's obligations under the Old 10-1/4% Indenture and
the Old 13-1/2% Indenture and under the respective agreements governing the
Old Employee Stock Options and Old Warrants will be rejected. In addition,
the transfer ledger for the Old Warrants will be closed.
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As of the Effective Date, the instruments which previously
evidenced ownership of the Old 10-1/4% Notes, the Old 13-1/2% Notes, and the
Old Common Stock will be cancelled, and such instruments will thereafter
represent only the right to receive the property distributable with respect
to such securities under the Plan. No holder of Old 10-1/4% Notes, Old
13-1/2% Notes, or Old Common Stock will be entitled to any distribution under
the Plan until such holder has surrendered to the Disbursing Agent the
original certificate for the securities held by it or, in the event that such
original securities have been lost, destroyed, stolen, or mutilated, has
first executed and delivered an affidavit of loss and indemnity with respect
thereto that is reasonably satisfactory to the Disbursing Agent and, if so
requested by the Disbursing Agent, a bond in form and substance (including
as to amount) reasonably satisfactory to the Disbursing Agent. As soon as
practicable after such surrender or delivery of such affidavit, the
Disbursing Agent will distribute to each holder of Old 10-1/4% Notes, Old
13-1/2% Notes, or Old Common Stock the distribution to which such holder is
entitled under the Plan.
In accordance with section 1143 of the Bankruptcy Code, any holder
of Old 10-1/4% Notes, Old 13-1/2% Notes, or Old Common Stock who fails to
surrender such security or deliver such affidavit of loss and indemnity and,
if so requested, such bond as provided in the Plan within five years after
the Effective Date will be deemed to have forfeited all rights, Claims, and
interests and will not participate in any distribution under the Plan. Upon
the expiration of such five-year period, all New Common Stock and cash, or
proceeds received with respect thereto, held for distribution by the
Disbursing Agent will be returned to the Reorganized Debtor.
12. CONDITIONS PRECEDENT.
The Plan provides that it will not become effective unless each of
the following conditions has occurred or, in the case of condition (i), has
been waived in writing by the Debtor: (i) the Confirmation Order shall have
been entered on the docket of the Bankruptcy Court for at least 10 days (as
calculated in accordance with Bankruptcy Rule 9006(a)); and (ii) all
conditions precedent to the occurrence of the "Exit Facility Date" under the
FNBB Facility shall have been satisfied or waived and no Event of Default
shall have occurred thereunder.
13. AMENDMENT OR REVOCATION OF THE PLAN.
The Debtor may further amend or modify the Plan before or after the
Confirmation Date in accordance with the provisions of section 1127 of the
Bankruptcy Code. The Debtor may revoke or withdraw the Plan at any time
prior to Confirmation.
14. ALLOCATION OF CONSIDERATION DISTRIBUTED
ON ACCOUNT OF ALLOWED CLASS 4 CLAIMS.
The distributions provided for holders of Allowed Class 4 Claims under
the Plan will be allocated in full satisfaction and substitution of the
principal amount of such Claims, exclusive of accrued interest. However, such
allocation will not limit the scope of the discharge provided under the Plan.
15. PROVISIONS FOR TREATMENT OF DISPUTED
ADMINISTRATIVE EXPENSES AND DISPUTED CLAIMS.
On the Effective Date or as soon thereafter as practicable, the
Disbursing Agent will establish such reserve (the "Distribution Reserve"), if
any, as the Bankruptcy Court may require after notice and a hearing, on account
of particular Disputed Priority Tax Claims, Disputed Other Priority Claims, and
Disputed Administrative Expenses. No reserve will be required for any Disputed
Claim or Disputed Administrative Expense to the extent of any effective
insurance
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coverage therefor. Any such Distribution Reserve will be held in
trust for the benefit of the holders of such Disputed Claims, Disputed
Administrative Expenses, and the Reorganized Debtor, as their respective
interests may appear, pending determination of their respective entitlement
thereto. Any interest accruing thereon will be paid to the Reorganized Debtor.
When, and to the extent that, a Disputed Claim or Disputed
Administrative Expense for which a reserve has been required by the
Bankruptcy Court becomes allowed pursuant to a Final Order, the Disbursing
Agent will make a distribution to the holder thereof in accordance with the
Plan. Any surplus in the Distribution Reserve which may result from the
allowance of a Disputed Claim or Disputed Administrative Expense in an amount
less than the Claim or Administrative Expense as filed with the Bankruptcy
Court will be transferred to the Reorganized Debtor by the Disbursing Agent.
Each beneficial owner of Old 10-1/4% Notes, Old 13-1/2% Notes, or
Old Common Stock of record as of the Effective Date will be deemed to have an
Allowed Class 4 Claim or Allowed Class 5 Interest, as the case may be, and
need not file a proof of claim or proof of interest with respect thereto. In
the event any entity which is NOT the record holder as of the Effective Date
of an Old 10-1/4% Note, Old 13-1/2% Note, or Old Common Stock or the
beneficial owner with respect thereto shall file a proof of right to record
status pursuant to Bankruptcy Rule 3003(d), the Disbursing Agent will
establish such reserve, if any, as may be ordered by the Bankruptcy Court on
account of any objection thereto. Such reserve shall be held in trust for
the holders of such Disputed Claims or Interests. To the extent any such
Disputed Claim or Interest, as the case may be, is disallowed, any reserve
pertaining to such Disputed Claim or Interest shall be distributed on a Pro
Rata Basis to all holders of Allowed Claims or Allowed Interests in the same
class as such disallowed Disputed Claim or Interest, subject to redistribution
pursuant to the compromises under Section V.E of the Plan.
16. NO LIABILITY FOR SOLICITATION OR PARTICIPATION.
As specified in section 1125(e) of the Bankruptcy Code, persons who
solicit acceptances or rejections of the Plan and/or who participate in the
offer, issuance, sale, or purchase of securities offered or sold under the
Plan, in good faith and in compliance with the applicable provisions of the
Bankruptcy Code, are not liable, on account of such solicitation or
participation, for violation of any applicable law, rule, or regulation
governing the solicitation of acceptances or rejections of the Plan or the
offer, issuance, sale, or purchase of securities.
17. LIMITATION OF LIABILITY.
Neither the Debtor, nor the Reorganized Debtor, nor any of their
respective employees, officers, directors, shareholders, agents, or
representatives, nor the Committees or their members, nor any professional
persons employed by the Debtor, the Debtor-in-Possession, the Reorganized
Debtor, or the Committees, shall have or incur any liability to any person or
entity for any act taken or omission made in good faith in connection with or
related to negotiating, formulating, implementing, confirming, or
consummating the Plan, this Disclosure Statement, or any contract,
instrument, security, release, or other agreement, instrument, or document
created in connection with the Plan.
18. RIGHTS OF ACTION; PREFERENCES.
Any and all rights and causes of action accruing to the Debtor or
its estate will remain assets of and vest in the Reorganized Debtor, whether
or not litigation relating thereto is pending on the Effective Date. The
Reorganized Debtor may pursue all rights and causes of action in its sole
discretion, in accordance with what is in the best interests, and for the
benefit, of
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the Reorganized Debtor. Neither the Debtor nor the Reorganized
Debtor waives, relinquishes, or abandons any right or cause of action which
constitutes property of the Debtor's Estate, whether or not such right or
cause of action has been listed or referred to in the Schedules or in this
Disclosure Statement and whether or not such right or cause of action is
currently known to the Debtor. Notwithstanding the foregoing, the
Reorganized Debtor will not pursue any preference causes of action arising
under section 547 of the Bankruptcy Code.
The rights and causes of action which will remain assets of and vest
in the Reorganized Debtor include, without limitation, the following:
a. Lamonts Apparel, Inc. v. Hickel Investment Company
United States District Court for Alaska
Cause No. A95-0463 (HRH) Filed 3/21/95
Recovery of overpayment of CAM charges
Defendant's address:
Hickel Investment Company
P.O. Box 101700
Anchorage, AK 99510
b. Lamonts Apparel, Inc. v. Si-Lloyd Associates
Oregon Court of Appeals
Cause No. CA A91907 filed 2/16/96
Lease dispute
Defendant's address:
Si-Lloyd Associates
c/o Katherine McDowell
Stoel Rives Boley Jones & Grey
Standard Insurance Center
900 S.W. Fifth Avenue, Suite 2300
Portland, OR 97204-1268
c. Claims against Industrial Indemnity for postpetition payment
of prepetition retrospective premiums for workers
compensation and employers liability insurance.
d. Any claims or rights of the Debtor under its leases or
otherwise to any offset, credit, or reimbursement for
overpayment of rent, taxes, insurance, or common area
maintenance charges.
19. CONTINUATION OF FNBB CLAIM AND FNBB LIENS.
Notwithstanding the entry of the Confirmation Order and the
implementation of the Plan on the Effective Date, the FNBB Claim will not be
discharged, and all liens, security interests, and mortgages granted to FNBB
pursuant to the FNBB Facility will continue in full force and effect. The
validity and enforceability of the FNBB Claim and the validity,
enforceability, perfection, and priority of the FNBB Liens will be
automatically ratified and confirmed in all respects and will continue
without any further action by FNBB. The orders of the Bankruptcy Court
authorizing the FNBB Facility, the FNBB Claim, and the FNBB Liens will
continue in full force and effect, including without limitation the
provisions thereof authorizing and directing the filing and recordation of
UCC financing statements, mortgages, deeds of trust, and other perfection
documents and the provisions thereof granting FNBB the right, INTER ALIA,
after an Event of Default under the FNBB Facility and acting otherwise in
compliance with the FNBB Facility, to cause the sale or other disposition of
collateral constituting interests in real estate by directing the Reorganized
Debtor or any trustee appointed in any future bankruptcy case for the
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Reorganized Debtor to assume, assign, and sell any or all of such real
estate collateral pursuant to sections 363 and 365 of the Bankruptcy Code after
appropriate notice and a hearing, with FNBB's first priority lien and security
interest to attach to the proceeds of such sale. Without limiting the
foregoing, the FNBB Liens will not be subject to any present or future
contractual, statutory, or common law lien, security interest, or mortgage which
might be avoided and preserved for the benefit of the estate pursuant to section
551 of the Bankruptcy Code. In furtherance of (and without limiting) the
foregoing, the FNBB Liens in any of the Reorganized Debtor's non-fixture
personal property will be superior and senior in priority to any and all liens
arising by operation of law in favor of lessors and landlords for obligations
relating to or arising in connection with rental agreement for the use of real
property.
20. REVESTING OF ASSETS.
Except as otherwise provided in the Plan, the property of the estate
of the Debtor will revest in the Reorganized Debtor on the Effective Date. The
Reorganized Debtor may operate its business and may use, acquire, and dispose of
property without supervision by the Bankruptcy Court or the United States
Trustee and free of any restrictions of the Bankruptcy Code or the Bankruptcy
Rules. As of the Effective Date, all property of the Reorganized Debtor will be
free and clear of all Claims, liens, encumbrances, and other interests of
creditors and holders of Equity Interests, except as otherwise provided in the
Plan.
HOLDERS OF IMPAIRED CLAIMS AND OLD COMMON STOCK AND OTHER INTERESTED
PARTIES ARE URGED TO READ THE PLAN (INCLUDING THE EXHIBITS THERETO) IN ITS
ENTIRETY SO THAT THEY MAY MAKE AN INFORMED JUDGMENT CONCERNING THE PLAN.
VII.
CONFIRMATION PROCEDURE
In order for the Plan to be confirmed by the Bankruptcy Court, all of
the applicable requirements of section 1129 of the Bankruptcy Code must be met.
These include, among others, the requirements that the Plan: (i) is accepted by
all impaired classes of Claims and Equity Interests or, if rejected or deemed
rejected by an impaired class, "does not discriminate unfairly" and is "fair and
equitable" as to each rejecting class; (ii) is feasible; and (iii) is in the
"best interest" of holders of Claims in each class impaired under the Plan and
of holders of Old Common Stock.
The Prior Plan and the Prior Disclosure Statement were filed with the
Bankruptcy Court and, after notice and a hearing on October 24, 1996, the
Bankruptcy Court approved the Prior Disclosure Statement. The Prior Plan, the
Prior Disclosure Statement, ballots, and other solicitation materials approved
by the Bankruptcy Court were distributed to all known holders of Claims and
Equity Interests and other parties in interest. A confirmation hearing with
respect to the Prior Plan commenced on January 6, 1997, and the Bankruptcy Court
determined that the Prior Plan was accepted by (i) 100% of the holders of Class
1 Other Priority Claims who timely voted to accept or reject the Prior Plan,
(ii) the holders of Class 4 General Unsecured Claims totaling approximately
99.3% in dollar amount and 95.7% in number of such Claims of holders who timely
voted to accept or reject the Prior Plan, and (iii) the holders of Class 5 Old
Common Stock totaling approximately 97.7% in amount of shares of holders who
timely voted to accept or reject the Prior Plan.
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Pursuant to a "Stipulation re Procedures for Confirmation of Plan; and
Order Thereon" among the Debtor and the Committees, which was approved by the
Bankruptcy Court on December 20, 1996, the Debtor demonstrated at the
confirmation hearing on January 6, 1997 that all confirmation requirements have
been satisfied, except for certain "Deferred Confirmation Requirements"
specified in that stipulation, and the Bankruptcy Court entered the Interim
Findings and Conclusions which are attached as Annex E to this Disclosure
Statement. At the request of the Debtor and the Committees, the Bankruptcy
Court deferred final confirmation of the Prior Plan in order to afford the
parties time to explore opportunities to raise additional working capital.
The Plan is a modification and restatement of the Prior Plan pursuant
to section 1127(a) of the Bankruptcy Code to take into account, INTER ALIA, the
Term Loan and the New Class C Warrants and New Special Voting Common Stock to be
issued to the Surety as contemplated by the FNBB Facility. The Debtor and the
Committees are now seeking final confirmation of the Plan.
A. VOTING; ACCEPTANCE.
Any holder of a Claim in either Class 1 or Class 4 is entitled to vote
if either (i) such holder's Claim has been scheduled by the Debtor in the
Schedules filed with the Bankruptcy Court (provided that such Claim has not been
scheduled as disputed, contingent, unknown, or unliquidated), or (ii) such
holder has filed a proof of Claim on or before the deadline previously fixed by
the Bankruptcy Court and such Claim is deemed allowed pursuant to section 502 of
the Bankruptcy Code or has been allowed by the Bankruptcy Court, unless such
Claim has been disallowed for voting purposes by the Bankruptcy Court. The
record date for determining which holders of Old 10-1/4% Notes, of Old 13-1/2%
Notes, or of Old Common Stock are entitled to vote on the Plan is the date
specified in the Order and Notice (the "Record Date"). A vote may be
disregarded if the Bankruptcy Court determines, after notice and a hearing, that
an acceptance or rejection was not solicited or procured or made in good faith
or in accordance with the provisions of the Bankruptcy Code.
Each of the Voting Classes of Claims will be deemed to have accepted
the Plan if the Plan is accepted by holders of at least two-thirds in dollar
amount and more than one-half in number of the Claims of such Class (excluding
certain Claims designated under section 1126(e) of the Bankruptcy Code) that
will have voted to accept or reject the Plan.
THE TRUSTEES UNDER THE OLD 10-1/4% INDENTURE AND UNDER THE OLD 13-1/2%
INDENTURE ARE NOT PERMITTED TO VOTE ON BEHALF OF THE HOLDERS OF THE NOTES.
CONSEQUENTLY, SUCH HOLDERS MUST HAVE SUBMITTED THEIR OWN BALLOTS OR MUST SUBMIT
THEIR OWN MODIFICATION BALLOTS IN ORDER FOR THEIR VOTES TO COUNT.
Class 5, consisting of the Equity Interests of holders of Old Common
Stock, will be deemed to have accepted the Plan if the Plan is accepted by
holders of at least two-thirds of the outstanding shares that will have voted to
accept or reject the Plan.
HOLDERS OF ALLOWED GENERAL UNSECURED CLAIMS, HOLDERS OF ALLOWED OTHER
PRIORITY CLAIMS, AND HOLDERS OF OLD COMMON STOCK PREVIOUSLY VOTED ON THE PRIOR
PLAN, WHICH WAS FILED BY THE DEBTOR ON OCTOBER 23, 1996. AS PROVIDED IN SECTION
1127(d) OF THE BANKRUPTCY CODE, ANY HOLDER OF A CLAIM OR EQUITY INTEREST OF A
VOTING CLASS THAT VALIDLY ACCEPTED OR REJECTED THE PRIOR PLAN IS DEEMED TO
ACCEPT OR REJECT, AS THE CASE MAY BE, THE PLAN, UNLESS, AS SET FORTH IN THE
ORDER AND NOTICE
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WHICH ACCOMPANIES THIS DISCLOSURE STATEMENT, SUCH HOLDER CHANGES SUCH
HOLDER'S PREVIOUS ACCEPTANCE OR REJECTION WITHIN THE TIME PERIOD THAT HAS
BEEN FIXED BY THE BANKRUPTCY COURT. ANY HOLDER OF A CLAIM OR EQUITY INTEREST
OF A VOTING CLASS THAT WISHES TO CHANGE SUCH HOLDER'S PREVIOUS ACCEPTANCE OR
REJECTION, AND ANY HOLDER OF A CLAIM OR EQUITY INTEREST OF A VOTING CLASS
THAT DID NOT PREVIOUSLY CAST A VALID BALLOT AND THAT NOW WISHES TO VOTE ON
THE PLAN, MAY DO SO BY FILLING IN, SIGNING, AND TRANSMITTING A MODIFICATION
BALLOT IN THE MANNER SPECIFIED IN THE MODIFICATION BALLOT SO THAT IT IS
RECEIVED NO LATER THAN THE VOTING DEADLINE SPECIFIED IN THE MODIFICATION
BALLOT. SEE "VOTING PROCEDURES." NO ACTION IS NECESSARY BY ANY HOLDER THAT
PREVIOUSLY CAST A VALID BALLOT AND THAT DOES NOT NOW WISH TO CHANGE SUCH
HOLDER'S VOTE.
B. CONFIRMATION HEARING.
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a hearing on confirmation of the Plan (the "Confirmation
Hearing"). The Confirmation Hearing may be postponed from time to time by the
Bankruptcy Court without further notice except for an announcement of the
postponement made at the Confirmation Hearing. Section 1128(b) of the
Bankruptcy Code provides that any party in interest may object to confirmation
of the Plan. Objections must be made in writing, specifying in detail the name
and address of the person or entity objecting, the grounds for the objection,
and the nature and amount of the Claim or Equity Interest held by the objector,
and otherwise complying with the requirements of the Bankruptcy Rules and Local
Bankruptcy Rules. Objections must be filed with the Clerk of the Bankruptcy
Court, with two copies to chambers of the bankruptcy judge, together with proof
of service, and served upon the parties so designated in the Order and Notice in
the manner set forth therein, on or before the time and date designated in the
Order and Notice as being the last date for serving and filing objections to
confirmation of the Plan. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED
AND FILED IN ACCORDANCE WITH THE ORDER AND NOTICE, IT WILL NOT BE CONSIDERED BY
THE BANKRUPTCY COURT. THE DEADLINE FOR OBJECTIONS TO CONFIRMATION OF THE PRIOR
PLAN WAS DECEMBER 2, 1996, AND ALL OBJECTIONS TO CONFIRMATION OF THE PRIOR PLAN
WERE WITHDRAWN OR FULLY RESOLVED. AS SET FORTH IN THE ORDER AND NOTICE, THE
BANKRUPTCY COURT WILL NOT CONSIDER ANY OBJECTIONS THAT WERE NOT TIMELY RAISED IN
CONNECTION WITH THE CONFIRMATION HEARING FOR THE PRIOR PLAN, AND ONLY OBJECTIONS
TO THE MODIFICATIONS OF THE PRIOR PLAN WILL BE CONSIDERED BY THE BANKRUPTCY
COURT IN CONNECTION WITH THE CONFIRMATION OF THE PLAN.
At the Confirmation Hearing, the Bankruptcy Court will determine,
among other things, whether the following confirmation requirements specified in
section 1129 of the Bankruptcy Code have been satisfied:
1. The Plan complies with the applicable provisions of the
Bankruptcy Code.
2. The Debtor has complied with the applicable provisions of the
Bankruptcy Code.
3. The Plan has been proposed in good faith and not by any means
proscribed by law.
4. Any payment made or promised by the Debtor for services or for
costs and expenses in, or in connection with, the Chapter 11 Case, or
in connection with the
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Plan and incident to the Chapter 11 Case, has been disclosed to the
Bankruptcy Court, and any such payment made before the confirmation
of the Plan is reasonable or, if such payment is to be fixed after
the confirmation of the Plan, such payment is subject to the
approval of the Bankruptcy Court as reasonable.
5. The Debtor has disclosed the identity and affiliations of any
individual proposed to serve, after confirmation of the Plan, as a
director or officer of the Reorganized Debtor, and the appointment
to, or continuance in, such office of such individual is consistent
with the interests of creditors and holders of New Common Stock and
with public policy, and the Debtor has disclosed the identity of any
insider that will be employed or retained by the Reorganized Debtor
and the nature of any compensation for such insider.
6. Each holder of an impaired Claim and each holder of Old Common
Stock either has accepted the Plan or will receive or retain under the
Plan on account of such holder's Claims or Old Common Stock, as the
case may be, property of a value, as of the Effective Date, that is
not less than the amount that such entity would receive or retain if
the Debtor were liquidated on such date under chapter 7 of the
Bankruptcy Code. See "Best Interests Test."
7. Unless the Debtor proposes a nonconsensual plan of
reorganization, each class of Claims or Equity Interests has either
accepted the Plan or is not impaired under the Plan. See
"Nonconsensual Confirmation."
8. Except to the extent that the holder of a particular Claim has
agreed to a different treatment of such Claim, the Plan provides that
Administrative Expenses and Other Priority Claims will be paid in full
on the Effective Date and that holders of Priority Tax Claims will
receive on account of such Claims either payment in full on the
Effective Date or deferred cash payments, over a period not exceeding
six years after the date of assessment of such Claims, of a value as
of the Effective Date equal to the allowed amount of such Claims.
9. At least one class of Claims has accepted the Plan, determined
without including any acceptance of the Plan by any insider holding
a Claim in such class.
10. Confirmation of the Plan is not likely to be followed by the
liquidation, or the need for further financial reorganization, of the
Debtor or any successor to the Debtor under the Plan, unless such
liquidation or reorganization is proposed in the Plan. See
"Feasibility."
The Board of Directors of the Debtor believes that, upon acceptance of
the Plan by each of the Voting Classes, the Plan will satisfy all the statutory
requirements of Chapter 11 of the Bankruptcy Code, that the Debtor has complied
or will have complied with all of the requirements of Chapter 11, and that the
Plan is being proposed and will be submitted to the Bankruptcy Court in good
faith.
C. BEST INTERESTS TEST.
As referred to in subparagraph 6 above, confirmation of the Plan
requires that each holder of an impaired Claim and each holder of Old Common
Stock either (a) accepts the Plan or (b) receives or retains under the Plan
property of a value, as of the Effective Date, that is not less than the value
such holder would receive or retain if the Debtor were liquidated under
chapter 7 of the Bankruptcy Code.
The Debtor has determined that confirmation of the Plan will provide
each holder of a Claim and each holder of Old Common Stock with a recovery that
is not less than that which it would receive pursuant to a liquidation of the
Debtor under chapter 7 of the Bankruptcy Code.
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This determination is based upon a consideration of the effects that a
chapter 7 liquidation would have on the ultimate proceeds available for
distribution to such holders, including: (i) the enormous erosion in value of
assets in a chapter 7 case in the context of the expeditious liquidation
required under chapter 7 and the "forced sale" atmosphere that would prevail;
(ii) the adverse effects on the liquidation proceeds as a result of the
departure of key employees whose services would be required in connection
with the liquidation; (iii) the substantial increases in Claims which would
be satisfied on a priority basis or on parity with existing Claims in the
Chapter 11 Case; and (iv) the increased costs and expenses of a liquidation
under chapter 7 arising from fees payable to a trustee in bankruptcy and
professional advisors to such trustee.
Moreover, the Debtor believes that the value of any distributions from
the liquidation proceeds to each class of Allowed Claims in a chapter 7 case
would be further reduced because such distributions in a chapter 7 case may not
occur for a substantial period of time. In this regard, it is possible that
distribution of the proceeds of the liquidation could be delayed for a year or
more after the completion of such liquidation in order to resolve the Claims and
prepare for distributions. In the event litigation were necessary to resolve
Claims asserted in the chapter 7 case, the delay could be further prolonged.
1. CHAPTER 7.
To determine the value that the holders of impaired Claims and the
holders of Old Common Stock would receive if the Debtor were liquidated, the
Bankruptcy Court would determine the dollar amount that would be generated from
the liquidation of the Debtor's assets and properties in the context of a
chapter 7 liquidation case. Section 704 of the Bankruptcy Code requires a
chapter 7 trustee to collect and reduce to money the property of the estate as
expeditiously as is compatible with the best interests of parties in interest.
In the case of the Debtor, the chapter 7 trustee may face a difficult task in
liquidating the assets of the estate given the Debtor's numerous locations, the
nature of the Debtor's business and assets, and the current business
environment. The cash amount which would be available for satisfaction of
Allowed Administrative Expenses, Allowed Claims, and Allowed Equity Interests
would consist of the proceeds resulting from the disposition of the Debtor's
assets, augmented by the cash, if any, held by the Debtor at the time of the
commencement of the chapter 7 case. Any such cash amount then would be reduced
by the amount of any Claims secured by such assets, the costs and expenses of
the liquidation, and such additional Administrative Expenses and priority Claims
that may result from the termination of the Debtor's business and the use of
chapter 7 for the purposes of liquidation.
The costs of liquidation under chapter 7 would include the fees
payable to a trustee in bankruptcy, as well as those which might be payable to
attorneys and other professionals that such a trustee may engage, plus any
unpaid expenses incurred by the Debtor during the Chapter 11 Case and allowed in
the chapter 7 case, such as compensation for attorneys, financial advisors,
accountants, and other professionals, and costs and expenses of the Committees.
In addition, as described above, Claims would arise by reason of the breach or
rejection of obligations incurred and executory contracts entered into or
assumed by the Debtor during the pendency of the Chapter 11 Case. The foregoing
types of Claims, costs, expenses, and fees and such other Claims which may arise
in a liquidation case or result from the Chapter 11 Case would be paid in full
from the liquidation proceeds before the balance of those proceeds would be made
available to pay pre-petition priority Claims and General Unsecured Claims.
To determine if the Plan is in the best interests of each impaired
Class, the present value of the distributions from the proceeds of the
liquidation of the Debtor's assets and
55
<PAGE>
properties, after subtracting the amounts attributable to the foregoing
Claims, is then compared with the value of the property offered to such Class
under the Plan.
In applying the "best interests test," it is possible that Claims and
Equity Interests in the chapter 7 case may not be classified according to the
seniority of such Claims and Equity Interests as provided in the Plan. In the
absence of a contrary determination by the Bankruptcy Court, all pre-petition
unsecured Claims which have the same rights upon liquidation would be treated as
one class for purposes of determining the potential distribution of the
liquidation proceeds resulting from the chapter 7 case. The distributions from
the liquidation proceeds would be calculated ratably according to the amount of
the Claim held by the respective holder. The Debtor believes that the most
likely outcome of liquidation proceedings under chapter 7 would be the
application of the rule of absolute priority of distributions. Under that rule,
no junior holder of a Claim receives any distribution until all senior holders
are paid in full with interest, and no holder of an Equity Interest receives any
distribution until all holders of Claims are paid in full with interest.
CONSEQUENTLY, AS DEMONSTRATED IN THE FOLLOWING LIQUIDATION ANALYSIS, THE DEBTOR
BELIEVES THAT UNDER CHAPTER 7 OF THE BANKRUPTCY CODE, SUBSTANTIALLY ALL OF THE
LIQUIDATION PROCEEDS WOULD BE PAID TO FNBB ON ACCOUNT OF ITS SECURED CLAIMS AND
SUPERPRIORITY CLAIMS AND TO HOLDERS OF ADMINISTRATIVE EXPENSES. HOLDERS OF
OTHER PRIORITY CLAIMS, GENERAL UNSECURED CLAIMS, AND OLD COMMON STOCK WOULD
RECEIVE LITTLE OR NO DISTRIBUTIONS.
2. LIQUIDATION ANALYSIS.
The determination of the hypothetical proceeds from the sale of assets
in a chapter 7 liquidation is an uncertain process involving numerous
assumptions. Accordingly, there can be no assurance that the assumptions
employed by the Debtor in determining the liquidation value of its assets will
result in an accurate estimation of such liquidation values.
The liquidation analysis presented herein assumes that all assets of
the Debtor would be liquidated in the context of a chapter 7 case and sets forth
the projected value as of January 31, 1998, of the proceeds of such liquidation.
The assumptions utilized in the analysis considered the estimated liquidation
value of the assets and the estimated amount of the Claims that would be
allowed, together with an estimate of certain administrative costs and expenses
that would likely result during the liquidation process. While the Debtor
believes that the assumptions utilized in the liquidation analysis are
reasonable, the validity of such assumptions may be affected by the occurrence
of events and the existence of conditions not now contemplated or by other
factors, many of which would be beyond the control of the Bankruptcy Court, the
Debtor, and the chapter 7 trustee. The actual liquidation value of the Debtor
would likely vary from that presented herein.
For purposes of its liquidation analysis, the Debtor has assumed that
a chapter 7 trustee is appointed and a hypothetical liquidation sale, lasting 12
weeks, is commenced on January 31, 1998. This liquidation would be effected by
means of simultaneous "going out of business" sales managed by a professional
retail liquidator hired by the chapter 7 trustee. All sales would be for cash.
Any remaining inventory would be sold to a professional liquidator, and fixed
assets in the stores and head office and the leases would be sold at auction,
where feasible, or abandoned. Based upon the Debtor's recent experience with
the liquidation of certain stores and indications received from professional
liquidators, the Debtor estimates that the gross proceeds before payment of the
costs of liquidation combined with projected cash on hand, would be in the range
of $61,900,000 to $65,200,000. These amounts are not necessarily indicative of
the amounts which might be realized from a commercially reasonable foreclosure
sale.
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In the event, however, that the chapter 7 trustee were unable to
conduct such "going out of business" sales, because, for example, of
difficulties in retaining necessary employees, lack of cooperation from shopping
center store landlords, and other factors, the trustee would instead be required
to dispose of the inventory in bulk in auction sales. Based upon the
indications received from professional retail liquidators, the Debtor estimates
that the net liquidation proceeds under this approach would be substantially
less than the net proceeds from "going out of business" sales.
In view of FNBB's security interest in substantially all of the
Debtor's assets and superpriority Administrative Expense Claim, proceeds from
any liquidation after payment of the costs of liquidation would be applied first
to the obligations under the FNBB Facility in the estimated projected amount as
of January 31, 1998 of approximately $27,600,000. Accordingly, assuming
liquidation proceeds at the high end of the range discussed above in the amount
of $65,200,000 were to be achieved by the chapter 7 trustee in the hypothetical
chapter 7 case discussed herein, the Debtor estimates for purposes of this
analysis that the proceeds would be distributed as follows:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Chapter 7 Administrative Claims and
Liquidation Expenses $20,000,000
--------------------------------------------------------------------------
Chapter 11 Administrative Claims
(Including Chapter 11 Trade Payables) 17,600,000
--------------------------------------------------------------------------
Priority Tax Claims $ -0-
--------------------------------------------------------------------------
Class 1 - Other Priority Claims $ -0-
--------------------------------------------------------------------------
Class 2 - FNBB Claims 27,600,000
--------------------------------------------------------------------------
Class 3 - Other Secured Claims (return of collateral)
--------------------------------------------------------------------------
Class 4 - General Unsecured Claims $ -0-
--------------------------------------------------------------------------
Class 5 - Old Common Stock $ -0-
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Based upon such liquidation analysis, the Debtor believes that the
holders of Other Priority Claims, General Unsecured Claims, and Old Common Stock
would likely receive little or nothing in liquidation. In contrast, under the
Plan, such holders will receive cash and/or securities with respect to their
Allowed Claims and Equity Interests.
D. FEASIBILITY.
The Bankruptcy Code requires that, in order for the Plan to be
confirmed by the Bankruptcy Court, it must be demonstrated that consummation of
the Plan is not likely to be followed by the liquidation or the need for further
financial reorganization of the Debtor. For purposes of determining whether the
Plan meets this requirement, the Debtor has analyzed its ability to meet its
obligations under the Plan. As part of such analysis, the Debtor has prepared
the Projections of, among other things, its financial performance (assuming the
transactions contemplated by the Plan are consummated) for the period ending
January 29, 2000 (the "Projection Period"). The Projections include projected
statements of operations and cash flows and certain projected balance sheet
data, and are based on the assumption that the Effective Date will be
January 31, 1998. The Projections and the significant assumptions on which they
are based are discussed in this Disclosure Statement under "Certain Financial
Projections." Based on
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the Projections, the Debtor believes that it will be able to make all
payments required to be made pursuant to the Plan. See "Risk Factors --
Inherent Uncertainty In The Financial Projections."
The Debtor anticipates that the aggregate amount of cash required to
be distributed under the Plan as of the Effective Date will be approximately
$3,700,000. The sources of funds for such cash payments will be cash on hand
and funds available under the FNBB Facility at the Effective Date. The Debtor
believes that such funds will be adequate.
E. NONCONSENSUAL CONFIRMATION.
In the event that any impaired class of Claims does not accept the
Plan, the Bankruptcy Court may nevertheless confirm the Plan at the Debtor's
request if all other requirements of section 1129(a) of the Bankruptcy Code are
satisfied, and if, as to each impaired class which has not accepted the Plan,
the Bankruptcy Court determines that the Plan "does not discriminate unfairly"
and is "fair and equitable" with respect to such nonaccepting class.
1. NO UNFAIR DISCRIMINATION.
A plan of reorganization "does not discriminate unfairly" if (a) the
legal rights of a nonaccepting class are treated in a manner that is consistent
with the treatment of other classes whose legal rights are intertwined with
those of the nonaccepting class, and (b) no class receives payments in excess of
that which it is legally entitled to receive for its Claims. The Debtor
believes that under the Plan, (i) all classes of impaired Claims are treated in
a manner that is consistent with the treatment of other classes of Claims with
which their legal rights are intertwined, if any, and (ii) no class of Claims
will receive payments or property with an aggregate value greater than the
aggregate value of the Allowed Claims in such class. Accordingly, the Debtor
believes the Plan does not discriminate unfairly as to any impaired class.
2. FAIR AND EQUITABLE TEST.
The Bankruptcy Code establishes different "fair and equitable" tests
for holders of secured Claims and holders of unsecured Claims, as follows:
(a) SECURED CLAIMS. Either (i) each holder of an impaired
secured Claim either (x) retains the liens securing its secured Claim and
receives on account of its Allowed Secured Claim deferred cash payments
having a present value equal to the amount of its Allowed Secured Claim, or
(y) realizes the "indubitable equivalent" of its Allowed Secured Claim, or
(ii) the property securing the Claim is sold free and clear of liens, with
such liens to attach to the proceeds, and the liens against such proceeds
are treated in accordance with clause (i) of this subparagraph (a).
(b) UNSECURED CLAIMS. Either (i) each holder of an impaired
unsecured Claim receives or retains under the Plan property of a value
equal to the amount of its Allowed Claim, or (ii) the holders of Claims and
Equity Interests that are junior to the Claims of the nonaccepting class do
not receive any property under the Plan on account of such Claims and
Equity Interests.
IN THE EVENT OF REJECTION OF THE PLAN BY ONE OR MORE IMPAIRED CLASSES,
THE DEBTOR RESERVES THE RIGHT TO REQUEST THE BANKRUPTCY COURT TO CONFIRM THE
PLAN IN ACCORDANCE WITH SECTION 1129(b).
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VIII.
ALTERNATIVES TO CONFIRMATION AND
CONSUMMATION OF THE PLAN OF REORGANIZATION
The Debtor believes that the Plan affords holders of Claims and Equity
Interests the potential for the greatest feasible realization out of the
Debtor's assets, and, therefore, is in the best interest of such holders. The
Debtor has considered alternatives to the Plan such as a liquidation in the
context of a chapter 7 case. In the opinion of the Debtor, such alternatives
would not afford holders of Claims or Equity Interests a return as great as may
be achieved under the Plan.
A. LIQUIDATION UNDER CHAPTER 7.
If no plan can be confirmed, the Debtor's Chapter 11 Case may be
converted to a case under chapter 7 of the Bankruptcy Code, pursuant to which a
trustee would be elected or appointed to liquidate the Debtor's assets for
distribution to creditors in accordance with the priorities established by the
Bankruptcy Code. A discussion of the effects that a chapter 7 liquidation would
have on the recovery by holders of Claims and Equity Interests is set forth
under "Confirmation Procedures - Best Interests Test." In view of the FNBB
Liens on substantially all of the Debtor's assets and superpriority
Administrative Expense Claim, the Debtor believes that a chapter 7 liquidation
would result in little or no distributions being made to holders of Other
Priority Claims, General Unsecured Claims, or Old Common Stock.
B. ALTERNATIVE PLAN OF REORGANIZATION.
If the Plan is not confirmed, the Debtor (or if the Debtor's exclusive
period in which to file a plan of reorganization has expired, any other party in
interest) could attempt to formulate a different plan. Such a plan might
involve either a reorganization and continuation of the Debtor's business or an
orderly liquidation of its assets. With respect to an alternative plan, the
Debtor and the Committees have explored various other alternatives in connection
with the extensive negotiation process involved in the formulation and
development of the Plan, but each concluded that the Plan provides the best
feasible recoveries attainable under the circumstances. The Debtor has also
considered, and held some preliminary discussions concerning, the sale or merger
of its entire business, but has concluded that ultimately a higher value for the
business can be obtained if the Debtor is restructured and relieved of a
material portion of the debt that currently burdens its operations.
In a liquidation under Chapter 11, the Debtor's assets could be sold
in an orderly fashion over a more extended period of time than in a liquidation
under chapter 7, probably resulting in somewhat greater (but indeterminate)
recoveries. Further, since appointment of a trustee is not required in a
Chapter 11 liquidation, the expenses for professional fees would most likely be
lower than those incurred in a chapter 7 case. Although preferable to a
chapter 7 liquidation, the Debtor believes that any alternative liquidation
under Chapter 11 is a much less attractive alternative to holders of Claims and
Old Common Stock than the Plan because of the greater return projected to be
provided for by the Plan.
THE DEBTOR AND THE COMMITTEES BELIEVE THAT CONFIRMATION AND
IMPLEMENTATION OF THE PLAN IS PREFERABLE TO ANY OF THE ALTERNATIVES DESCRIBED
HEREIN BECAUSE IT IS EXPECTED TO PROVIDE GREATER RECOVERIES AND INVOLVE LESS
DELAY AND UNCERTAINTY AND LOWER ADMINISTRATIVE COSTS.
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IX.
VOTING PROCEDURES
The Debtor is providing copies of this Disclosure Statement and
Modification Ballots to all known holders of impaired Claims and Equity
Interests, including registered holders as of the Record Date of Old 10-1/4%
Notes, Old 13-1/2% Notes, and Old Common Stock (or, if applicable, to those
holders who are listed as participants in a clearing agency's position).
Registered holders may include brokerage firms, commercial banks, trust
companies, or other nominees. If such entities do not hold for their own
account, they should provide copies of this Disclosure Statement and appropriate
Modification Ballots to their customers and to beneficial owners. Any
beneficial owner who has not received a Modification Ballot should contact such
owner's brokerage firm or nominee, or write to Ryan, Swanson & Cleveland, 1201
Third Avenue, Suite 3400, Seattle, Washington 98101, Attention: Anne K. Dudley,
Legal Assistant (the "Ballot Tabulator"), or call (206) 464-4224.
HOLDERS OF ALLOWED GENERAL UNSECURED CLAIMS, HOLDERS OF ALLOWED OTHER
PRIORITY CLAIMS, AND HOLDERS OF OLD COMMON STOCK PREVIOUSLY VOTED ON THE PRIOR
PLAN, WHICH WAS FILED BY THE DEBTOR ON OCTOBER 23, 1996. AS PROVIDED IN SECTION
1127(d) OF THE BANKRUPTCY CODE, ANY HOLDER OF A CLAIM OR EQUITY INTEREST OF A
VOTING CLASS THAT VALIDLY ACCEPTED OR REJECTED THE PRIOR PLAN IS DEEMED TO
ACCEPT OR REJECT, AS THE CASE MAY BE, THE PLAN, UNLESS, AS SET FORTH IN THE
ORDER AND NOTICE WHICH ACCOMPANIES THIS DISCLOSURE STATEMENT, SUCH HOLDER
CHANGES SUCH HOLDER'S PREVIOUS ACCEPTANCE OR REJECTION WITHIN THE TIME PERIOD
THAT HAS BEEN FIXED BY THE BANKRUPTCY COURT. ANY HOLDER OF A CLAIM OR EQUITY
INTEREST OF A VOTING CLASS THAT WISHES TO CHANGE SUCH HOLDER'S PREVIOUS
ACCEPTANCE OR REJECTION, AND ANY HOLDER OF A CLAIM OR EQUITY INTEREST OF A
VOTING CLASS THAT DID NOT PREVIOUSLY CAST A VALID BALLOT AND THAT NOW WISHES TO
VOTE ON THE PLAN, MAY DO SO BY FILLING IN, SIGNING, AND TRANSMITTING A
MODIFICATION BALLOT IN THE MANNER SPECIFIED IN THE MODIFICATION BALLOT SO THAT
IT IS RECEIVED NO LATER THAN THE VOTING DEADLINE SPECIFIED IN THE MODIFICATION
BALLOT. NO ACTION IS NECESSARY BY ANY HOLDER THAT PREVIOUSLY CAST A VALID
BALLOT AND THAT DOES NOT NOW WISH TO CHANGE SUCH HOLDER'S VOTE.
A. BENEFICIAL OWNERS.
For purposes of voting to accept or reject the Plan, the beneficial
owners of Old 10-1/4% Notes, Old 13-1/2% Notes, or Old Common Stock will be
deemed to be the "holders" of the Claims or Equity Interests, as the case may
be, represented thereby.
Any beneficial owner holding Old 10-1/4% Notes, Old 13-1/2% Notes, or
Old Common Stock in its own name can change such holder's previous acceptance or
rejection of the Prior Plan (or, if such holder did not previously vote on the
Prior Plan, can vote on the Plan) by completing and signing the enclosed
Modification Ballot and returning it directly to the Ballot Tabulator.
Any beneficial owner holding Old 10-1/4% Notes, Old 13-1/2% Notes, or
Old Common Stock in "street name" through a brokerage firm, bank, trust company,
or other nominee can change such holder's previous acceptance or rejection of
the Prior Plan (or, if such holder did not previously vote on the Prior Plan,
can vote on the Plan) by following these instructions:
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1. Fill in all the applicable information on the Modification
Ballot, including the name of the registered holder of such securities;
2. Sign the Modification Ballot (unless the Modification Ballot has
already been signed by the brokerage firm, bank, trust company, or other
nominee); and
3. Return the Modification Ballot to the Ballot Tabulator so that it
will be received prior to the voting deadline specified in the Modification
Ballot.
B. BROKERAGE FIRMS, BANKS, TRUST COMPANIES AND OTHER NOMINEES.
A nominee which is the registered holder of Old 10-1/4% Notes, Old
13-1/2% Notes, or Old Common Stock for a beneficial owner can arrange for
such beneficial owner to complete a Modification Ballot directly as discussed
above by distributing a copy of the Disclosure Statement and the Modification
Ballot to such beneficial owner.
Alternatively, a nominee which is the registered holder of Old 10-1/4%
Notes, Old 13-1/2% Notes, or Old Common Stock for a beneficial owner can
complete a Modification Ballot on behalf of such beneficial owner by
distributing a copy of this Disclosure Statement to such owner and thereafter
completing a Modification Ballot as directed by such beneficial owner.
C. MISCELLANEOUS.
Unless otherwise directed by the Bankruptcy Court, Modification
Ballots on which a vote to accept or reject the Plan has not been indicated,
will be disregarded.
If a Modification Ballot is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should
indicate such capacity when signing.
Unless the Modification Ballot being furnished is timely received by
the Ballot Tabulator on or prior to the date specified in the Order and Notice,
the Modification Ballot will not be counted in connection with confirmation of
the Plan by the Bankruptcy Court. In no case should a Modification Ballot be
delivered to the Bankruptcy Court or the Debtor.
X.
CAPITALIZATION
The following table sets forth, on an unaudited basis, the projected
capitalization of the Reorganized Debtor at the assumed Effective Date of
January 31, 1998, both before and after giving effect to consummation of the
Plan and the transactions contemplated thereby. The table should be read in
conjunction with the consolidated financial statements of the Debtor and related
notes thereto included in Annex B hereto and in conjunction with the projected
balance sheet at January 31, 1998 and other projections, and related notes and
assumptions, discussed under "Certain Financial Projections."
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROJECTED*
JANUARY 31, 1998
(IN THOUSANDS)
------------------------------
BEFORE AFTER
- -------------------------------------------------------------------------------
Current Debt
FNBB Facility Revolver $17,551 $20,992
Notes Payable 33 33
Deferred Payment Tax Liabilities 0 260
Capital Leases 1,092 1,092
- -------------------------------------------------------------------------------
TOTAL CURRENT DEBT $18,675 $22,376
- -------------------------------------------------------------------------------
Long-Term Debt
Liabilities Subject To Compromise 23,418 0
Capital Leases 13,055 13,375(2)
Old 10-1/4% Notes (1) 67,600 0
Old 13-1/2% Notes (1) 838 0
FNBB Term Loan 10,000 10,000
Deferred Payment Tax Liabilities 0 470
Other 958 958
- -------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT 115,868 24,803
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTAL DEBT 134,543 47,179
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shareholders' Equity (Deficit) ($68,217) $20,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTAL CAPITALIZATION $66,326 $67,179
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The foregoing introductory statement and the following notes and assumptions
are integral parts of this statement. See "Certain Financial Projections --
Pro Forma Balance Sheet."
* For a discussion of certain risks and other factors regarding financial
projections, see "Risk Factors -- Inherent Uncertainty In The Financial
Projections."
(1) These notes are included in Liabilities Subject to Compromise on the
Balance Sheet.
(2) Capital Lease Obligations have been restated to reflect current market
rates of interest.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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XI.
DESCRIPTION OF FNBB FACILITY
The following is a summary of certain principal terms of the FNBB
Facility applicable after the Effective Date. This summary is qualified in its
entirety by the terms of the FNBB Facility (which is on file with the Bankruptcy
Court), which will be controlling.
A. AMOUNT OF FACILITY.
FNBB is providing Lamonts with a $42 million credit facility on the
terms and conditions set forth in the FNBB Facility. The FNBB Facility consists
of: (i) a revolving line of credit with a maximum borrowing capacity of $32
million (the "Revolver"); and (ii) the Term Loan in the amount of $10 million.
The Term Loan has been guarantied by the Surety.
B. BORROWINGS.
Pursuant to, and on the terms and conditions set forth in, the FNBB
Facility, FNBB is obligated to make loans and advances to Lamonts on a revolving
basis, and to issue letters of credit to or for the account of Lamonts (the
aggregate outstanding face amount of such letters of credit never to exceed
$3,000,000) in an aggregate outstanding amount (net of repayments) not to exceed
the lesser of $32 million and the Borrowing Base, as defined in the FNBB
Facility. The Term Loan was fully disbursed during the Chapter 11 Case and no
further amounts may be borrowed thereunder.
C. BORROWING BASE.
The Borrowing Base for the Revolver after the Effective Date will be
an amount equal to 65% of Lamonts' book value of eligible inventory, net of
specified reserves (the "Inventory Advance Rate"). The "Inventory Shrink
Reserve" is initially set at 2.6% of the book value of Lamonts' inventory. A
"Landlord Lien Reserve" may also apply under the circumstances described in the
FNBB Facility.
D. MATURITY.
The Revolver will mature two years after the Effective Date or, if
earlier, upon maturity of the Term Loan. The Term Loan will mature December 26,
1999, or, if earlier, upon maturity of the Revolver. Lamonts will have the
option to extend the maturity date of the Term Loan for two additional one-year
periods (subject to earlier maturity upon maturity of the Revolver), on the
terms and conditions set forth in the FNBB Facility and upon payment of the
Extension Fee described therein. There are no extension options in respect of
the Revolver. See "Risk Factors -- Leverage."
E. AMORTIZATION OF TERM LOAN.
Lamonts will be required to make principal payments on the Term Loan
of $25,000 per month commencing on October 31, 1998. A substantial portion of
the principal amount of the Term Loan is scheduled to be outstanding on the
maturity date of the Term Loan. See "Risk Factors -- Leverage."
F. RATE AND PAYMENT OF INTEREST.
Lamonts' borrowings under both the Revolver and the Term Loan bear
interest at a floating rate 1.5% above the "Base Rate," as defined in the FNBB
Facility, or, at Lamonts' option, at 2.75% above the fully reserved adjusted
Eurodollar Rate, as defined in the FNBB Facility. The rates are subject to
adjustment on June 1, 1998, and annually thereafter, based upon Lamonts'
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financial results in accordance with the criteria set forth in the FNBB
Facility. See "Risk Factors -- Leverage." Interest on loans measured by the
Base Rate will be paid monthly in arrears. Interest on loans measured by the
Eurodollar Rate will be paid in arrears at the end of the applicable interest
period of one, two, or three months. The default rate of interest under the
Revolver would be 3% above the Base Rate. The default rate of interest under
the Term Loan prior to maturity would be 7% above the non-default rate otherwise
applicable, and after maturity would be 7% above the non-default rate applicable
to loans measured by the Base Rate.
G. FEES AND COSTS.
A facility fee in respect of the Revolver will be payable in the
amount of $336,000 on the Effective Date and in the amount of $224,000 on
December 31, 1998. A letter of credit fee of 1.75% per annum will be charged
quarterly in arrears based on the average daily Maximum Drawing Amount (as
defined) of all outstanding letters of credit. A commitment fee in the amount
of 0.5% per annum will be payable monthly in arrears based on the average daily
unused amount of the maximum Revolver facility. Both the letter of credit fee
and the commitment fee are subject to adjustment on June 1, 1998 and annually
thereafter, based upon Lamonts' financial results in accordance with the
criteria set forth in the FNBB Facility. In addition to the Closing Fee in the
amount of $500,000 which Lamonts paid at the closing of the Term Loan on
September 26, 1997, an "Additional Closing Fee" in respect of the Term Loan,
calculated at the rate of 5% per annum applied to the average daily principal
balance of the Term Loan outstanding after September 26, 1998, will be payable
at the times and in the manner set forth in the FNBB Facility. If the options
to extend the maturity date of the Term Loan upon the terms applicable thereto
are exercised, extension fees calculated at the rate of 5% per annum applied to
the average daily principal balance of the Term Loan outstanding during the
applicable extension period will be payable at the times and in the manner set
forth in the FNBB Facility. There will be an administrative fee of $2,500 per
month. In addition, Lamonts will reimburse certain fees, costs, and expenses
incurred by FNBB and by the Surety, as set forth in the FNBB Facility.
H. SECURITY.
Advances by FNBB under the FNBB Facility are secured by all real and
personal property, rights, and assets of Lamonts, including, without limitation,
real estate leasehold interests, but excluding any proceeds of bankruptcy causes
of action under sections 544 through 550 of the Bankruptcy Code and the Escrow
Account for unpaid professional fees as set forth in the FNBB Facility.
Notwithstanding the entry of the Confirmation Order and the implementation of
the Plan on the Effective Date, the FNBB Claim will not be discharged, and the
FNBB Liens will continue in full force and effect. The validity and
enforceability of the FNBB Claim and the validity, enforceability, perfection,
and priority of the FNBB Liens will be automatically ratified and confirmed in
all respects and will continue without any further action by FNBB. The orders
of the Bankruptcy Court authorizing the FNBB Facility, the FNBB Claim, and the
FNBB Liens will continue in full force and effect, including without limitation
the provisions thereof authorizing and directing the filing and recordation of
UCC financing statements, mortgages, deeds of trust, and other perfection
documents and the provisions thereof granting FNBB the right, INTER ALIA, after
an Event of Default under the FNBB Facility and acting otherwise in compliance
with the FNBB Facility, to cause the sale or other disposition of collateral
constituting interests in real estate by directing the Reorganized Debtor or any
trustee appointed in any future bankruptcy case for the Reorganized Debtor to
assume, assign, and sell any or all of such real estate collateral pursuant to
sections 363 and 365 of the Bankruptcy Code after appropriate notice and a
hearing, with FNBB's first priority lien and security interest to attach to the
proceeds of such sale. Without limiting the foregoing, the FNBB Liens will not
be subject to any present or future
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contractual, statutory, or common law lien, security interest, or mortgage
which might be avoided and preserved for the benefit of the estate pursuant
to section 551 of the Bankruptcy Code. In furtherance of (and without
limiting) the foregoing, the FNBB Liens in any of the Reorganized Debtor's
non-fixture personal property will be superior and senior in priority to any
and all liens arising by operation of law in favor of lessors and landlords
for obligations relating to or arising in connection with rental agreements
for the use of real property.
I. NEW CLASS C WARRANTS AND NEW SPECIAL VOTING COMMON STOCK.
The FNBB Facility requires that, as of the Effective Date, in partial
exchange for the FNBB Claim and in consideration for the guaranty of the Term
Loan by the Surety, the Surety will receive (i) New Class C Warrants exercisable
for the purchase of 3,429,588 shares of New Common Stock, and (ii) 10 shares of
New Special Voting Common Stock. The New Class C Warrants will be exercisable
as follows: (i) at any time after the date of issuance thereof and until the
fourth anniversary of the Effective Date, the Surety's New Class C Warrants will
initially be exercisable for an aggregate of 3,200,949 shares of New Common
Stock at an exercise price of $1.25 per share; and (ii) at any time after the
first date on which the Aggregate Equity Trading Value (as defined in the New
Class C Warrant Agreement) equals or exceeds $25,000,000 and until the tenth
anniversary of the Effective Date, the Surety's New Class C Warrants will
initially be exercisable for an aggregate of 228,639 additional shares of New
Common Stock at an exercise price of $.01 per share; provided that the New Class
C Warrants described in this clause (ii) will not be exercisable unless and
until the holder of such warrants has fully exercised such holder's
corresponding New Class C Warrants described in the foregoing clause (i). The
number and type of securities issuable upon exercise of the New Class C Warrants
are subject to customary antidilution protection as provided in the New Class C
Warrant Agreement for (i) stock dividends, subdivisions, combinations, and
reclassifications affecting the New Common Stock, (ii) certain issuances of New
Common Stock or rights, options, or warrants to purchase New Common Stock, and
(iii) certain distributions on the New Common Stock. In addition, the term and
exercise price of the New Class C Warrants are subject to adjustment under
certain additional circumstances described in the New Class C Warrant
Agreement.. See "Description of New Warrants and New Class C Warrants." The
Surety's New Special Voting Common Stock will represent only a nominal
percentage of the equity ownership of the Reorganized Debtor, but will possess
certain special voting rights upon the occurrence of certain triggering events
relating to the FNBB Facility. See "Description of New Common Stock and New
Special Voting Common Stock."
J. AFFIRMATIVE AND NEGATIVE COVENANTS.
The FNBB Facility contains affirmative and negative covenants,
including, without limitation, the following: (a) Lamonts may not incur or
permit to exist any Indebtedness (as defined) or make any Investment (as
defined), except as permitted in the FNBB Facility; (b) Lamonts may not make or
incur obligations for Capital Expenditures (as defined) except as permitted in
the FNBB Facility; (c) with certain exceptions, Lamonts may not allow any Liens,
other than Permitted Liens (both as defined), to exist with respect to its
assets and properties; (d) Lamonts may not enter into transactions with any
related party on terms that are less favorable to the Company than those that
might be obtained from a third party; (e) with certain exceptions provided in
the FNBB Facility, Lamonts may not engage in certain specified corporate
transactions or sell or dispose of assets other than in the ordinary and usual
course of business; (f) Lamonts must comply with specified covenants regarding
its store leases; (g) Lamonts may not pay any cash dividends on its capital
stock; and (h) Lamonts must satisfy certain financial covenants, including with
respect to its inventory levels and debt service coverage ratio. Although
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the Company failed to comply with certain covenants related to inventory
levels, the Company requested and received a waiver relating to such breaches
for the months ending July 6, 1996 and August 3, 1996. Subsequent to the
making of the Term Loan, any necessary waivers of or amendments to provisions
of the FNBB Facility would, with certain exceptions specified in the FNBB
Facility, require the concurrence of both FNBB and the Surety.
K. EVENTS OF DEFAULT.
Events of Default will be as specifically set forth in the FNBB
Facility and will generally include, among others, failure to pay interest,
principal, or fees when due; change of control as defined in the FNBB Facility;
any final judgment in excess of $100,000 and certain other cross defaults; an
injunction against conducting business; disruption of business for more than 10
days and that results in an impairment or decrease in the value of Lamonts'
assets in an amount that exceeds $100,000; failure to deliver required reports
to FNBB when due; certain bankruptcy and insolvency events; any representation
or warranty is found to be incorrect in any material respect; or breach of any
financial covenant, any negative covenant, or any affirmative covenant, subject
to specified grace and cure periods, all as more particularly set forth in the
FNBB Facility. Upon the occurrence of any Event of Default, in addition to
other remedies, all unpaid principal and accrued interest would, with respect to
certain Events of Default, become immediately due and payable without the giving
of notice and, with respect to other Events of Default, would become immediately
due and payable upon notice from FNBB to that effect. The Surety has the right,
under specified circumstances after an Event of Default, to direct FNBB to
declare Lamonts' obligations under the FNBB Facility immediately due and payable
and to exercise certain of FNBB's rights and remedies under the FNBB Facility.
L. CASH COLLATERAL.
Under the terms of the FNBB Facility, all cash proceeds of FNBB's
collateral are to be deposited into a blocked bank account and forwarded to FNBB
on a daily basis for application to the outstanding balance of the obligations
to FNBB, generally under the Revolver.
XII.
DESCRIPTION OF NEW COMMON STOCK AND NEW SPECIAL VOTING COMMON STOCK
The Amended and Restated Certificate of Incorporation provides for an
authorized capital stock consisting of 40,000,000 shares of common stock
comprised of 39,999,990 shares of Class A Common Stock (the "New Common Stock")
and 10 shares of Class B Common Stock (the "New Special Voting Common Stock").
The shares of New Common Stock and New Special Voting Common Stock to be issued
pursuant to the Plan will be, when issued, fully paid and nonassessable. The
holders of shares of New Common Stock and New Special Voting Common Stock vote
together as a class on all matters (except as set forth below or as required by
law), elect all directors, and are entitled to one vote per share. Shareholders
are entitled to receive dividends when and if declared by the Board of Directors
out of legally available funds, although the Reorganized Debtor's ability to pay
dividends is substantially limited. See "Risk Factors -- Dividends" and
"Description of FNBB Facility." Upon any possible liquidation, dissolution, or
winding up of the Reorganized Debtor, holders of New Common Stock and New
Special Voting Common Stock are entitled to share pro rata in any distribution
to the shareholders remaining after distribution to holders of preferred stock,
if any. Holders of New Common Stock and New Special Voting Common Stock have no
preemptive, subscription, redemption, or conversion rights, except as provided
below.
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The Amended and Restated Certificate of Incorporation also provides
for the issuance of 10,000,000 shares of preferred stock, having a par value of
$.01 per share (the "Preferred Stock"). The designation, powers, preferences,
and relative participating, optional, or other special rights, including voting
rights, and qualifications, limitations, or restrictions of the Preferred Stock,
or any series thereof, shall be established from time to time by resolution of
the Board of Directors pursuant to Section 151 of the Delaware General
Corporation Law.
A. SPECIAL VOTING RIGHT OF HOLDERS
OF NEW SPECIAL VOTING COMMON STOCK.
During the continuance of any Special Share Event (as defined in the
following paragraph), upon the affirmative vote of not less than 3/4 of the then
outstanding shares of the New Special Voting Common Stock, the Reorganized
Debtor shall (a) file a voluntary petition under Chapter 11 of the Bankruptcy
Code and (b) oppose any motion to dismiss the resulting bankruptcy case. Such
right of the holders of the New Special Voting Common Stock will terminate upon
satisfaction in full of all of the Company's obligations under the Term Loan,
whereupon each share of New Special Voting Common Stock will automatically
convert into one share of New Common Stock. Such right of the holders of the
New Special Voting Common Stock shall be coextensive with the right of the Board
of Directors at any time to cause such a filing to occur, and such right shall
not restrict the ability of the Board of Directors to otherwise cause the
Company to file a voluntary petition under the Bankruptcy Code or to oppose any
motion to dismiss any bankruptcy case. Subject to certain exceptions set forth
in the Amended and Restated Certificate of Incorporation, shares of the New
Special Voting Common Stock are non-transferable.
A "Special Share Event" shall be deemed to exist (a) during the
continuance of any Event of Default; provided that the Company has received
written notice from the Agent (as those terms are defined in the FNBB Facility)
of the Agent's intention to exercise any of the rights and remedies available to
it upon any Event of Default under the FNBB Facility, or (b) upon acceleration
of any of the loans under the FNBB Facility and until such acceleration is
rescinded or all amounts due under the accelerated loan are paid in full.
B. AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND AMENDED AND RESTATED BYLAWS.
The following description of certain provisions of the Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws is
qualified in its entirety by reference to the Amended and Restated Certificate
of Incorporation and Amended and Restated Bylaws, copies of which have been
included in the Plan Documentary Supplement.
Adoption of the Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws pursuant to the Plan has three primary purposes:
(1) To increase the Company's authorized capital to provide for the
issuance of New Common Stock pursuant to the Plan (including upon
exercise of New Warrants, New Class C Warrants, Gordian Warrants, and
New Employee Stock Options authorized and issued pursuant to the
Plan);
(2) To provide for the issuance of the New Special Voting Common
Stock pursuant to the Plan and to set forth the special voting right
granted to the holders of such New Special Voting Common Stock; and
(3) To prohibit the issuance of non-voting equity securities to the
extent required by section 1123(a)(6) of the Bankruptcy Code.
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All of the provisions of the Amended and Restated Certificate of
Incorporation and the Amended and Restated Bylaws will automatically become
effective as of the Effective Date.
C. TRANSFER AGENT AND REGISTRAR.
The Transfer Agent and Registrar for the New Common Stock will be
Keycorp Shareholder Services, Inc.
XIII.
DESCRIPTION OF NEW WARRANTS AND NEW CLASS C WARRANTS
A. NEW WARRANTS.
New Class A Warrants exercisable for a total of 2,203,320 shares of
New Common Stock will be issued pursuant to the Plan, and New Class B Warrants
exercisable for a total of 800,237 shares of New Common Stock will be issued
pursuant to the Plan. The New Warrants will be issued pursuant to a Warrant
Agreement (the "Warrant Agreement") between the Debtor and a Warrant Agent to be
determined, in substantially the form contained in the Plan Documentary
Supplement. The following summary of the principal terms of the New Warrants is
qualified in its entirety by reference to the Warrant Agreement and the form of
New Warrants attached thereto.
1. EXERCISE; PURCHASE PRICE.
The New Class A Warrants will be exercisable at any time after the
first date on which the Aggregate Equity Trading Value (as defined in the
Warrant Agreement) equals or exceeds $20,000,000 until the tenth anniversary of
the Effective Date. The New Class B Warrants will be exercisable at any time
after the first date on which the Aggregate Equity Trading Value equals or
exceeds $25,000,000 until the tenth anniversary of the Effective Date.
Each New Warrant will initially represent the right to purchase shares
of New Common Stock at a price (the "Purchase Price") initially equal to $0.01
per share.
2. ADJUSTMENTS.
The number and type of securities issuable upon exercise of the New
Warrants and the Purchase Price payable upon exercise thereof are subject to
customary antidilution protection as provided in the Warrant Agreement in the
event of (a) stock dividends, subdivisions, combinations, and reclassifications
affecting the New Common Stock, (b) issuances of rights, options, or warrants to
all holders of New Common Stock entitling them to subscribe for or purchase New
Common Stock (or securities convertible into New Common Stock) at a price per
share of New Common Stock (or having a conversion price per share of New Common
Stock, if a security convertible into New Common Stock) less than the Fair
Market Value per share of New Common Stock (as defined in the Warrant
Agreement), (c) distributions to all holders of New Common Stock of evidences of
indebtedness or assets, including capital stock other than New Common Stock, or
subscription rights, options or warrants (other than cash dividends or cash
distributions payable out of consolidated earnings or earned or capital surplus
or dividends payable in New Common Stock); and (d) subject to certain
exceptions, including up to 1,333,729 shares of New Common Stock issued upon the
exercise of New Employee Stock Options, issuances to any Affiliate (as defined),
officer, director, or employee of the Company of New Common Stock or rights,
options, or warrants to
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purchase New Common Stock (or securities convertible into New Common Stock)
at a price per share of New Common Stock (or having a conversion price per
share of New Common Stock, if a security convertible into New Common Stock)
less than the Closing Price (as defined in the Warrant Agreement) per share
of New Common Stock on the date of issuance.
In addition to the foregoing provisions, if the Reorganized Debtor at
any time consolidates with or merges with or into another corporation or the
property of the Reorganized Debtor is sold substantially as an entirety, the
holder of any outstanding New Warrants would be entitled to receive, upon the
exercise thereof in accordance with their terms, the securities, property, or
cash to which the holder of the number of shares of New Common Stock deliverable
upon the exercise of such New Warrants immediately prior to such transaction
would have been entitled upon such transaction. The Reorganized Debtor is
obligated to take such steps in connection with any such transaction as may be
necessary to assure that the provisions of the Warrant Agreement will thereafter
be applicable, as nearly as possible, in relation to any securities or property
thereafter deliverable upon the exercise of the New Warrants.
Notwithstanding any contrary provision of the Warrant Agreement, the
Reorganized Debtor will not be required to issue fractional shares of New Common
Stock upon the exercise of New Warrants. In lieu of fractional shares of New
Common Stock, the Reorganized Debtor will, as necessary, pay to the registered
holder of a Warrant Certificate with respect to which fractional shares of New
Common Stock would otherwise be issuable, an amount of cash equal to the same
fraction of the Closing Price of a whole share of New Common Stock as of the
business day immediately preceding the date of exercise.
3. NOTICE OF PROPOSED ACTIONS.
In case the Reorganized Debtor proposes to take certain actions,
including, without limitation, (a) declare any dividends or other distributions
(other than cash dividends) on its New Common Stock, (b) offer to holders of New
Common Stock rights to subscribe for or purchase shares of New Common Stock or
other securities, (c) effect certain reclassifications of the New Common Stock,
or any capital reorganization, consolidation, or merger or sale or other
disposition of all or substantially all of the assets, properties, and business
of the Reorganized Debtor, or any liquidation, dissolution, or winding up of the
Reorganized Debtor, then the Reorganized Debtor will give advance notice (in the
manner provided in the Warrant Agreement) to the Warrant Agent and shall cause
the Warrant Agent to provide such notice to the registered holders of New
Warrants.
4. WARRANT AGENT.
The Warrant Agreement provides that the Reorganized Debtor will
indemnify the Warrant Agent against any and all losses, expenses, or liabilities
(including judgments, costs, and counsel fees and expenses) arising out of its
agency under the Warrant Agreement, except as a direct result of the gross
negligence or willful misconduct of the Warrant Agent.
B. NEW CLASS C WARRANTS.
New Class C Warrants exercisable for a total of 3,810,653 shares of
New Common Stock will be issued pursuant to the Plan as follows: (i) New Class
C Warrants exercisable for a total of 3,429,588 shares of New Common Stock will
be issued to the Surety in partial exchange for the FNBB Claim and in
consideration for the guaranty of the Term Loan by the Surety, and (ii) New
Class C Warrants exercisable for a total of 381,065 shares of New
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Common Stock will be issued on a Pro Rata Basis to the holders of the New
Employee Stock Options to prevent dilution resulting from the issuance of the
New Class C Warrants to the Surety.
The New Class C Warrants will be issued pursuant to one or more
separate warrant agreements (collectively, the "New Class C Warrant Agreement")
between the Debtor and the holders of the New Class C Warrants, in substantially
the form contained in the Plan Documentary Supplement. The following summary of
the principal terms of the New Class C Warrants is qualified in its entirety by
reference to the New Class C Warrant Agreement and the form of New Class C
Warrants attached thereto, which will be controlling.
1. EXERCISE; EXERCISE PRICE.
The New Class C Warrants will be exercisable as follows: (i) at any
time after the date of issuance thereof and until the fourth anniversary of the
Effective Date, the New Class C Warrants will initially be exercisable for an
aggregate of 3,556,610 shares of New Common Stock at an exercise price of $1.25
per share; and (ii) at any time after the first date on which the Aggregate
Equity Trading Value (as defined in the New Class C Warrant Agreement) equals or
exceeds $25 million and until the tenth anniversary of the Effective Date, the
New Class C Warrants will initially be exercisable for an aggregate of 254,043
additional shares of New Common Stock at an exercise price of $.01 per share;
PROVIDED, that the New Class C Warrants otherwise exercisable after the first
date on which the Aggregate Equity Trading Value equals or exceeds $25 million
as described in this clause (ii) will not be exercisable unless and until the
holder of such warrants has fully exercised such holder's corresponding New
Class C Warrants described in the foregoing clause (i).
2. ADJUSTMENTS.
The number and type of securities issuable upon exercise of the New
Class C Warrants are subject to customary antidilution protection as provided in
the New Class C Warrant Agreement in the event of (a) stock dividends,
subdivisions, and combinations affecting the New Common Stock; (b) subject to
certain exceptions, issuances to any person of Additional Stock (as defined)
which is common Stock (as defined) (or Convertible Securities (as defined)
convertible into common Stock) at a price per share of such Stock (or having a
conversion price per share of such Stock, if a security convertible into such
Stock) which is less than (i) with respect to any such issuance incident to any
consolidation or merger of the Company with, or the sale, lease, or transfer of
all or substantially all the Company's assets to, the party (the "Merger Party")
identified in that certain letter between the Company and the Surety (or in
connection with a financing related to any such transaction), the Fair Market
Value (as defined) of a share of common Stock, and (ii) with respect to any
other such issuance, (A) on or prior to the first date on which the Aggregate
Equity Trading Value equals or exceeds $20 million, the greater of the Exercise
Price or the Fair Market Value per share of common Stock or (B) after the first
date on which the Aggregate Equity Trading Value equals or exceeds $20 million,
the Fair Market Value per share of common Stock; and (c) subject to certain
exceptions, issuances to any person of Additional Stock which is not subject to
adjustments required under (b) above at a price per share of such stock which is
less than Fair Market Value per share of such capital stock.
In addition to the foregoing provisions, if the Reorganized Debtor at
any time consolidates with or merges with or into another corporation or the
property of the Reorganized Debtor is sold substantially as an entirety, the
holder of any outstanding New Class C Warrants would be entitled to receive,
upon the exercise thereof in accordance with their terms, the
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securities, property, or cash to which the holder of the number of shares of
New Common Stock deliverable upon the exercise of such New Class C Warrants
immediately prior to such transaction would have been entitled upon such
transaction. The Reorganized Debtor is obligated to take such steps in
connection with any such transaction as may be necessary to assure that the
provisions of the New Class C Warrant Agreement will thereafter be
applicable, as nearly as possible, in relation to any securities or property
thereafter deliverable upon the exercise of the New Class C Warrants. If the
Company consummates a consolidation or merger with, or the sale, lease, or
transfer of all or substantially all its assets to, the Merger Party within
one year of the Effective Date, the exercise price for each share of New
Common Stock purchasable upon exercise of the New Class C Warrants shall be
increased by 25% and the expiration date for New Class C Warrants shall be
extended by one year.
Notwithstanding any contrary provision of the New Class C Warrant
Agreement, the Reorganized Debtor will not be required to issue Class C Warrant
Certificates which evidence New Class C Warrants to acquire fractional shares of
New Common Stock upon the exercise of New Class C Warrants.
3. NOTICE OF PROPOSED ACTIONS.
In case the Reorganized Debtor proposes to take certain actions,
including, without limitation, (a) declare any dividends or other distributions
on its New Common Stock, (b) offer to holders of New Common Stock rights to
subscribe for or purchase shares of New Common Stock or other securities,
(c) effect certain reclassifications of the New Common Stock, or any capital
reorganization, consolidation, or merger or sale or other disposition of all or
substantially all of the assets, properties, and business of the Reorganized
Debtor, or any liquidation, dissolution, or winding up of the Reorganized
Debtor, then the Reorganized Debtor will give advance notice (in the manner
provided in the Class C Warrant Agreement) to each registered holder of New
Class C Warrants.
C. REGISTRATION RIGHTS.
The New Warrants and New Class C Warrants and the New Common Stock
issuable upon exercise of the New Warrants and New Class C Warrants held or to
be held by certain holders will be registered under the Securities Act to the
extent required under, and pursuant to the provisions of, the Registration
Rights granted pursuant to the Plan. See "The Plan of Reorganization -- Summary
of Certain Other Provisions of the Plan -- Resale of Securities."
XIV.
COMMON STOCK OWNERSHIP
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of September 30, 1997, information
known to the management of the Company concerning the beneficial ownership of
Old Common Stock by (i) each person who is known by the Company to be the
beneficial owner of more than five percent of the outstanding shares of Old
Common Stock, (ii) each current director and executive officer of the Company,
and (iii) all directors and executive officers of the Company as a group. The
table also shows, as of the Effective Date, the number of shares and percentage
of the outstanding New Common Stock expected to be received by each such person
under the Plan.
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In addition, the table shows, to the best of the Debtor's knowledge, all
persons who will be a holder of at least 5% of the shares of New Common Stock
outstanding as of the Effective Date.
<TABLE>
<CAPTION>
As of September 30, 1997 As of the Effective Date
------------------------ ------------------------
Amount and Amount and
Nature of Nature of
Beneficial Percentage Beneficial Percentage
Name and Address of Beneficial Owner Ownership (1) of Class Ownership of Class
- ------------------------------------------------ ------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Alan R. Schlesinger -- -- 480,143 5.1%
12413 Willows Road N.E. (8)
Kirkland, WA 98034
Loren R. Rothschild -- -- 120,036 1.3%
12413 Willows Road N.E. (8)
Kirkland, WA 98034
Debbie A. Brownfiel 7,411 * 48,038 *
12413 Willows Road N.E. (2) (8)
Kirkland, WA 98034
E.H. Bulen -- -- 40,012 *
12413 Willows Road N.E. (8)
Kirkland, WA 98034
Gary A. Grossblatt -- -- 24,007 *
12413 Willows Road N.E. (8)
Kirkland, WA 98034
All directors and executive 7,411 * 712,236 7.3%
officers as group (5 persons) (3) (8)
Apollo Retail Partners, L.P. (4) 6,887,133 38.5% 76,951 *
c/o Apollo Advisors, L.P. (9)
2 Manhattanville Road
Purchase, New York 10577
BEA Associates (5) 1,104,351 6.1% 560,633 6.1%
153 East 53rd St. (10)
One Citicorp Center
New York, NY 10022
FMR Corp. 2,734,938 14.0% 4,771,244 44.1%
Fidelity Management Trust Company (10)
Fidelity Management & Research Company (6)
82 Devonshire Street
Boston, Massachusetts 02109
Morgens Waterfall Vintiadis & Co., Inc. (7) 3,032,906 16.9% 33,887 *
610 Fifth Avenue, 7th Floor (9)
New York, New York 10020
Specialty Investment I LLC (11) -- -- 3,200,949 26.24%
40 Broad Street (12)
Boston, Massachusetts 02109
- -----------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING NOTES ARE AN INTEGRAL PART OF THIS TABLE.
</TABLE>
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* 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
Old Common Stock listed opposite his, her, or its name. Under the Voting
Agreement, these beneficial owners and certain other persons, holding
approximately 8,717,000 shares or 48.7% of the outstanding Old Common Stock,
have the right to vote in concert with respect to the election of directors.
Since the filing of the Petition, none of the parties to the Voting Agreement
has exercised any rights thereunder. Lamonts' obligations under the Voting
Agreement will be rejected as of the Effective Date under the Plan. See
"Certain Transactions."
(2) Includes 5,311 shares of Old Common Stock subject to immediately
exercisable, non-qualified Old Employee Stock Options that have an exercise
price of $.01 per share.
(3) Includes 5,311 shares of Old Common Stock subject to immediately
exercisable, non-qualified Old Employee Stock Options that have an exercise
price of $.01 per share.
(4) 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.
(5) 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 Old 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.
(6) Fidelity Management & Research Company ("Fidelity") is the investment
advisor to various registered investment companies (the "Fidelity Funds") and
is a wholly owned subsidiary of FMR Corp. Fidelity Management Trust Company
("FMTC") is the trustee or managing agent for various private investment
accounts (the "Accounts") and is a wholly owned subsidiary of FMR Corp.
According to the Schedule 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 Old Common Stock (approximately 13.16%),
including 1,586,860 shares of Old Common Stock subject to immediately
exercisable Old Warrants that have an exercise price of $1.00 per share and
(ii) through FMTC, the managing agent for the Accounts, 156,412 shares of Old
Common Stock (approximately .80%), including 105,904 shares of Old Common
Stock subject to immediately exercisable Old Warrants that have an exercise
price of $1.00 per share.
(7) Morgens Waterfall Vintiadis & Company, Inc. ("Morgens") renders
discretionary investment advisory services to (i) Morgens Waterfall Vintiadis
N.V. which holds 95,450 shares of Old Common Stock, (ii) the Bond Fund of the
Common Fund for Nonprofit Organizations which holds 211,362 shares of Old
Common Stock and (iii) Betje Partners, which holds 102,264 shares of Old
Common Stock. Messrs. Morgens and Waterfall are the general partners of (i)
Morgens Waterfall Income Partners which holds 98,260 shares of Old Common
Stock and (ii) Phoenix Partners which holds 287,089 shares of Old Common
Stock. Messrs. Morgens and Waterfall are officers, directors and
stockholders of Prime, Inc., which is the corporate general partner of three
limited partnerships, each of which serves as a general partner of (i)
Restart Partners, L.P., which holds 623,586 shares of Old Common Stock, (ii)
Restart Partners II, L.P., which holds 972,800 shares of Old Common Stock and
(iii) Restart Partners III, L.P., which holds 642,095 shares of Old Common
Stock.
(8) Represents shares of New Common Stock issuable upon the exercise of (i)
vested New Employee Stock Options, including that portion of the vested New
Employee Stock Options held by directors and executive officers that become
exercisable on the first date on which the Aggregate Equity Trading Value
equals or exceeds $20 million, and (ii) that portion of the vested New Class
C Warrants held by directors and executive officers that are immediately
exercisable. Does not include shares of New Common Stock issuable upon the
exercise of that portion of the vested New Employee Stock Options and New
Class C Warrants held by directors and executive officers that become
exercisable on the first date on which the Aggregate Equity Trading Value
equals or exceeds $25 million. See "Management -- Employee Stock Option
Plan; Description of New Employee Stock Options."
(9) Does not include shares of New Common Stock issuable upon the exercise of
New Class B Warrants, which become exercisable on the first date on which the
Aggregate Equity Trading Value equals or exceeds $25 million.
(10) Assumes that Senior Claims and General Unsecured Claims will be allowed
in a respective aggregate amount equivalent to the median of the respective
estimated range for such Claims set forth in this Disclosure Statement. See
"The Plan of Reorganization." The actual number of shares may vary depending
on the actual aggregate amount of Allowed Senior Claims and the actual
amounts of Allowed Claims of the other holders of General Unsecured Claims.
Includes shares of New Common Stock issuable upon the exercise of New Class A
Warrants that become exercisable on the first date on which the Aggregate
Equity Trading Value equals or exceeds $20 million. Does not include shares
of New Common Stock issuable upon the exercise of New Class B Warrants, which
become exercisable on the first date on which the Aggregate Equity Trading
Value equals or exceeds $25 million.
(11) The sole member of Specialty Investments I LLC, the Surety, is GBP LLC.
Specialty Investments I LLC is an affiliate of Gordon Brothers Partners, Inc.
(12) Represents shares of New Common Stock issuable upon the exercise of that
portion of the New Class C Warrants that are immediately exercisable. Does not
include shares of New Common Stock issuable upon the exercise of New Class C
Warrants which become exercisable on the first date on which the Aggregate
Equity Trading Value equals or exceeds $25 million.
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B. DILUTION.
The following table illustrates the ownership of Old Common Stock
before giving effect to the Plan and the consummation of the transactions
contemplated thereby and (both on a primary and a fully diluted basis) the
ownership of New Common Stock on the Effective Date:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
PERCENTAGE OF OUTSTANDING SHARES
-----------------------------------
BEFORE(1) AFTER(2)
-----------------------------------
FULLY
PRIMARY DILUTED
-----------------------------------
<S> <C> <C> <C>
Holders of Old Common Stock 100.00% 2.22%(3) 1.75%(3)
Holders of General Unsecured Claims -- 97.78%(4) 68.25%(4)
Officers, Directors and Employees -- -- 10.00%(5)
Surety -- -- 20.00%
------------------------------------
100.00% 100.00% 100.00%
- ---------------------------------------------------------------------------
</TABLE>
1 Subject to dilution upon exercise of Old Employee Stock Options and Old
Warrants.
2 "Primary" data are before giving effect to, and "Fully Diluted" data are
after giving effect to, (a) the exercise of New Class A Warrants and New
Class B Warrants to purchase shares of New Common Stock equivalent to 33.37%
of the outstanding shares as of the Effective Date (calculated on a primary
basis) issued to the holders of General Unsecured Claims and holders of Old
Common Stock pursuant to the Plan, (b) the exercise of New Class C Warrants
to purchase shares of New Common Stock issued to the Surety pursuant to the
Plan equivalent to 38.11% of the outstanding shares as of the Effective Date
(calculated on a primary basis), and (c) the exercise of New Employee Stock
Options and New Class C Warrants issued to the holders of New Employee Stock
Options to purchase shares of New Common Stock equivalent to 19.05% of the
shares outstanding on the Effective Date (calculated on a primary basis).
The effect of possible exercise of Gordian Warrants has been disregarded.
3 Excludes shares of New Common Stock and New Warrants issued to such persons
pursuant to the Plan in respect of General Unsecured Claims held by them.
4 Excludes shares of New Common Stock and New Warrants issued to such persons
pursuant to the Plan in respect of Old Common Stock held by them.
5 Excludes shares of New Common Stock and New Warrants issued to such persons
pursuant to the Plan in respect of General Unsecured Claims or Old Common Stock
held by them.
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
XV.
MARKET AND TRADING INFORMATION
A. OLD COMMON STOCK.
The Old Common Stock is traded in the over-the-counter market and,
until January 20, 1995, was listed on the NASDAQ Stock Market's SmallCap Market
("NASDAQ"). As
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a result of the filing, the Old Common Stock is no longer listed. The
following table sets forth, for the periods indicated, the high and low
closing bid prices as reported on NASDAQ and over the counter quotes. The
bid prices, as stated, represent inter-dealer prices without adjustments for
retail mark-ups, mark-downs or commissions and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
FISCAL 1994: HIGH LOW
- ------------------------------------ ------------ -----------
<S> <C> <C>
Quarter ended January 29 2-3/4 2
Quarter ended April 30 2 1-1/4
Quarter ended July 30 1-3/4 3/4
Quarter ended October 29 13/16 5/8
January Quarter High Low
- ------------------------------------ ------------ -----------
Quarter ended January 28, 1995 2 1/8
Fiscal 1995: High Low
- ------------------------------------ ------------ -----------
Quarter ended April 29 1/2 1/8
Quarter ended July 29 7/16 1/8
Quarter ended Oct. 28 1/4 1/16
Quarter ended February 3 1/4 1/16
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
Fiscal 1997: High Low
- ------------------------------------ ------------ -----------
Quarter ended May 3 1/8 1/16
Quarter ended August 2 1/8 1/16
</TABLE>
At September 30, 1997, there were 161 holders of record of the Old
Common Stock.
B. OLD 10-1/4% NOTES AND OLD 13-1/2% NOTES.
The Old 10-1/4% Notes and Old 13-1/2% Notes are traded infrequently in
the over-the-counter market. Holders of such Notes are urged to contact their
broker to obtain a current quote.
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XVI.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A. INTRODUCTION.
The implementation of the Plan may have federal, state, and local tax
consequences to Debtor and its subsidiary filing a consolidated federal income
tax return (collectively, the "Debtor Consolidated Group") and Debtor's
creditors and stockholders. No tax opinion has been sought or will be obtained
with respect to any tax consequences of the Plan. This Disclosure Statement
does not constitute and is not intended to constitute either a tax opinion or
tax advice to any person (including but not limited to FNBB and the Surety), and
the summary contained herein is provided for informational purposes only.
The discussion below summarizes only certain of the federal income tax
consequences associated with the Plan's implementation. This discussion does
not attempt to comment on all aspects of the federal income tax consequences
associated with the Plan, nor does it attempt to consider various facts or
limitations applicable to any particular creditor or stockholder which may
modify or alter the consequences described herein. This discussion does not
address state, local or foreign tax consequences or the consequences of any
federal tax other than the federal income tax.
The following discussion is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code"), the regulations
promulgated thereunder, existing judicial decisions and administrative rulings.
In light of the numerous recent amendments to the Internal Revenue Code,
including the Taxpayer Relief Act of 1997, no assurance can be given that
legislative, judicial or administrative changes will not be forthcoming that
would affect the accuracy of the discussion below. Any such changes could be
material and could be retroactive with respect to the transactions entered into
or completed prior to the enactment or promulgation thereof. The tax
consequences of certain aspects of the Plan are uncertain due to the lack of
applicable legal authority and may be subject to judicial or administrative
interpretations that differ from the discussion below.
Tax legislation has been introduced into Congress which, if enacted,
would fundamentally alter the basic scheme of federal taxation by replacing the
federal income tax with a national retail sales tax or a form of value added
tax. Other proposed tax legislation would transform the current graduated-rate
federal income tax into an income-based flat tax. Although fundamental tax
reform of the type described above is unlikely to be enacted in 1997, it may be
enacted in 1998 or subsequent years. Insofar as the discussion below addresses
income tax consequences in 1998 and/or subsequent years, such discussion may be
completely invalidated if fundamental tax reform is enacted.
CREDITORS AND STOCKHOLDERS ARE ADVISED TO CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM AND TO DEBTOR OF THE
TRANSACTIONS CONTEMPLATED BY THE PLAN, INCLUDING FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES.
B. FEDERAL INCOME TAX CONSEQUENCES TO DEBTOR AND ITS SUBSIDIARIES.
1. TAX REORGANIZATION.
Section 368 defines certain tax reorganizations under the Internal
Revenue Code, including reorganizations under the Bankruptcy Code. Tax
reorganizations usually involve
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exchanges of stock and tax securities in which the issuing corporation (or
another corporation that is a party to the reorganization) and the holders of
stock and tax securities participate.
Debtor believes that the transactions contemplated by the Plan
constitute a recapitalization tax reorganization under section 368(a)(1)(E) of
the Internal Revenue Code (an "E" reorganization). However, no assurances can
be given that such an interpretation ultimately will be sustained by the courts
if challenged.
2. CARRYOVER AND AVAILABILITY OF THE DEBTOR CONSOLIDATED
GROUP'S NET OPERATING LOSSES.
a. GENERAL.
Based on preliminary estimates, the Debtor Consolidated Group will
have approximately $101 million of consolidated net operating losses ("NOLs")
carrying forward from the tax year ending February 1, 1997 into the tax year
ending January 31, 1998. All or nearly all of such NOLs are attributable to
Debtor (as opposed to other members of the Debtor Consolidated Group). Debtor
currently believes that it will have an NOL in the current tax year. However,
no assurances can be given regarding the magnitude of such NOLs.
The NOL amounts of the Debtor Consolidated Group are subject to review
and significant adjustment upon audit by the IRS. In addition, the foregoing
estimates of the Debtor Consolidated Group's NOLs are subject to legal and
factual uncertainty. The tax attribute reduction rules of section 108 of the
Internal Revenue Code will have the effect of severely reducing the Debtor
Consolidated Group's NOLs.
b. SECTION 382.
Section 382 of the Internal Revenue Code places potentially severe
limitations upon the use of a corporation's NOLs and certain other tax
attributes if an "ownership change" occurs with respect to such corporation's
stock. This limitation is in addition to, not in lieu of, the severe reduction
of the NOLs that will occur as a result of attribute reduction. Based upon the
anticipated stock ownership of the Reorganized Debtor, Debtor believes that an
"ownership change" will occur with respect to Debtor's stock and, accordingly,
that the limitations and restrictions of section 382 should apply.
Under section 382 of the Internal Revenue Code, following an
"ownership change," the amount of a loss corporation's income that can be offset
by pre-ownership change NOLs cannot exceed an annual amount equal to the sum of
(i) the value of the loss corporation's equity immediately before the ownership
change (excluding proscribed contributions to capital) multiplied by a
prescribed rate of return, and (ii) recognized built-in gains, if any (as
hereinafter described). Moreover, no NOLs will survive if the loss corporation
does not continue its historic business or use a significant portion of its
assets in such a business during the two-year period beginning on the date of
the ownership change. If the loss corporation has more than one line of
business, continuity of business enterprise requires only that it continue a
significant line of business.
As noted, the limitations of section 382 arise upon the occurrence of
an "ownership change." An ownership change occurs if, following either an
"owner shift" or an "equity structure shift" affecting the holdings of a "5
percent shareholder" during a three year testing period, there is more than a 50
percentage point aggregate increase in the total value of the stock of the loss
corporation held at the close of the testing period by "5 percent shareholders"
over the lowest percentage holdings by such shareholders during the testing
period.
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The Debtor underwent an ownership change in 1992 that limited the use
of NOLs that had accumulated in the tax year that ended October 1992 and earlier
tax years. The annual NOL limitation under section 382 with respect to such
ownership change is approximately $285,000. As discussed above, the Debtor will
undergo another ownership change as a result of transactions contemplated by the
Plan. The section 382 limitations discussed above regarding the second
ownership change may, however, be ameliorated by certain provisions of section
382 that provide a more liberal rule for a corporation that is in a title 11
case when the ownership change occurs. These provisions -- section 382(l)(5)
and section 382(l)(6) of the Internal Revenue Code -- are discussed below.
Section 382(l)(5) generally provides that the limitations of section
382 shall not apply to any ownership change occurring in a case under the
jurisdiction of a bankruptcy court under title 11 of the United States Code if
qualifying creditors and shareholders own 50 percent or more of the loss
corporation's stock after such ownership change. Under section 382(l)(5), the
loss corporation's NOLs and specified credits must be recomputed to eliminate
deductions for interest paid or accrued by the loss corporation on the portion
of the debt that was exchanged for stock, and for which the loss corporation had
previously claimed deductions during (i) taxable years ending during the three
year period prior to the taxable year in which the ownership change occurs, and
(ii) the portion of the taxable year of the ownership change up to, but not
including, the "change date." If section 382(l)(5) applies to an ownership
change and a second ownership change occurs within two years, the section 382
limitation is reduced to zero (i.e., NOLs attributable to any period before the
second ownership change cannot be utilized at all after the second ownership
change).
The Debtor has not yet determined whether it will be able to meet the
threshold requirements for qualifying for section 382(l)(5). Nor has Debtor
determined whether the application of section 382(l)(5) would be beneficial for
Debtor. However, the issuance of stock to creditors in exchange for debt
pursuant to the Plan should enable the Debtor to utilize the provisions of
section 382(l)(6).
Under section 382(l)(6), the usual section 382 loss limitation rules
apply except that the value of the loss corporation's stock is increased (for
purposes of calculating the limitation) by the increase in value that results
from the surrender or cancellation of creditors' claims in the reorganization
transaction.
Any shift (deemed or actual) in the ownership of stock of the Debtor,
directly or by attribution, outside the scope of the Plan may trigger (or may
have already triggered) the application of section 382 and other provisions of
the Internal Revenue Code which may affect the availability of the Debtor
Consolidated Group's NOLs. Because the federal income tax consequences of any
such shift would depend on the particular facts and circumstances at such time
and the application of complex legislation and regulations, Debtor expresses no
views as to the effect of any transactions outside the scope of the Plan or the
survival of any carryovers.
3. REDUCTION OF DEBTOR'S INDEBTEDNESS.
As a result of the Plan's implementation, the amount of Debtor's
aggregate outstanding indebtedness will be reduced substantially. (Any amount
of potential discharged indebtedness for federal income tax purposes will be
referred to herein as a "Debt Discharge Amount.") In general, the Internal
Revenue Code provides that a taxpayer who realizes a discharge of indebtedness
must include the Debt Discharge Amount in its gross income in the taxable year
of discharge to the extent that the Debt Discharge Amount exceeds any
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consideration given for such discharge. No income from the discharge of
indebtedness is realized to the extent that payment of the liability being
discharged would have given rise to a deduction.
If a taxpayer is in a title 11 case and the discharge of indebtedness
occurs pursuant to a plan approved by the court, such discharge of indebtedness
is specifically excluded from gross income.
Accordingly, Debtor will not be required to include in income any Debt
Discharge Amount as a result of Plan transactions. The Internal Revenue Code
requires certain tax attributes of Debtor to be reduced by the Debt Discharge
Amount excluded from income. Tax attributes are reduced in the following order
of priority: net operating losses and net operating loss carryovers; general
business credits; minimum tax credits; capital loss carryovers; basis of
property of the taxpayer; passive activity loss or credit carryovers; and
foreign tax credit carryovers. Tax attributes are generally reduced by one
dollar for each dollar excluded from gross income, except that general tax
credits, minimum tax credits and foreign tax credits are reduced by 33.3 cents
for each dollar excluded from gross income. As discussed above, the tax
attribute reduction rules are likely to eliminate at least two-thirds of the
Debtor Consolidated Group's NOLs.
An election can be made to alter the order of priority of attribute
reduction by first applying the reduction against depreciable property held by
the taxpayer in an amount not to exceed the aggregate adjusted basis of such
property. Debtor has not yet decided whether to make such election. The
deadline for making such election is the due date (including extensions) of
Debtor's federal income tax return for the taxable year in which such debt is
discharged pursuant to the Plan.
Any Claim against Debtor (except a Claim that would give rise to a
deduction if paid) that is discharged by payment to a creditor of Cash and/or
property will result in the creation of a Debt Discharge Amount reducing tax
attributes to the extent that the adjusted issue price of the debt discharged
(plus accrued interest) exceeds the fair market value of the payment made in
cancellation thereof.
Debtor's Debt Discharge Amount may be increased to the extent that
unsecured creditors holding unscheduled Claims fail to timely file a proof of
Claim and have their Claims discharged on the Confirmation Date pursuant to
section 1141 of the Bankruptcy Code.
C. TAX CONSEQUENCES TO CREDITORS.
The tax consequences of the Plan's implementation to a creditor will
depend on whether the creditor's present debt claim constitutes a "security" of
Debtor for federal income tax purposes and the type of consideration received by
the creditor in exchange for its Claim, whether the creditor reports income on
the cash or accrual method, whether the creditor receives consideration in more
than one tax year of the creditor, and whether all the consideration received by
the creditor is deemed to be received by that creditor in an integrated
transaction. The tax consequences upon the receipt of Cash, debt instruments or
other property allocable to interest are discussed below under "Receipt of
Interest."
1. CLAIMS CONSTITUTING TAX SECURITIES.
a. DEFINITION OF "SECURITY" FOR TAX PURPOSES.
The determination whether a Claim of any particular creditor
constitutes a "security" for federal income tax purposes is based upon the facts
and circumstances surrounding the origin and nature of the Claim and its
maturity date. Generally, Claims arising out of the extension of trade credit
have been held not to be "securities" for federal income tax purposes
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("Tax Securities"). Instruments with a term of five years or less rarely
qualify as Tax Securities. On the other hand, bonds or debentures with an
original term in excess of ten years have generally been held to be Tax
Securities. The Debtor expresses no view with respect to whether a Claim
based on any pre-Effective Date obligation of the Debtor constitutes a Tax
Security. EACH CREDITOR IS URGED TO CONSULT ITS OWN TAX ADVISOR IN THIS
REGARD.
b. RECEIPT OF TAX SECURITIES.
Section 354 of the Tax Code provides for nonrecognition of gain or
loss by holders of Tax Securities of a corporation who exchange these Claims
solely for stock or Tax Securities, pursuant to certain tax reorganizations,
including a recapitalization pursuant to section 368(a)(1)(E) of the Tax
Code. In the context of the Plan, such section would apply where a holder of
Tax Securities of the Debtor exchanges such items for stock of the Debtor.
The nonrecognition rule of Section 354 is not applicable by its terms if:
(i) the principal amount of Tax Securities received exceeds the principal
amount of Tax Securities surrendered; or (ii) Tax Securities are received,
but none are surrendered; or (iii) stock or Tax Securities are received for
accrued interest. If solely stock or Tax Securities of the Debtor are
received, but clause (i) or (ii) applies, gain (but not loss) will be
recognized to the extent of the fair market value of the amounts described in
clauses (i) or (ii), as applicable. The treatment of Tax Securities received
for accrued interest is described in "Receipt of Interest" below.
c. RECEIPT OF CASH OR DEBT NOT CONSTITUTING TAX
SECURITIES FOR TAX SECURITIES.
A creditor whose existing Claims constitute Tax Securities of the
Debtor may recognize gain (but not loss) if, in addition to stock or Tax
Securities of the Debtor, such creditor receives: cash, debt of the Debtor not
constituting Tax Securities, or other property ("Boot"). The amount of such
gain, if any, to a cash basis taxpayer will equal the lesser of (i) the excess,
if any, of the sum of cash and fair market value of all other consideration
received over the basis of the creditor in such creditor's existing Claims
(other than any Claims in respect of accrued interest); or (ii) the amount of
cash and the fair market value of other Boot items. Currently applicable
Treasury Regulations treat the New Warrants as Boot. However, the Treasury
Department has issued Proposed Regulations which, if adopted as final
regulations and applicable to Plan transactions by reason of their effective
date, would treat the New Warrants as Tax Securities having a zero principal
amount. In this event, the New Warrants would not be treated as Boot. Such
Proposed Regulations are proposed to become effective 60 days after they are
adopted as final regulations. Each creditor is urged to consult its own tax
advisor regarding the tax treatment of New Warrants under the Plan.
d. DETERMINATION OF CHARACTER OF GAIN.
In the case of a creditor whose existing Claims constitute capital
assets in such creditor's hands, the gain required to be recognized will be
classified as a capital gain, except to the extent of interest (including
accrued market discount, if any). Any gain recognized will be treated as
ordinary income to the extent of accrued market discount. To the extent gain at
least equal to any accrued market discount is not recognized by the holder, such
unrecognized accrued market discount will be attributed to the Tax Securities
and New Common Stock received. Any gain recognized by the creditor upon a
subsequent sale or exchange of such Tax Securities or New Common Stock will be
ordinary income to the extent of such accrued market discount. See "Other Tax
Considerations - Market Discount." In this regard, it should be noted that
section 582(c) of the Tax Code provides that the sale or exchange of a bond,
debenture, note or certificate, or other evidence of indebtedness by a bank or
certain other financial institutions shall
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not be considered the sale or exchange of a capital asset. Accordingly, any
gain recognized by such creditors as a result of the Plan's implementation
will be ordinary income, notwithstanding the nature of their Claims. Any
capital gain recognized by a creditor will be long-term capital gain with
respect to those Claims for which the creditor's holding period is more than
eighteen months, mid-term gain with respect to those Claims for which the
creditor's holding period is more than one year but not more than eighteen
months, and short-term capital gain with respect to such Claims for which the
creditor's holding period is one year or less. As a result of the Taxpayer
Relief Act of 1997 and earlier tax legislation, there may be a favorable tax
rate applied to long-term capital gain and mid-term capital gains for certain
holders.
e. TAX BASIS AND HOLDING PERIOD OF ITEMS RECEIVED.
The aggregate tax basis of any stock or Tax Securities of the Debtor
received by a cash basis creditor, other than amounts received on account of
interest, will be a substituted basis equal to the creditor's basis in the Claim
surrendered (other than any Claims in respect of accrued interest), increased by
any gain recognized on the exchange, and decreased by the amount of any cash and
the fair market value of any other Boot items received. If a creditor
subsequently recognizes any gain on the sale or exchange of stock received, the
gain recognized by such creditor on such sale or exchange will be treated as
ordinary income to the extent of any bad debt deduction attributable to such
creditor's Claim or ordinary loss deduction previously claimed by such creditor,
provided that the stock constitutes a capital asset in the creditor's hands.
A creditor's holding period for any stock or Tax Securities of Debtor
(other than stock or Tax Securities received on account of interest) received
pursuant to the Plan will include the period during which such creditor held the
exchanged Tax Security.
f. RECEIPT SOLELY OF BOOT.
A creditor holding Tax Securities who receives solely cash and/or
other Boot items in full satisfaction of such creditor's Claim will be required
to recognize gain or loss on the exchange. The creditor will recognize gain or
loss equal to the difference between the amount realized in respect of such
Claim and the creditor's tax basis in the Claim, and the tax treatment will
parallel the tax treatment set forth below in "Claims Not Constituting Tax
Securities".
2. CLAIMS NOT CONSTITUTING TAX SECURITIES.
a. GAIN/LOSS ON EXCHANGE.
A creditor whose existing Claims do not constitute Tax Securities
(such as most or all trade Claims) will recognize gain or loss on the actual
or constructive exchange of such creditor's existing Claims (other than
Claims for accrued interest) for Cash and any other consideration received
(including New Common Stock) equal to the difference between (i) the "amount
realized" in respect of such Claims and (ii) the creditor's tax basis in such
Claims. The "amount realized" will be equal to the sum of the Cash and (i)
as to a cash-basis taxpayer, the fair market value of all other consideration
received, and (ii) as to an accrual-basis taxpayer, the face amount of any
new debt instruments and fair market value of the other consideration
received, less any amounts allocable to interest, unstated interest or
original issue discount.
b. TAX BASIS AND HOLDING PERIOD OF ITEMS RECEIVED.
The aggregate tax basis in the items received by a creditor will equal
the amount realized in respect of such items (other than amounts allocable to
any accrued interest). The holding period for items received in the exchange
will begin on the day following the exchange.
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c. BAD DEBT DEDUCTION ON DISCHARGE OF CLAIM.
A creditor whose existing Claim does not constitute a Tax Security
and who receives no consideration under the Plan with respect to such Claim
may be entitled to a bad debt deduction equal in amount to such creditor's
adjusted basis in such Claim. A bad debt deduction is allowed in the taxable
year of the creditor in which a debt becomes wholly worthless. The discharge
of a Claim pursuant to the Plan establishes that such Claim is wholly
worthless as of the date of discharge (assuming the holder of the Claim
receives no consideration under the Plan with respect to such Claim and the
Debtor does not reaffirm the obligation). It is possible, however, that such
Claim may have become wholly worthless on an earlier date, depending upon all
the facts and circumstances. Debtor expresses no opinion regarding the date
or dates on which Claims discharged under the Plan became worthless.
3. RECEIPT OF INTEREST.
Income attributable to accrued but unpaid interest will be treated
as ordinary income, regardless of whether the creditor's existing Claims are
capital assets in its hands.
A creditor who, under its accounting method, was not previously
required to include in income accrued but unpaid interest attributable to
existing Claims, and who exchanges its interest Claim for Cash, or other
property pursuant to the Plan, will be treated as receiving ordinary interest
income to the extent of any consideration so received allocable to such
interest, regardless of whether that creditor realizes an overall gain or
loss as a result of the exchange of its existing Claims. A creditor who had
previously included in income accrued but unpaid interest attributable to its
existing Claims will recognize a loss to the extent such accrued but unpaid
interest is not satisfied in full. For purposes of the above discussion,
"accrued" interest means interest which was accrued while the underlying
Claim was held by the creditor. The extent to which consideration
distributable under the Plan is allocable to such interest is uncertain.
4. OTHER TAX CONSIDERATIONS.
a. MARKET DISCOUNT.
If a creditor has a lower tax basis in a Debtor obligation than its
face amount, the difference may constitute market discount under section 1276
of the Internal Revenue Code. (Certain Debtor obligations are excluded from
the operation of this rule, such as obligations with a fixed maturity date
not exceeding one year from the date of issue, installment obligations to
which Internal Revenue Code section 453B applies and, in all likelihood,
demand instruments).
Holders in whose hands Debtor obligations are market discount bonds
will be required to treat as ordinary income any gain recognized upon the
exchange of such obligations to the extent of the market discount accrued
during the holder's period of ownership, unless the holder has elected to
include such market discount in income as it accrued.
b. ORIGINAL ISSUE DISCOUNT.
The actual or constructive exchange of a Reorganized Debtor debt
instrument for an existing Debtor debt instrument (including certain
constructive exchanges that occur when an existing debt instrument is
significantly or materially modified) may result in the creation of original
issue discount ("OID") to the extent that the issue price of the new debt
instrument is less than its stated redemption price at maturity (generally,
its face amount).
The holder of an OID instrument must include in income the sum of
the daily portion of the OID accretion during the taxable year for each year
it holds the instrument even in the absence of payments during such year.
The daily portion of the OID accretion on an
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instrument is determined by allocating to each day in the period the ratable
portion of the increase in the adjusted issue price of the instrument during
that period.
c. WITHHOLDING.
The Disbursing Agent will withhold any amounts required by law from
payments made to creditors. This may require payments by certain creditors
of the required withholding tax on the non-Cash consideration issuable under
the Plan. In addition, creditors may be required to provide general tax
information to Reorganized Debtor or a Disbursing Agent.
d. TAXATION OF CERTAIN RESERVES.
Section 468B(g) of the Internal Revenue Code provides that escrow
accounts, settlement funds or similar funds are subject to current taxation.
It also provides that the IRS shall prescribe regulations for the taxation of
any such account or fund, whether as a grantor trust or otherwise. The IRS
issued final regulations regarding settlement funds on December 18, 1992.
However, such regulations specifically reserve the tax treatment of
settlement funds in bankruptcy and the treatment of stock of the issuer to
satisfy such obligations. It is thus uncertain as to who is responsible for
reporting income generated by the funds in any unclaimed property or Disputed
Claims Reserve formed pursuant to the Plan. If any reserves are treated as a
grantor trust created by Debtor, then the income generated by such reserves
would likely be reported on the Debtor Consolidated Group's federal income
tax return. If the reserves are not treated as such a grantor trust, they
will likely be treated as an association or trust taxable currently as
separate entities on their income. It is also possible that the reserves
could be treated as a grantor trust for which the creditor beneficiaries are
treated as grantors. As such, the creditor beneficiaries would be subject to
current taxation on the income generated by such reserves. Pursuant to the
Plan and related documents, any party responsible for administering such
reserves will also be required to file appropriate income tax returns and pay
any tax due out of such reserves as a result of any income earned in such
reserves.
D. TAX CONSEQUENCES TO SHAREHOLDERS.
The Treasury Department has issued Proposed Regulations under
Internal Revenue Code section 354 that treat stock warrants as securities of
the issuing corporation having a zero principal amount. The proposed
effective date of this rule is 60 days after the Proposed Regulations become
final regulations.
If the Proposed Regulations become final regulations in their
current form and apply to the issuance of New Warrants to the holders of Old
Common Stock, such holders should not recognize any gain or loss as a result
of the exchange of Old Common Stock for New Common Stock and New Warrants
under the Plan. If the Proposed Regulations do not become final regulations
in their current form (or, alternatively, become final regulations but with
an effective date subsequent to the Effective Date of the Plan), there is a
substantial risk that the New Warrants will be treated as "boot." In such
event, a holder of Old Common Stock would recognize gain (but not loss) equal
in amount to the lesser of (i) the amount by which the aggregate fair market
value of the New Common Stock and New Warrants issued to such holder exceeds
such holder's adjusted tax basis in the Old Common Stock exchanged or
cancelled under the Plan, or (ii) the fair market value of the New Warrants
issued to such holder.
A shareholder's holding period for any New Common Stock issued in
exchange for Old Common Stock will include the period during which such
shareholder held the exchanged Old Common Stock.
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<PAGE>
XIX.
CERTAIN FINANCIAL PROJECTIONS
A. PROJECTED BALANCE SHEET.
Set forth below is the projected unaudited balance sheet of the
Reorganized Debtor as of the assumed Effective Date of January 31, 1998, both
prior to and, on a pro forma basis, after giving effect to the transactions
contemplated by the Plan. THE PROJECTED BALANCE SHEET HAS BEEN PREPARED BY
OR UNDER THE SUPERVISION OF DEBTOR'S MANAGEMENT AND HAS NOT BEEN REVIEWED BY
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OR PREPARED IN COMPLIANCE WITH
PUBLISHED GUIDELINES OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS REGARDING PROJECTIONS OR IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES. MOREOVER, SUBSTANTIAL UNCERTAINTIES ARE INVOLVED IN
THE PROJECTED BALANCE SHEET. THE PROJECTED BALANCE SHEET SHOULD BE
CONSIDERED IN CONJUNCTION WITH THE DISCUSSION SET FORTH ABOVE UNDER "RISK
FACTORS -- INHERENT UNCERTAINTY IN THE FINANCIAL PROJECTIONS."
THE ACTUAL BALANCE SHEET AS OF THE EFFECTIVE DATE MAY VARY
MATERIALLY FROM THE AMOUNTS SET FORTH BELOW, BASED UPON, AMONG OTHER THINGS:
(i) OPERATING RESULTS AND OTHER FACTORS OCCURRING BEFORE THE EFFECTIVE DATE;
(ii) INACCURACIES IN THE ASSUMPTIONS UNDERLYING THE PROJECTED BALANCE SHEET;
(iii) CHANGES IN THE ESTIMATED PRO FORMA ADJUSTMENTS WHICH HAVE BEEN
ESTIMATED BASED UPON THE BEST INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT
BUT WHICH MAY CHANGE WITH THE PASSAGE OF TIME AND THE ACCUMULATION OF
ADDITIONAL AND MORE COMPLETE INFORMATION; AND (IV) OTHER FACTORS BEYOND THE
DEBTOR'S CONTROL. IN ADDITION, THE PROJECTED BALANCE SHEET ASSUMES AN
EFFECTIVE DATE OF JANUARY 31, 1998. AN EFFECTIVE DATE MATERIALLY DIFFERENT
FROM THIS DATE COULD SUBSTANTIALLY AFFECT THE PROJECTED BALANCE SHEET.
Readers are urged to review carefully the Description of Pro Forma
Adjustments accompanying the projected balance sheet, which forms an integral
part thereof. Notes required under generally accepted accounting principles
have not been included. Readers are therefore encouraged to refer to the
notes to the historical financial statements included in Annex B hereto.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: The information
contained in the projected unaudited balance sheet and certain other
statements contained or incorporated by reference herein, including, without
limitation, statements containing the words "believes," "anticipates,"
"expects," and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause the actual results,
performance, or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following: national and local general economic and
market conditions; demographic changes; liability and other claims asserted
against the Company; competition; the loss of significant customers or
suppliers; fluctuations in operating results; changes in business strategy or
development plans; business disruptions; the ability to attract and retain
qualified personnel; ownership of Common Stock; volatility of stock price;
and other factors referenced herein. Certain of these factors are discussed
in more detail elsewhere herein,
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<PAGE>
including, without limitation, under the captions "Risk Factors," "The
Company," and "Capitalization." GIVEN THESE UNCERTAINTIES, THOSE READING
THIS DISCLOSURE STATEMENT ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS. The Company disclaims any obligation to update
any such factors or to publicly announce the result of any revisions to any
of the forward-looking statements contained or incorporated by reference
herein to reflect untrue events or developments.
85
<PAGE>
<TABLE>
<CAPTION>
PROJECTED UNAUDITED BALANCE SHEET AS OF EFFECTIVE DATE
(IN THOUSANDS OF DOLLARS)
PROJECTED* PRO FORMA PRO FORMA**
JANUARY 31, 1998 ADJUSTMENT(a) JANUARY 31, 1998
---------------- ------------- ----------------
<S> <C> <C> <C>
CURRENT ASSETS: $ 1,199 $ 1,199
Cash (3,356) (b)
(336) (f)
3,441 (g)
251 (h)
FNBB Facility Fee - current 280 (f) 280
Inventory 39,609 39,609
Other Current Assets 3,337 (251) (h) 3,086
--------------- ------------- ----------------
Total Current Assets 44,145 29 44,174
FNBB Facility Fee - noncurrent 0 280 (f) 280
OTHER NONCURRENT ASSETS 44,473 (1,310) (e) 43,163
--------------- ------------- ----------------
TOTAL ASSETS $ 88,618 $ (1,001) $ 87,617
--------------- ------------- ----------------
--------------- ------------- ----------------
CURRENT LIABILITIES:
Short Term Revolver $ 17,551 $ 3,441 (g) $ 20,992
Capital Leases -- Current portion 1,092 1,092
Deferred Payment Tax Liabilities -- Current portion 0 260 (c) 260
Other Current Liabilities 22,325 (2,077) (b) 20,248
FNBB Facility Fee 0 224 (f) 224
--------------- ------------- ----------------
Total Current Liabilities 40,967 1,848 42,815
--------------- ------------- ----------------
LONG-TERM LIABILITIES
Liabilities subject to compromise 91,856 (1,279) (b) 0
(730) (c)
(89,847) (d)
Capital Leases 13,055 320 (e) 13,375
FNBB Term Loan 10,000 10,000
Deferred Payment Tax Liabilities -- Current portion 0 470 (c) 470
Other 958 958
--------------- ------------- ----------------
Total Long-Term Liabilities 115,868 (91,066) 24,803
--------------- ------------- ----------------
STOCKHOLDERS' EQUITY:
Common Stock & Additional Paid-in Capital 63,202 20,000
(63,023) (d)
19,821 (d)
Accumulated Earnings (Deficit) (131,419) (320) (e) 0
63,023 (d)
70,026 (d)
(1,310) (e)
--------------- ------------- ----------------
Total Stockholders' Equity (68,217) 88,217 20,000
--------------- ------------- ----------------
TOTAL LIABILITIES & EQUITY $ 88,618 $ (1,001) $ 87,617
--------------- ------------- ----------------
--------------- ------------- ----------------
</TABLE>
* Prior to giving effect to Plan.
** After giving effect to Plan.
(See Accompanying Description of Pro Forma Adjustments)
86
<PAGE>
DESCRIPTION OF PRO FORMA ADJUSTMENTS TO
PROJECTED UNAUDITED BALANCE SHEET
(a) The pro forma adjustments do not necessarily include all adjustments
required by AICPA Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code." The total pro forma
stockholders' equity of $20,000,000 is based upon a preliminary estimate
by management and is not necessarily indicative of the actual trading
value of the Reorganized Debtor's equity securities or of the fair market
value of the stockholders' equity. The Company expects to obtain an
independent evaluation of its assets as of the Effective Date. To the
extent that such evaluation differs from management's estimate, the
balance sheet as of the Effective Date will be revised accordingly.
(b) To record or reserve for cash payments required as of the Effective Date
for the payment of certain Allowed Administrative Expenses, certain Priority
Tax Claims, and Cure Payments on assumed executory contracts and unexpired
leases.
(c) To account for the liability for Deferred Payment Tax Claims.
(d) To reflect the issuance of 200,000 shares of New Common Stock to the
holders of Old Common Stock and the issuance of 8,800,000 shares of New
Common Stock to holders of General Unsecured Claims and the resulting
gain on the extinguishment of indebtedness.
(e) To adjust the carrying value of non-current assets and liabilities in
accordance with fresh start reporting required under AICPA Position 90-7
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code." No adjustments have been made to specific asset values as valuations
of these assets have not been completed.
(f) To record FNBB facility fee of $560,000 ($336,000 payable on the Effective
Date and $224,000 payable on December 31, 1998.)
(g) To record increase in borrowings to fund cash payments required as of
Effective Date.
(h) To reflect transfer from restricted cash to cash.
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B. PRO FORMA PROJECTIONS OF INCOME STATEMENT,
BALANCE SHEET DATA AND CASH FLOWS.
Set forth below are the Projections of the Reorganized Debtor's net
income, balance sheet data, and cash flows for each of the fiscal years in
the period ending January 29, 2000, assuming an Effective Date of January 31,
1998. The purpose of the Projections is to set forth the Debtor's estimates
of the future net income, assets, liabilities, shareholders' equity, and cash
flows of the Reorganized Debtor. Actual results may differ substantially
from the Projections as a result, among other things, of changing market and
economic conditions in the future. There is no assurance that the results
projected will be achieved. THE PROJECTIONS HAVE BEEN PREPARED BY OR UNDER
THE SUPERVISION OF DEBTOR'S MANAGEMENT AND HAVE NOT BEEN REVIEWED BY
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OR PREPARED IN COMPLIANCE WITH
PUBLISHED GUIDELINES OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS REGARDING PROJECTIONS OR IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES. MOREOVER, SUBSTANTIAL UNCERTAINTIES ARE INVOLVED IN
PROJECTING NET INCOME AND CASH FLOW. THE PROJECTIONS SHOULD BE CONSIDERED IN
CONJUNCTION WITH THE DISCUSSION SET FORTH ABOVE UNDER "RISK FACTORS --
INHERENT UNCERTAINTY IN THE FINANCIAL PROJECTIONS."
THE PROJECTIONS REPRESENT AN ESTIMATE BY THE DEBTOR'S MANAGEMENT OF
FUTURE EVENTS BASED UPON CERTAIN ASSUMPTIONS SET FORTH BELOW. THESE FUTURE
EVENTS MAY OR MAY NOT OCCUR, AND THE PROJECTIONS MAY NOT BE RELIED UPON AS A
GUARANTEE OR OTHER ASSURANCE OF THE ACTUAL RESULTS WHICH WILL OCCUR. BECAUSE
OF THE UNCERTAINTIES INHERENT IN PROJECTIONS OF FUTURE EVENTS, THE ACTUAL
RESULTS OF OPERATIONS MAY WELL BE DIFFERENT FROM THOSE PROJECTED, AND SUCH
DIFFERENCES MAY BE MATERIAL AND ADVERSE.
THE PROJECTIONS ARE INTENDED TO ASSESS FUTURE INCOME AND CASH FLOW
AVAILABLE FOR DEBT SERVICE AND TO FORM THE BASIS FOR DETERMINING THE
FEASIBILITY OF THE PLAN.
THE ASSUMPTIONS INCLUDED WITH THE PROJECTIONS ARE AN INTEGRAL PART
OF THE PROJECTIONS. THEY SHOULD BE THOROUGHLY ANALYZED. SEE "RISK FACTORS
- --INHERENT UNCERTAINTY IN THE FINANCIAL PROJECTIONS."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: The information
contained in the Projections and certain other statements contained or
incorporated by reference herein, including, without limitation, statements
containing the words "believes," "anticipates," "expects," and words of
similar import, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance, or achievements of the
Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: national and local general economic and market conditions;
demographic changes; liability and other claims asserted against the Company;
competition; the loss of significant customers or suppliers; fluctuations in
operating results; changes in business strategy or development plans;
business disruptions; the ability to attract and retain qualified personnel;
ownership of Common Stock; volatility of stock price; and other factors
referenced herein. Certain of these factors are
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<PAGE>
discussed in more detail elsewhere herein, including, without limitation,
under the captions "Risk Factors," "The Company," and "Capitalization."
GIVEN THESE UNCERTAINTIES, THOSE READING THIS DISCLOSURE STATEMENT ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS.
The Company disclaims any obligation to update any such factors or to
publicly announce the result of any revisions to any of the forward-looking
statements contained or incorporated by reference herein to reflect untrue
events or developments.
89
<PAGE>
- --------------------------------------------------------------------------------
PROJECTIONS
(IN THOUSANDS OF DOLLARS)
As of or for the fiscal year ending
- --------------------------------------------------------------------------------
1/31/98(a) 1/30/99 1/29/00
- --------------------------------------------------------------------------------
INCOME STATEMENT
Total Sales $204,365 $218,000 $234,608
Gross Profit 73,656 79,014 85,034
Selling, General & Administrative Expenses 65,662 67,104 71,013
Total Operating Costs 73,256 72,991 76,713
Operating Income (Loss) 400 6,023 8,321
Other Income (Expense) (See Note (b)) (9,115) (5,415) (5,467)
Net Income (Loss) (8,715) 608 2,854
EBITDA 8,214 11,666 13,927
- --------------------------------------------------------------------------------
BALANCE SHEET DATA
Inventory 39,609 41,120 43,547
Other Current Assets 4,565 4,506 4,937
Total Assets 87,617 85,626 89,057
FNBB Facility & Term Loan 30,992 31,020 34,028
Other Current Liabilities 21,821 20,884 20,857
Total Liabilities 67,617 65,020 65,598
Shareholders' Equity 20,000 20,607 23,460
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
Net Cash provided by (used in)
Operating Activities (1,525) 3,967 5,119
Reorganization Expenses -- Cash Paid (4,775) 0 0
Capital Expenditures (2,612) (2,400) (5,650)
Other Cash provided by Investing
Activities(c) 295 0 0
Proceeds from Term Loan 10,000
Other Cash provided by (used in)
Financing Activities (2,251) (1,531) 931
- --------------------------------------------------------------------------------
The foregoing introductory statement and the following notes and assumptions
are integral parts of this statement.
(a) Estimates are based on actual unaudited year-to-date results through
August 1997 and projections for September 1997 to January 1998.
(b) Includes reorganization and restructuring expenses of $3,784 for 1/31/98.
- --------------------------------------------------------------------------------
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<PAGE>
- --------------------------------------------------------------------------------
SIGNIFICANT ASSUMPTIONS
(DOLLARS IN THOUSANDS)
FOR THE FISCAL YEAR ENDING
- --------------------------------------------------------------------------------
1/31/98 1/30/99 1/29/00
- --------------------------------------------------------------------------------
Sales Growth vs. Previous Year 0.4% 6.7% 7.6%
- --------------------------------------------------------------------------------
Same Store Sales Growth vs. Previous Year 7.8% 6.7% 4.0%
- --------------------------------------------------------------------------------
Gross Profit as a % of Sales 36.0% 36.2% 36.2%
- --------------------------------------------------------------------------------
Selling, General & Administrative expenses
as a % of Sales 32.1% 30.8% 30.3%
- --------------------------------------------------------------------------------
Total Operating Costs as a % of Sales 35.8% 33.5% 32.7%
- --------------------------------------------------------------------------------
Inflation Rate N/A 2.0% 2.0%
- --------------------------------------------------------------------------------
Interest Rate (Average) 9.0% 9.0% 9.0%
- --------------------------------------------------------------------------------
Licensee Shoe Sales as a % of Total Sales 5.9% 6.5% 7.0%
- --------------------------------------------------------------------------------
Number of Stores 38 38 42
- --------------------------------------------------------------------------------
Total Selling Square Footage 1,457,372 1,457,372 1,566,172
- --------------------------------------------------------------------------------
Merchandise Vendor Credit Terms 30 30 30
(average in # of days)
- --------------------------------------------------------------------------------
Capital Expenditures $2,612 $2,400 $5,650
- --------------------------------------------------------------------------------
Inventory Method LIFO LIFO LIFO
- --------------------------------------------------------------------------------
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<PAGE>
XVII.
MANAGEMENT
A. GENERAL.
Certain information with respect to the persons expected to serve
as directors and senior executive officers of the Reorganized Debtor upon
consummation of the Plan is set forth below:
NAME AGE POSITION
Alan R. Schlesinger 55 Director, Chairman of the Board, President, and
Chief Executive Officer
Loren R. Rothschild 58 Director and Vice Chairman of the Board
Debbie A. Brownfield 43 Executive Vice President, Chief Financial Officer,
and Secretary
E.H. Bulen 47 Senior Vice President and General Merchandise
Manager
Gary A. Grossblatt 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.
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,
and Executive Vice President in July 1997.
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.
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Mr. Grossblatt joined Lamonts in August 1997 as Senior Vice
President and General Merchandise Manager. Prior to joining the Company, Mr.
Grossblatt was Divisional Vice President and Divisional Merchandise Manager
for Robinsons-May, where he served in a variety of merchandising roles since
1987.
Peter Aaron, who joined Lamonts in November 1983 as Executive Vice
President, resigned from that position effective July 1997. Mr. Aaron currently
serves as a consultant to the Company and will continue to provide such
consulting services to the Company from time to time after the Effective Date.
All directors and executive officers are elected for a term of one
year and serve until their successors are duly elected and qualified.
In order to assist it in carrying out its duties, the Board of
Directors of the Reorganized Debtor will delegate certain authority to an Audit
and Compensation Committee, the members of which will be selected by the Board.
The initial members will be selected by the Board as constituted pursuant to the
Plan. With respect to its audit function, the committee's duties and
responsibilities will include, among other things, meetings with the independent
accountants to review the scope and results of audits and other activities of
the Reorganized Debtor, evaluating the independent accountants' performance, and
recommending to the Board of Directors as to whether the accounting firm should
be retained by the Reorganized Debtor for the ensuing fiscal year. In addition,
the committee will review the Reorganized Debtor's internal accounting and
financial controls and reporting systems and practices. With respect to its
compensation function, its duties and responsibilities will include, among other
things, reviewing, approving and recommending to the full Board of Directors the
salaries and other compensation arrangements of all other officer-employees of
the Reorganized Debtor and administering the Employee Stock Option Plan.
Members of the Audit and Compensation Committee may be addressed at 12413
Willows Road N.E., Kirkland, Washington 98034.
The Reorganized Debtor will pay each of its outside directors an
annual fee to be determined. Directors will also be reimbursed for reasonable
expenses incurred in connection with attending meetings of the Board or the
Audit and Compensation Committee.
B. EXECUTIVE COMPENSATION.
1. SUMMARY COMPENSATION TABLE.
The following table sets forth certain information regarding estimated
compensation to be paid during the 1997 fiscal year, and actual compensation
previously paid during the 1996, 1995, and 1994 fiscal years, to (i) the
Company's Chief Executive Officer, (ii) the Company's four other most highly
compensated senior executive officers, and (iii) two additional individuals who
would have qualified for inclusion had their employment not been terminated
(collectively, the "Named Executive Officers"):
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS OTHER ANNUAL ALL OTHER
COMPENSATION COMPENSATION
($) (1) ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alan R. Schlesinger, Director, 1997 450,000 500,000 (2) 3,184 0
Chairman of the Board, President, 1996 450,000 100,000 5,100 0
and Chief Executive Officer 1995 450,000 100,000 3,600 0
1994 58,270 125,000 0 0
Loren R. Rothschild, 1997 240,000 187,000 (3) 691 0
Director and Vice Chairman of the 1996 240,000 0 2,790 0
Board 1995 240,000 0 2,790 0
1994 6,462 125,000 0 0
Peter Aaron, 1997 100,423 0 2,272 0
Executive Vice President (4) 1996 210,000 30,000 3,118 0
1995 205,833 30,000 3,247 0
1994 183,836 8,160 3,540 0
Debbie A. Brownfield, Executive 1997 170,000 70,000 (5) 2,535 0
Vice President, Chief Financial 1996 160,000 30,000 2,016 0
Officer and Secretary 1995 121,249 35,000 1,497 0
1994 99,722 0 1,227 0
E.H. Bulen, 1997 175,000 50,000 (7) 2,038 0
Senior Vice President and 1996 152,000 15,000 661 0
General Merchandise Manager (6) 1995 48,930 (8) 0 0 0
Gary A. Grossblatt, 1997 94,877 90,000 (10) 576 100,000 (11)
Senior Vice President and
General Merchandise Manager (9)
James A. Ferree, 1997 101,633 0 503 0
Senior Vice President and 1996 137,054 30,000 661 82,633 (13)
General Merchandise Manager (12)
</TABLE>
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<PAGE>
NOTES TO SUMMARY COMPENSATION TABLE
(1) Consists of Company contributions to a tax qualified trust under the
Company's Tax Relief Investments Protection Plan, as amended and restated
effective July 1, 1991, 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, 1991.
(2) Includes a $400,000 bonus upon exit from Chapter 11 and $100,000 annual
guaranteed bonus.
(3) Includes a $187,000 bonus upon exit from Chapter 11.
(4) Mr. Aaron resigned from his position as Executive Vice President effective
July 1997.
(5) Includes a $35,000 bonus upon exit from Chapter 11.
(6) Mr. Bulen commenced his employment with the Company in November 1995.
(7) Includes a $30,000 bonus upon exit from Chapter 11.
(8) Includes $24,430 in consulting fees from the period September 27, 1995 to
November 30, 1995.
(9) Mr. Grossblatt commenced his employment with the Company in August 1997.
(10) Includes a $20,000 bonus upon exit from Chapter 11.
(11) Represents estimated relocation expenses to be paid for Mr. Grossblatt in
Fiscal 1997.
(12) Mr. Ferree commenced his employment with the Company in June 1996, and
resigned from his position as Senior Vice President and General
Merchandising Manager effective August 1997.
(13) Relocation expenses for Mr. Ferree.
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<PAGE>
2. OLD EMPLOYEE STOCK OPTIONS.
(a) 1992 STOCK OPTION STATUS. The Lamonts Apparel, Inc. 1992
Incentive and Nonstatutory Stock Option Plan (the "1992 Stock Option Plan"),
which was approved by the Board of Directors and by the stockholders in 1992
and amended by the Board of Directors and by the stockholders in 1994,
provides for the issuance of Old Employee Stock Options to purchase up to
1,972,845 shares of Old Common Stock, subject to certain anti-dilution
adjustments. Awards may be granted under the 1992 Stock Option Plan to
individuals, identified by the plan committee, who have or will have a direct
and significant effect on the performance or financial development of the
Company. The following table summarizes the 1992 Stock Option Plan activity:
NUMBER OF OLD
EMPLOYEE STOCK
OPTIONS OUTSTANDING
-------------------
Balance, October 30, 1993 420,650
Granted 200,000
Exercised (11,334)
Canceled (16,644)
--------
Balance, October 29, 1994 592,672
Granted 0
Exercised (12,545)
Canceled (205,387)
--------
Balance, January 28, 1995 374,740
Granted 0
Exercised (11,774)
Canceled (43,902)
--------
Balance, February 3, 1996 319,064
Granted 0
Exercised (504)
Canceled (43,109)
--------
Balance, February 1, 1997 275,451
Granted 0
Exercised 0
Canceled (28,685)
--------
Balance, August 2, 1997 246,766
--------
--------
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<PAGE>
(b) OPTION GRANTS/EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES. At August 2, 1997, Old Employee Stock Options to
purchase 246,766 shares of Old Common Stock at an exercise price of $.01 per
share were issued and outstanding, of which 240,784 are currently exercisable
and the balance thereof, subject to certain conditions, were to vest ratably
through the fifth anniversary of the date of grant. All options are
exercisable for a period of ten years from the date of grant. The exercise
price was below the fair market value of the underlying shares on the date of
grant.
The following table provides information related to the number of Old
Employee Stock Options held by the Named Executive Officers. There were no
Old Employee Stock Options granted to Named Executive Officers during the
1996 fiscal year. None of the Named Executive Officers exercised any Old
Employee Stock Options during the 1996 fiscal year.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS/SARS AT AUGUST 2, 1997
FISCAL YEAR END (#)(1)
----------------------------------
Name Exercisable / Unexercisable
------------------------------------------------------
Debbie Brownfield 5,311 672
- --------------------
(1) Consists of 1992 Options granted to the Named Executive Officers under
the 1992 Option Plan.
All unexercised Old Employee Stock Options will be rejected under the
Plan as of the Effective Date, and no consideration will be provided on
account thereof. Under the terms of the Plan, the Company's obligations
under the 1992 Stock Option Plan will be deemed rejected as of the Effective
Date.
3. NEW EMPLOYEE STOCK OPTIONS.
On and after the Effective Date, the Reorganized Debtor will, pursuant
to the Plan, issue from time to time New Employee Stock Options for
distribution to specified employees of the Reorganized Debtor. The New
Employee Stock Options will be initially exercisable for the purchase of
1,333,729 shares of New Common Stock and will consist of: (i) options
exercisable for the purchase of 1,000,000 shares of New Common Stock with an
initial exercise price of $1.00 per share; (ii) to prevent dilution resulting
from the issuance of the New Class A Warrants, options exercisable for the
purchase of an additional 244,813 shares of New Common Stock with an initial
exercise price of $0.01 per share, exercisable only on or after the date on
which the New Class A Warrants become exercisable; and (iii) to prevent
dilution resulting from the issuance of the New Class B Warrants, options
exercisable for the purchase of an additional 88,915 shares of New Common
Stock with an initial exercise price of $0.01 per share, exercisable only on
or after the date on which the New Class B Warrants become exercisable. The
number of New Employee Stock Options described in clauses (ii) and (iii)
above will be issued on a Pro Rata Basis and the number that may be exercised
by any holder shall bear the same proportion (based on the total number of
such options granted to such holder) to the number of New Employee Stock
Options described in clause (i) above that have been exercised by such holder
(based on the total number of such options granted to such holder). In
addition, to prevent dilution resulting from the issuance of the New Class C
97
<PAGE>
Warrants to the Surety, each holder of New Employee Stock Options will be
issued, on a Pro Rata Basis and with the same vesting schedule as such
holder's respective New Employee Stock Options, New Class C Warrants
initially exercisable for the purchase of 381,065 shares of New Common Stock
with an exercise price equivalent to that of the New Class C Warrants to be
issued to the Surety. The New Employee Stock Options and the New Class C
Warrants are subject to adjustment to prevent dilution upon the occurrence of
certain specified events, excluding exercise of the New Employee Stock
Options, the New Class A Warrants, the New Class B Warrants, the New Class C
Warrants, or the Gordian Warrants. The term of the New Employee Stock
Options will be 10 years. The New Employee Stock Options will be governed by
the Employee Stock Option Plan in substantially the form set forth in the
Plan Documentary Supplement, and the New Class C Warrants issued in
conjunction therewith will be governed by the New Class C Warrant Agreement
in substantially the form set forth in the Plan Documentary Supplement. For
a description of the New Employee Stock Options, see "Employee Stock Option
Plan; Description of New Employee Stock Options." For a description of the
New Class C Warrants, see "Description of New Warrants and New Class C
Warrants." Those New Employee Stock Options which are expected to be
allocated as of the Effective Date will be allocated as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
BASE PROTECTIVE PROTECTIVE
OPTIONS OPTIONS (1) (5) OPTIONS (2) (5)
------- --------------- ---------------
TOTAL NEW PROTECTIVE
RECIPIENT INITIAL INITIAL INITIAL EMPLOYEE CLASS C
EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE STOCK OPTIONS WARRANTS
$1.00 $.01 $.01
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alan R.
Schlesinger (3) 600,000 146,888 53,349 800,237 228,639
- ----------------------------------------------------------------------------------------------------------------------------------
Loren R.
Rothschild (3) 150,000 36,722 13,337 200,059 57,160
- ----------------------------------------------------------------------------------------------------------------------------------
Debbie A.
Brownfield (3) 60,000 14,689 5,335 80,024 22,864
- ----------------------------------------------------------------------------------------------------------------------------------
E.H. Bulen (3) 50,000 12,241 4,446 66,687 19,053
- ----------------------------------------------------------------------------------------------------------------------------------
Gary A.
Grossblatt (3) 30,000 7,345 2,667 40,012 11,432
- ----------------------------------------------------------------------------------------------------------------------------------
Others (4) 110,000 26,929 9,781 146,710 41,917
- ----------------------------------------------------------------------------------------------------------------------------------
TOTALS 1,000,000 244,814 88,915 1,333,729 381,065
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
(1) Exercisable on or after the first date on which the Aggregate Equity
Trading Value equals or exceeds $20 million.
(2) Exercisable on or after the first date on which the Aggregate Equity
Trading Value equals or exceeds $25 million.
(3) Warrants and options will vest 50% on the Effective Date, 25% on the first
anniversary of the Effective Date, and 25% on the second anniversary of the
Effective Date.
(4) To be granted to employees (other than Messrs. Schlesinger and Rothschild)
from time to time, in such amounts, and subject to such terms (including
vesting), as management shall determine.
(5) The number of protective options that may be exercised by any holder
shall bear the same proportion (based on the total number of such options
granted to such holder) to the number of base options that have been
exercised by such holder (based on the total number of such options granted
to such holder).
98
<PAGE>
The Company expects to file a registration statement on Form S-8 with
the Securities and Exchange Commission with respect to the shares of New
Common Stock issuable upon the exercise of the New Class C Warrants and New
Employee Stock Options to be granted to officers, directors, and employees of
the Company. Shares of New Common Stock issued after the effective date of
such registration statement upon the exercise of such warrants and options
may be resold by the recipient thereof without restriction to the extent that
such shares are held by persons who are not affiliates (as that term is
defined in Rule 144 promulgated under the Securities Act) of the Company.
Under the terms of the Employee Stock Option Plan, the Reorganized
Debtor will have available, in addition to the New Employee Stock Options, an
additional 375,000 shares (subject to adjustment to prevent dilution upon
certain events, excluding any exercise of New Class A Warrants, New Class B
Warrants, New Class C Warrants, or New Employee Stock Options) of New Common
Stock for possible grants of additional stock options from time to time after
the Effective Date if, and to the extent, the disinterested committee
administering the Employee Stock Option Plan may determine that such
additional grants would be in the best interest of the Reorganized Debtor.
4. QUALIFIED PENSION PLANS.
(a) DEFINED BENEFIT PLAN. The Company established a defined
benefit pension plan for certain of its employees known as the Lamonts
Apparel, Inc. Employees' Retirement Trust, effective January 1, 1986, (as
amended to date, the "Pension Plan"). This Pension Plan is a non
contributory defined benefit pension plan for employees of the Company who
are not eligible for pension benefits from another pension plan pursuant to
collective bargaining agreements. Participant benefits are based on years of
service and compensation during later years of employment.
This Pension Plan is covered by Title IV of the Employee Retirement
Income Security Act of 1974, AS AMENDED ("ERISA,"); 29 U.S.C. Section 1301 ET
SEQ. ERISA provides for certain minimum funding standards, ERISA Section
302, 29 U.S.C. Section 1082; Internal Revenue Code of 1954 ("I.R.C.")
Section 412, 26 U.S.C. Section 412. In addition, in the event of a
termination of the Pension Plan, the Debtor and certain other parties may be
jointly and severally liable for the unfunded benefit liabilities of the
Pension Plan. ERISA Section 4062, 29 U.S.C., Section 1362(a). The Pension
Plan may be terminated only if the statutory requirements of either ERISA
Section 4041, 29 U.S.C. Section 1341, or ERISA Section 4042, 29 U.S.C.
Section 1342, are met.
Information about the funding status of the Pension Plan is as follows:
The Pension Plan's ongoing pension liability is $5,735,783, and the
present value of accumulated benefits is $5,098,425. The Pension Plan's
actuarial value of assets is $5,868,655, resulting in a zero unfunded
liability. The minimum contribution requirement for the 1997 plan year is
$175,270. The above information is as of January 1, 1997, and is contained
in the January 1, 1997 actuarial valuation of the Pension Plan.
The Pension Benefit Guaranty Corporation ("PBGC") is a wholly-owned
United States Government corporation created under Title IV of ERISA which
guarantees the payment of certain pension benefits upon termination of a
pension plan. It should be noted that in the event of a termination, the
PBGC would review the determination of the Pension Plan's enrolled actuary as
to asset sufficiency, including all actuarial assumptions. 29 C.F.R. Section
2617.1 ET SEQ. The PBGC estimates that the Pension Plan is underfunded on a
termination basis as of April 28, 1995 in the total amount of approximately
$2,843,900.00. The Debtor disputes this estimate.
99
<PAGE>
Information about the claims filed by the PBGC on its own behalf and on
behalf of the Pension Plan is as follows:
The PBGC has filed three Proofs of Claim in the Chapter 11 Case based on
an assumed Pension Plan termination date of April 28, 1995. These Claims
consist of the following components: (a) a Claim for minimum funding
contributions ("Minimum Funding Contributions") under Sections 302 and
4062(c) of ERISA, 29 U.S.C. Sections 1082 and 1362(c), and Section 412 of the
Internal Revenue Code, 26 U.S.C. Section 412; (b) a Claim for unfunded
benefit liabilities ("Unfunded Benefit Liabilities") as defined in ERISA
Section 4001(a)(18), 29 U.S.C. Section 1301(a)(18); and (c) a Claim for
unpaid premiums with interest and penalties ("Premiums"), under ERISA Section
4007(a), (b), and (e), 29 U.S.C. Section 1307(a), (b), and (e); 29 C.F.R.
Section 2610.26(a).
The estimated amount of the Minimum Funding Contribution Claim filed by
the PBGC is $155,179.00; the estimated amount of the Unfunded Benefit
Liabilities Claim filed by the PBGC is $2,843,900.00; and the estimated
amount of the Premium Claim filed by the PBGC is $33,749.07. Of the three
Claims, both the Claim for Minimum Funding Contributions and Premiums were
filed as unliquidated in part.
The PBGC asserts that (a) the Minimum Funding Contribution Claim is
entitled to priority under Sections 507(a)(1), 507(a)(4), and/or 507(a)(8) of
the Bankruptcy Code; (b) the Unfunded Benefit Liabilities Claim is entitled to
priority under Section 507(a) (1) or, in the alternative, Section 507(a)(8) of
the Bankruptcy Code; and (c) portions of the Premium Claim are entitled to
priority as an Administrative Claim under Section 507(a)(1) of the Bankruptcy
Code.
In December 1995 and October 1997, the Court approved Joint Stipulations
filed by the PBGC, the Debtor, the Unsecured Creditors' Committee, and the
Bondholders' Committee regarding the PBGC's claims for Unfunded Benefit
Liabilities, Minimum Funding Contributions and Premiums. Under the terms of
those stipulations, the PBGC was granted a general unsecured non-priority
Claim of $1,113.16 for Premiums and the PBGC agreed to withdraw its remaining
Claims without prejudice and reserved the right to refile proofs of Claim for
Unfunded Benefit Liabilities and Minimum Funding Contributions if the
circumstances surrounding the case require such Claims be filed. Such
refiling will be treated as timely. The Debtor withdrew its objection to the
PBGC's Claim for Unfunded Benefit Liabilities also without prejudice. The
Debtor retained the right to require the PBGC to refile its proofs of Claim
for Unfunded Benefit Liabilities and Minimum Funding Contributions on not
less than 30 days' notice.
The Debtor stated in the Joint Stipulation that it intends to maintain
the Pension Plan after confirmation of its Plan. The PBGC asserts that, in
such circumstances, the sponsor of a pension plan should make every attempt
to rectify any unpaid balance attributable to minimum funding contributions
owed to the Plan and premiums owed to the PBGC prior to confirmation of the
Plan. It is the Debtor's position that it is current on all amounts owed to
the Pension Plan for minimum funding contributions and to the PBGC for
premiums under the Tittle IV insurance program.
Unless the Pension Plan has been terminated prior to the Effective
Date of the Plan, the Debtor's liability under ERISA Section 4062, 29 U.S.C.
Section 1362, will not be affected in any way by confirmation of the Plan or by
discharge. Thus, neither the Pension Plan, nor the PBGC, will be precluded by
confirmation of the Plan from commencing any litigation, or from taking any
other action, to collect, enforce, or recover from the Reorganized Debtor, its
successors, or its assets or properties, any rights or claims under ERISA or
otherwise. For example, the Plan will have no effect upon any liability that
may arise under ERISA Section 4062, 29
100
<PAGE>
U.S.C. Section 1362, for the amount by which the assets of the Plan are
insufficient to cover benefit liabilities under the Pension Plan on the date
of termination, and for any liability under ERISA Section 4062(c), 29 U.S.C.
Section 2362(c), for the outstanding balance, if any, of the accumulated
funding deficiencies of the Pension Plan, as determined in accordance with
ERISA Section 302(a)(2), 29 U.S.C. Section 1082(a)(2), and I.R.C. Section
412(a), 26 U.S.C. Section 412(a).
Under the terms of the Plan, as of the Effective Date, Lamonts will
assume its obligations under the Pension Plan.
(b) 401(k) PLAN. The Company established the Lamonts Apparel
Inc. Tax Relief Investments Protection Plan, effective December 1, 1986, (as
amended to date, the "401(k) Plan"). The 401(k) Plan provides participants
the opportunity to elect to defer an amount from 1% to 15% of their
compensation in increments of 1%. Under the 401(k) Plan, the Company matches
contributions equal to 50% of each Participant's deferred pay contributions
(such contributions not to exceed 1% of the Participant's compensation). The
Company contributed approximately $0.05 million, $.14 million, $0.15 million,
$0.04 million, $0.2 million, and $0.2 million during the first two quarters
of the 1997 fiscal year, the 1996 fiscal year, the 1995 fiscal year, the
quarter ended January 28, 1995, the 1994 fiscal year, and the 1993 fiscal
year, respectively.
On October 14, 1997, the company applied to the Internal Revenue Service
for a Compliance Statement under the Voluntary Compliance Resolution (VCR)
program. This VCR application was made in connection with what the company
believes to be a minor administrative error in the operation of the 401(k)
plan. The potential liability, if any, resulting from this matter is not
capable of being quantified, based on the information available to date.
Under the terms of the Plan, as of the Effective Date, Lamonts will
assume its obligations under the 401(k) Plan.
5. NONQUALIFIED PENSION PLANS.
(a) SUPPLEMENTAL RETIREMENT PLAN. The Company established the
Lamonts Apparel, Inc. Supplemental Executive Retirement Plan, effective
January 1, 1994, (as amended, the "SERP"). The SERP was a non-qualified,
unfunded plan maintained primarily for providing supplemental retirement
compensation for a select group of management or highly compensated employees
whose benefit under the Pension Plan would be affected by IRS compensation
and benefit limits. Lamonts has rejected its obligations under the SERP.
(b) SUPPLEMENTAL 401(k) PLAN. The Company established the
Lamonts Supplemental (TRIP) Benefit Plan, effective January 1, 1991, (as
amended, the "Supplemental 401(k) Plan") The Supplemental 401(k) Plan was a
non-qualified arrangement for a select group of management or highly
compensated employees which allowed deferrals and corresponding company
contributions in excess of the Internal Revenue Service limits imposed on
such individuals under the qualified 401(k) Plan. Lamonts has rejected its
obligations under the Supplemental 401(k) Plan.
C. EMPLOYMENT AGREEMENTS.
On October 16, 1994, Alan Schlesinger entered into an employment
agreement with the Company that had a term that ran through November 15,
1998, at a base salary of $450,000, subject to annual review and upward
adjustment at the discretion of the Board. Pursuant to Mr. Schlesinger's
employment agreement, as amended, Mr. Schlesinger received a signing bonus of
$125,000. In addition, Mr. Schlesinger received $168,000 as compensation for
101
<PAGE>
all compensation and benefits forfeited by Mr. Schlesinger from his previous
employer and $47,000 for moving and related costs.
In connection with the Chapter 11 Case, the Company and Mr. Schlesinger
entered into a new employment agreement approved by the Bankruptcy Court
which has a term that runs through January 5, 1999, at a base salary of
$450,000, subject to annual review and upward adjustment at the discretion of
the Board. Pursuant to Mr. Schlesinger's employment agreement, Mr.
Schlesinger will receive a guaranteed annual bonus in the sum of $100,000 and
a one-time reorganization bonus upon the Effective Date of the Plan of
$400,000. In addition, upon the Effective Date of the Plan, Mr. Schlesinger
is entitled under his contract to receive stock options to purchase 6% of the
fully diluted number of shares of Common Stock to be outstanding immediately
following such Effective Date based upon the final terms of such Plan. See
"Executive Compensation -- New Employee Stock Options" and "Employee Stock
Option Plan; Description of New Employee Stock Options."
Mr. Schlesinger's employment agreement provides that, if the Company
terminates Mr. Schlesinger's employment without "cause", Mr. Schlesinger will
be entitled to receive his base salary for a period of up to two years or for
the remainder of the term of his agreement, whichever is shorter, subject to
offset for amounts received by Mr. Schlesinger from any other employer during
such period. Upon a "change in control" of the Company (other than solely as
a result of any exchange of equity for debt securities upon consummation of a
plan of reorganization) after January 5, 1997, the term of Mr. Schlesinger's
employment agreement shall extend to a date which is two years from the date
on which such "change in control" is consummated. Upon a "change in control"
of the Company on or after the effective date of a plan of reorganization,
all options granted to Mr. Schlesinger as described above shall vest and
become immediately exercisable.
Mr. Schlesinger and the Company have agreed upon certain amendments to
and an extension of his existing employment agreement to be effective as of
the Effective Date, as provided in the Amended and Restated Employment
Agreement contained in the Plan Documentary Supplement. Pursuant to the
amended and restated agreement, Mr. Schlesinger would receive a one-time
bonus of $175,000 (payable on February 2, 1998) for extending the term of his
employment through January 31, 2002. The amended and restated agreement
would be substantially on the same terms and conditions as Mr. Schlesinger's
existing agreement, except that (i) the base salary and guaranteed annual
bonus payable to Mr. Schlesinger would be subject to a non-discretionary
annual cost of living adjustment reflecting the increase in the cost of
living since the inception of Mr. Schlesinger's employment, (ii) in addition
to the New Employee Stock Options Mr. Schlesinger is entitled to receive
under his existing contract, he would receive a specified number of New Class
C Warrants to adjust for the dilution resulting from the issuance of New
Class C Warrants to the Surety, and (iii) the amount Mr. Schlesinger
currently receives for unreimbursed business expenses and a car allowance
under his existing contract would be increased by $900 per month to $1,500
per month. The Company will assume Mr. Schlesinger's employment agreement,
as so amended, extended, and restated under the Plan.
On December 28, 1994, Loren Rothschild entered into an employment
agreement with the Company that had a term that ran until consummation of a
Restructuring (as defined therein), at a base salary of $240,000. Pursuant
to Mr. Rothschild's employment agreement, Mr. Rothschild received a signing
bonus of $125,000.
In connection with the Chapter 11 Case, the Company and Mr. Rothschild
entered into a new employment agreement which was approved by the Bankruptcy
Court. Mr.
102
<PAGE>
Rothschild's current employment agreement has a term that runs through the
90th day following the Effective Date of the Plan, at a base salary of
$240,000. Pursuant to Mr. Rothschild's employment agreement, upon the
Effective Date of the Plan, Mr. Rothschild will receive $187,000. In
addition, upon the effective date of a Plan, Mr. Rothschild is entitled to
receive a number of stock options equal to 25% of the number of options
issued to the Company's Chief Executive Officer, to vest as set forth in the
Employment Agreement. Mr. Rothschild's 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.
Mr. Rothschild and the Company have agreed upon certain amendments to
and an extension of his existing employment agreement to be effective as of
the Effective Date, as provided in the Amended and Restated Employment
Agreement contained in the Plan Documentary Supplement. Pursuant to the
amended and restated agreement, Mr. Rothschild would receive a one-time bonus
of $80,000 (payable on the 90th day following the Effective Date) for
extending the term of his employment to the third anniversary of the 90th day
following the Effective Date. The amended and restated agreement would be
substantially on the same terms and conditions as Mr. Rothschild's existing
agreement, except that the annual base salary payable to Mr. Rothschild would
be reduced to $150,000 on the 90th day following the Effective Date, subject
to a non-discretionary annual cost of living adjustment beginning on the
first anniversary of the extension. The Company will assume Mr. Rothschild's
employment agreement, as so amended, extended, and restated under the Plan.
In connection with the Recapitalization, Peter Aaron entered into an
employment agreement with the Company which had a term through November 30,
1997, at a base salary of $185,000, subject to annual increases based on his
accomplishments during the prior year. Pursuant to Mr. Aaron's employment
agreement, Mr. Aaron was entitled to a yearly performance bonus, based upon
the achievement by the Company of goals to be set forth in the management
operating profit plan of the Company for each year, not to exceed $65,000.
Mr. Aaron was guaranteed a minimum yearly performance bonus of $8,160. Mr.
Aaron resigned from his position effective July 1997, and his employment
agreement will be rejected under the Plan. Mr. Aaron currently serves as a
consultant to the Company and will continue to provide such consulting
services to the Company from time to time after the Effective Date. All
stock options held by Mr. Aaron were cancelled as of the effective date of
his resignation.
In connection with the Recapitalization, Wallace Holznagel entered into
an employment agreement with the Company which had a term through November
30, 1997, at a base salary of $190,000, plus an annual performance bonus, not
to exceed $80,000. Mr. Holznagel was guaranteed a minimum yearly performance
bonus, based upon the achievement by the Company of goals as set forth in
management operating profit plans, not to exceed $20,000. Effective May 2,
1995, Mr. Holznagel resigned as Executive Vice President of the Company.
Pursuant to a resignation agreement entered into with Mr. Holznagel, the
Company paid to Mr. Holznagel $105,000, or an amount equal to six months'
base salary and the minimum guaranteed bonus under the employment agreement.
In addition, the Company paid approximately $14,615 for accrued but unused
vacation and continued to provide certain medical benefits through November
1995. In addition, all Old Employee Stock Options held by Mr. Holznagel were
canceled.
103
<PAGE>
In June 1993, Earle Spokane entered into an employment agreement
with the Company, at a base salary of $215,000, plus a yearly performance
bonus, based upon the achievement by the Company of goals as set forth in
management operating profit plans, not to exceed $85,000. Effective February
24, 1995, Mr. Spokane ceased to be employed by the Company as Executive Vice
President and Chief Administrative Officer. Pursuant to a resignation
agreement entered into with Mr. Spokane with the approval of the Bankruptcy
Court, the Company paid Mr. Spokane $107,000, or an amount equal to six
months' base salary plus approximately $12,400 for accrued but unused
vacation. In addition, the Company continued to provide certain medical
benefits through June 30, 1995. In addition, all stock options held by Mr.
Spokane were canceled.
D. INDEMNIFICATION OF OFFICERS AND DIRECTORS OF REORGANIZED DEBTOR.
Under Section 145 of the General Corporation Law of the State of
Delaware, a Delaware corporation has the power, under specified
circumstances, to indemnify its directors, officers, employees, and agents in
connection with actions, suits, or proceedings brought against them by a
third party or in the right of the corporation, by reason of the fact that
they were or are such directors, officers, employees, or agents, against
liabilities and expenses incurred in any such action, suit or proceeding.
The Amended and Restated Bylaws to be adopted pursuant to the Plan will
provide that the Company shall indemnify its present and future officers and
directors to the fullest extent permitted by Section 145 of the General
Corporation Law of the State of Delaware. Under the Plan, the Company will
reject its indemnification obligations to former officers and directors, will
assume its indemnification obligations to present officers and directors, and
will assume its insurance policies which provide certain coverage against
liability of officers and directors.
All continuing directors and senior executive officers of the
Reorganized Debtor will enter into indemnification agreements with the
Company pursuant to which the Company will indemnify, to the fullest extent
permitted by applicable law, such officer or director against liabilities and
expenses incurred by such officer or director in any proceeding or action
because such officer or director is or was a director, officer, employee, or
agent of the Company and in certain other circumstances. This
indemnification is in addition to the indemnification provided in the
Company's Amended and Restated Bylaws. In neither case will indemnification
be provided if prohibited under applicable law.
E. EMPLOYEE STOCK OPTION PLAN;
DESCRIPTION OF NEW EMPLOYEE STOCK OPTIONS.
The Plan provides for the adoption of the Lamonts Apparel, Inc.
1998 Stock Option Plan (the "Employee Stock Option Plan"), substantially in
the form set forth in the Plan Documentary Supplement. The Employee Stock
Option Plan provides for the grant of New Employee Stock Options to selected
employees, directors, and consultants of the Reorganized Debtor. All New
Employee Stock Options must be evidenced by an agreement (an "Option
Agreement") setting forth the terms and conditions applicable thereto. The
Employee Stock Option Plan provides for the issuance of a maximum of
1,708,729 shares of New Common Stock (subject to certain adjustments as
described below).
The Employee Stock Option Plan is designed to comply with the
requirements for "performance-based compensation" under Section 162(m) of the
Internal Revenue Code, as amended, and the conditions for exemption from the
short-swing profit recovery rules under Rule 16b-3 of the 1934 Act. In order
to meet the requirements under Section 162(m) of the
104
<PAGE>
Internal Revenue Code, the Employee Stock Option Plan must be approved by the
stockholders of the Company.
THE PLAN AND THE DISCLOSURE STATEMENT WILL BE DEEMED TO BE A
SOLICITATION TO THE HOLDERS OF OLD COMMON STOCK AND TO THE HOLDERS OF NEW
COMMON STOCK, NEW WARRANTS, AND NEW CLASS C WARRANTS FOR APPROVAL OF THE
EMPLOYEE STOCK OPTION PLAN, AND THE ENTRY OF THE CONFIRMATION ORDER WILL
CONSTITUTE APPROVAL OF THE PLAN, FOR PURPOSES OF COMPLIANCE WITH RULE
16b-3(a) PROMULGATED UNDER THE 1934 ACT. Future employee stock plans or
grants will be implemented by the New Board if and as the New Board
determines such plans to be appropriate as a means to provide management with
additional incentives.
The summary that follows is subject to the actual terms of the
Employee Stock Option Plan, which will be controlling. Capitalized terms not
defined below have the meaning set forth in the Employee Stock Option Plan.
1. PLAN ADMINISTRATION.
The Employee Stock Option Plan will be administered by the New
Board or by a committee of the New Board, the composition of which will at
all times satisfy the provisions of Rule 16b-3 (the "Plan Administrator").
No person is entitled to receive remuneration for administering the Employee
Stock Option Plan. The Employee Stock Option Plan provides that no member of
the New Board will be liable for any action or determination taken or made in
good faith with respect to the Employee Stock Option Plan or any New Employee
Stock Option granted thereunder.
Subject to the terms of the Employee Stock Option Plan, the Plan
Administrator has the right to grant New Employee Stock Options to eligible
recipients and to determine the terms and conditions of Option Agreements,
including the vesting schedule and exercise price of such New Employee Stock
Options, and the effect, if any, of a change in control of the Company on
such New Employee Stock Options. Pursuant to this authority, the Plan
Administrator has made certain initial grants to participants, as more fully
described in the table below, in each case at the initial exercise prices per
share indicated in the table below (subject to adjustment to prevent dilution
upon certain events, excluding any exercise of New Class A Warrants, New
Class B Warrants, New Class C Warrants, or New Employee Stock Options):
105
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
BASE PROTECTIVE PROTECTIVE
OPTIONS OPTIONS (1)(5) OPTIONS (2)(5)
------- ------------- -------------- TOTAL NEW PROTECTIVE
RECIPIENT EMPLOYEE CLASS C
INITIAL INITIAL INITIAL STOCK OPTIONS WARRANTS
EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE
$1.00 $.01 $.01
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Alan R.
Schlesinger (3) 600,000 146,888 53,349 800,237 228,639
- ----------------------------------------------------------------------------------------------------------------
Loren R.
Rothschild (3) 150,000 36,722 13,337 200,059 57,160
- ----------------------------------------------------------------------------------------------------------------
Debbie A.
Brownfield (3) 60,000 14,689 5,335 80,024 22,864
- ----------------------------------------------------------------------------------------------------------------
E.H. Bulen (3) 50,000 12,241 4,446 66,687 19,053
- ----------------------------------------------------------------------------------------------------------------
Gary A.
Grossblatt (3) 30,000 7,345 2,667 40,012 11,432
- ----------------------------------------------------------------------------------------------------------------
Others (4) 110,000 26,929 9,781 146,710 41,917
- ----------------------------------------------------------------------------------------------------------------
TOTALS 1,000,000 244,814 88,915 1,333,729 381,065
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------
(1) Exercisable on or after the first date on which the Aggregate Equity
Trading Value equals or exceeds $20 million.
(2) Exercisable on or after the first date on which the Aggregate Equity
Trading Value equals or exceeds $25 million.
(3) Warrants and options will vest 50% on the Effective Date, 25% on the first
anniversary of the Effective Date, and 25% on the second anniversary of the
Effective Date.
(4) To be granted to employees (other than Messrs. Schlesinger and Rothschild)
from time to time, in such amounts, and subject to such terms (including
vesting), as management shall determine.
(5) The number of protective options that may be exercised by any holder shall
bear the same proportion (based on the total number of such options granted
to such holder) to the number of base options that have been exercised by
such holder (based on the total number of such options granted to such
holder).
Under the terms of the Employee Stock Option Plan, the Reorganized
Debtor will have available, in addition to the New Employee Stock Options, an
additional 375,000 shares (subject to adjustment to prevent dilution upon
certain events, excluding any exercise of New Class A Warrants, New Class B
Warrants, New Class C Warrants, or New Employee Stock Options) of New Common
Stock for possible grants of additional stock options from time to time after
the Effective Date if, and to the extent, the disinterested Plan
Administrator may determine that such additional grants would be in the best
interest of the Reorganized Debtor.
2. SHARES SUBJECT TO THE EMPLOYEE STOCK OPTION PLAN.
The shares reserved for issuance under the Employee Stock Option
Plan may be authorized but unissued shares of New Common Stock or shares
which have or may be reacquired by the Company in the open market, in private
transactions or otherwise. The Employee Stock Option Plan provides that, in
the event of changes in the New Common Stock by reason of a merger,
reorganization, recapitalization, common stock dividend, stock split, or
similar change, the Plan Administrator will make appropriate adjustments in
the aggregate number of shares available for issuance under the Employee
Stock Option Plan, the purchase price to be paid, and the number of shares
issuable upon the exercise thereafter of any New Employee Stock Option
previously granted. The Plan Administrator has the discretion to make other
appropriate adjustments to New Employee Stock Options to prevent dilution or
other devaluations of shares, not inconsistent with the Plan.
106
<PAGE>
3. EXERCISE OF NEW EMPLOYEE STOCK OPTIONS.
New Employee Stock Options vest and become exercisable over the
exercise period set forth in each participant's Option Agreement. The Plan
Administrator may accelerate the exercisability of any outstanding New
Employee Stock Option at such time and under such circumstances as it deems
appropriate. New Employee Stock Options that are not exercised within ten
years from the date of grant, however, will expire without value. New
Employee Stock Options are exercisable during the optionee's lifetime only by
the optionee. The Option Agreements contain provisions regarding the
exercise of New Employee Stock Options following termination of employment
with or service to the Company, including terminations due to the death,
disability or retirement of an optionee, or upon a change in control of the
Company.
Upon the exercise of any New Employee Stock Option, the purchase
price may be fully paid in cash, by delivery of New Common Stock previously
owned by the optionee equal in value to the exercise price, by means of a
loan from the Company, or by having shares of New Common Stock with a fair
market value (on the date of exercise) equal to the exercise price withheld
by the Company or sold by a broker-dealer under qualifying circumstances (or
in any combination of the foregoing).
4. PAYMENT OF TAXES.
The Company is authorized to withhold from any New Employee Stock
Option granted under the Plan, any payment relating to such New Employee
Stock Option (including from a distribution of New Common Stock), amounts of
withholding and other taxes due in connection with the New Employee Stock
Option, and to take such other action as the Plan Administrator may deem
advisable to enable the Company and optionees to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to the New
Employee Stock Option. This authority includes the right to withhold or
receive New Common Stock or other property and to make cash payments in
respect thereof in satisfaction of an optionee's tax obligations.
5. CERTAIN TAX EFFECTS OF NEW EMPLOYEE STOCK OPTIONS.
The New Employee Stock Options which have been granted to
participants are non-qualified stock options ("NQSOs"). In general, a
participant will not be subject to tax at the time a NQSO is granted. Upon
exercise of a NQSO where the exercise price is paid in cash, the participant
generally must include in ordinary income at the time of exercise an amount
equal to the excess, if any, of the fair market value of the New Common Stock
at the time of exercise over the exercise price of the option, and will have
a tax basis in such shares equal to the cash paid upon exercise plus the
amount taxable as ordinary income to the participant.
In general, a participant who pays the exercise price in full or in
part with shares of Common Stock already owed will recognize no gain or loss
for federal income tax purposes on the shares surrendered, but otherwise
generally will be taxed according to the rules described in the preceding
paragraph with respect to the exercise of the option. Accordingly, the
amount of income recognized should be equivalent to the amount of income
which would be recognized if the exercise price of the NQSO were paid in
cash. The shares received by the participant, equal in number to the
previously held shares exchanged therefor, should have the same tax basis as
the previously held shares and will have a tax holding period that includes
the holding period of the shares exchanged. Shares received by the
participant in excess of the number of previously held shares should have a
tax basis equal to the fair market value of such
107
<PAGE>
additional shares as of the date ordinary income is recognized and should
have a tax holding period beginning on the date of exchange.
Where the exercise price is satisfied through the withholding by
the Company of shares that otherwise would be delivered to the employee upon
exercise of an NQSO, the withheld shares should be treated as if they had
been issued to the employee and immediately redeemed. In general, this
deemed issuance and redemption should not give rise to any additional tax
consequences, but may in the case of certain individuals give rise to
dividend income equal to the fair market value of the withheld shares.
The Company generally will be entitled to a deduction in the amount
of a participant's ordinary income at the time such income is recognized by
the participant upon the exercise of a NQSO. Income and payroll taxes are
required to be withheld on the amount of ordinary income resulting from the
exercise of a NQSO.
XIX.
CERTAIN TRANSACTIONS
In connection with the Recapitalization, certain of the Company's
post-Recapitalization stockholders, representing an aggregate of
approximately 8,717,000 shares or 98% of the Old Common Stock outstanding
immediately following the Recapitalization (currently 48.7%), entered into
that certain Voting Agreement dated as of October 30, 1992 (the "Voting
Agreement"). The Voting Agreement provides, among other things, that (i)
Apollo Retail Partners, L.P. may designate six persons to the Board of
Directors, and (ii) a majority of certain former holders of the Old 13-1/2%
Notes, which notes were exchanged for Old Common Stock pursuant to the
Recapitalization, may designate two persons to the Board of Directors. The
Voting Agreement was to terminate upon the earlier of (i) October 30, 2002,
or (ii) the date upon which at least 25% of the then outstanding shares of
Old Common Stock are publicly held pursuant to one or more underwritten
registered offerings of primary shares. Since the filing of the Petition,
none of the parties to the Voting Agreement has exercised its rights
thereunder. Lamonts' obligations under the Voting Agreement will be rejected
as of the Effective Date under the Plan.
In connection with the Recapitalization, the parties to the
Recapitalization Agreement (and/or their permitted assignees) entered into an
equity registration rights agreement and a debt registration rights
agreement. Under certain circumstances, the holders of at least 10% of the
aggregate principal amount of the then outstanding Securities (as defined
therein) covered by such agreements could exercise up to two demand
registrations with respect to such Securities. The Company was required to
pay all expenses (other than underwriting discounts and commissions) in
connection with all such registrations. The agreements also provided for
certain piggyback registration rights. The Old Common Stock held by ARP and
Morgens is covered by the equity registration rights agreement pursuant to
its terms. The agreements will be rejected as of the Effective Date under
the Plan.
A former director of the Company is an affiliate of Morgens
Waterfall Vintiadis & Co. Inc. ("Morgens Waterfall"). Pursuant to the
Recapitalization, certain affiliates of Morgens Waterfall received an
aggregate of approximately 16.7% (1,482,906 shares) of Old Common Stock
outstanding immediately following the Recapitalization in exchange for
approximately $12.5 million in principal amount of Old 13-1/2% Notes. As
holders of Old Common Stock, certain affiliates of Morgens Waterfall will
receive their respective Pro Rata Shares of New Common Stock and New Class B
Warrants under the Plan. See "Common Stock Ownership."
108
<PAGE>
Pursuant to the Recapitalization, Executive Life Insurance Company
of New York ("ELICNY") received 898,406 shares of the Old Common Stock and
$7.8 million ($6.4 million after adjustment for the Infusion) in principal
amount of the Old 10-1/4% Notes. During the 1994 and 1993 fiscal years, the
Company paid ELICNY $0.8 million and $0.4 million of cash interest on the Old
10-1/4% Notes, respectively. In addition, at October 29,1994, the Company
had accrued $0.4 million of interest on the Old 10-1/4% Notes, which was
subsequently issued to ELICNY in additional securities of the Company as
interest paid in kind. As a result of the filing of the Petition, the
Company has paid ELICNY no cash interest on the Old 10-1/4% Notes since the
Petition Date. As a holder of Old Common Stock and of Old 10-1/4% Notes,
ELICNY will receive New Common Stock and New Warrants under the Plan. See
"Common Stock Ownership."
In connection with the Infusion, certain funds and accounts managed
by FMR Corp., Fidelity Management and Research Company or Fidelity Management
Trust Company (the "Fidelity Funds"), the holders of those Old 10-1/4% Notes
which are not owned by ELICNY, became the holders of more than 5% of the
Company's Old Common Stock. Accordingly, the Company has reflected the
entire amount of the Old 10-1/4% Notes as related party debt for all periods
presented. During the 1994 fiscal year, the Company paid the Fidelity Funds
$6.9 million of cash interest on the Old 10-1/4% Notes. In addition, at
October 29, 1994, the Company had accrued $3.6 million of interest on the Old
10-1/4% Notes, which was subsequently issued to the Fidelity Funds in
additional securities of the Company as interest paid in kind. As a result
of the filing of the Petition, the Company has paid no interest to the
Fidelity Funds on the Old 10-1/4% Notes since the Petition Date. As a holder
of Old Common Stock and of Old 10-1/4% Notes, the Fidelity Funds will receive
New Common Stock and New Warrants under the Plan. See "Common Stock
Ownership."
On October 16, 1994, Alan R. Schlesinger, currently a Director and
the Chairman of the Board, President, and Chief Executive Officer of the
Company, entered into an employment agreement with the Company. In
connection with the Chapter 11 Case, Mr. Schlesinger entered into a new
employment agreement with the Company, which new employment agreement was
approved by the Bankruptcy Court on April 13, 1995. See "Management --
Employment Agreements" for a description of the employment agreements between
Mr. Schlesinger and the Company.
On December 28, 1994, Loren R. Rothschild, currently a Director and
the Vice Chairman of the Board of the Company, entered into an employment
agreement with the Company. In connection with the Chapter 11 Case, Mr.
Rothschild entered into a new employment agreement with the Company, which
new employment agreement was approved by the Bankruptcy Court on April 13,
1995. See "Management -- Employment Agreements" for a description of the
employment agreements between Mr. Rothschild and the Company.
On February 28, 1995, Earle J. Spokane, a former executive vice
president of the Company, entered into a resignation agreement with the
Company. See "Management -- Employment Agreements" for a description of the
resignation agreement and payments made by the Company pursuant thereto.
Effective March 14, 1995, the Company employed Carolyn Morris as
its Senior Vice President and General Merchandise Manager. Ms. Morris was
compensated at a salary rate of $200,000 per year, with a guaranteed annual
bonus of $35,000. See "Management -- Executive Compensation." Ms. Morris
resigned from the Company effective June 11, 1996,
109
<PAGE>
and such resignation is not subject to any resignation or other agreement
between Ms. Morris and the Company.
On May 2, 1995, Wallace D. Holznagel, a former executive vice
president of the Company, entered into a resignation agreement with the
Company. See "Management -- Employment Agreements" for a description of the
resignation agreement and payments made by the Company pursuant thereto. Mr.
Holznagel has filed two Claims in the Chapter 11 Case, one based upon
contributions to the Company's non-qualified TRIP plan in the amount of
$40,053.26, and one based upon contributions to the Company's non-qualified
supplemental employee retirement plan in the amount of $2,078.04. Both
Claims have been disallowed by the Bankruptcy Court.
On October 30, 1992, the Company entered into a written consulting
agreement (the "Thompson Agreement") with The Thompson Company ("Thompson"),
one of the principals of which is a former shareholder of the Company.
Pursuant to the Thompson Agreement, Thompson, through its President, John R.
Sloan (who is also a former Director of the Company), or other executive,
provided certain management, training, consulting, and advisory services to
the Company, for which Thompson was entitled to receive in excess of $60,000
per year. The Thompson Agreement was rejected by order of the Court on March
10, 1995.
The Company believes that, to the extent applicable, all of the
transactions described above were, and intends that all transactions with
affiliated parties will continue to be, on terms no less favorable to the
Company than those available from unaffiliated parties offering comparable
goods and services.
On October 30, 1992, Leonard M. Snyder ("Snyder"), the former
Chairman and Chief Executive Officer of the Company, entered into an
employment agreement (the "Snyder Employment Agreement") with the Company for
a term ending (subject to specified termination rights) not earlier than
November 30, 1997. On November 14, 1994, the Company entered into a
Resignation Agreement with Snyder (the "Snyder Resignation Agreement"),
pursuant to which Snyder agreed to resign from the Company effective January
31, 1995 (the "Snyder Termination Date"). Pursuant to the Snyder Resignation
Agreement, Snyder was to perform certain duties for the Company until the
Snyder Termination Date and was to receive certain cash payments and other
remuneration and benefits including, but not limited to, (a) continuation of
the Base Salary specified in the Snyder Employment Agreement until January
31, 1995, (b) a performance bonus of $50,000 to be paid not later than
December 31, 1994 (which amount was paid to Mr. Snyder), (c) a lump sum
payment of $600,000 to be paid on January 31, 1995, (d) accrued vacation in
the amount of $20,000 to be paid on January 31, 1995, and (e) continuation,
for the eighteen month period following the Snyder Termination Date, of all
other benefits (excluding vacation and severance) ordinarily provided to
Company executives. The Snyder Resignation Agreement was rejected by order
of the Court on January 27, 1995, and Snyder filed a proof of claim (the
"Snyder Claim") in the Chapter 11 Case. Pursuant to a stipulated order
entered by the Bankruptcy Court on December 20, 1996, the Snyder Claim has
been allowed as a priority unsecured Claim in the amount of $2,000 and a
non-priority unsecured Claim in the amount of $101,314.28, and the balance of
the Snyder Claim has been disallowed.
On October 30, 1992, Frank E. Kulp III ("Kulp"), the former
President and Chief Operating Officer of the Company, entered into an
employment agreement (the "Kulp Employment Agreement") with the Company for a
term ending (subject to specified termination
110
<PAGE>
rights) not earlier than November 30, 1997. On November 14, 1994, the
Company entered into a Resignation Agreement with Kulp (the "Kulp Resignation
Agreement"), pursuant to which Kulp agreed to resign from the Company
effective January 31, 1995 (the "Kulp Termination Date"). Pursuant to the
Kulp Resignation Agreement, Kulp was to perform certain duties for the
Company until November 30, 1994, and was to receive certain cash payments and
other remuneration and benefits including, but not limited to, (a)
continuation of the Base Salary specified in the Kulp Employment Agreement
until January 31, 1995, (b) a performance bonus of $20,000 to be paid not
later than December 31, 1994 (which amount was paid to Mr. Kulp), (c) a lump
sum payment of $324,583 to be paid on January 31, 1995, (d) accrued vacation
in the amount of $21,153 to be paid on January 31, 1995, and (e)
continuation, for the twelve month period following the Kulp Termination
Date, of all other benefits (excluding vacation and severance) ordinarily
provided to Company executives. The Kulp Resignation Agreement was rejected
by order of the Court on January 27, 1995, and Kulp filed a proof of claim
(the "Kulp Claim") in the Chapter 11 Case. Pursuant to a stipulated order
entered by the Bankruptcy Court on December 20, 1996, the Kulp Claim has been
allowed as a priority unsecured Claim in the amount of $2,000 and a
non-priority unsecured Claim in the amount of $40,402.43, and the balance of
the Kulp Claim has been disallowed.
XX.
FEES AND EXPENSES
The expenses of seeking acceptances of the Plan and of other
aspects of Plan proceedings have been and will be borne by the Debtor. The
solicitation has been and is being made principally by mail; however,
additional solicitation has been and may be made by telecopier, telephone, or
in person by officers and regular employees of the Debtor, who will not
receive additional compensation for those services. Arrangements also have
been and will be made with brokerage houses and other custodians, nominees,
and fiduciaries to forward this Disclosure Statement, Modification Ballots,
and other pertinent materials to the beneficial holders of Old Common Stock,
Old 10-1/4% Notes, and Old 13-1/2% Notes. The Debtor has reimbursed and will
reimburse such forwarding agents for reasonable out-of-pocket expenses
incurred by them, but no compensation has been or will be paid for their
services.
In addition to the foregoing, the estate is obligated to pay fees
and reimburse expenses for the various professionals employed in connection
with the Chapter 11 Case to the extent such fees and expenses are allowed by
the Bankruptcy Court. See "The Plan of Reorganization - Unclassified Claims
- - Administrative Expenses." The Debtor is also obligated to continue to
reimburse FNBB and the Surety for their costs, fees, and expenses as provided
in the FNBB facility.
XXI.
SUMMARY OF ADDITIONAL SOURCES OF INFORMATION
Additional sources of information regarding the Debtor and
documents relating to the Plan are available to holders of Claims and Equity
Interests. The following is a summary of certain documents and the places
they can be reviewed or obtained:
1. The Debtor is subject to the informational requirements of the
1934 Act and in accordance therewith has filed reports, proxy statements, and
other information with the SEC.
111
<PAGE>
Copies of such material can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Certain of such material may be accessible via on-line
computer.
2. Orders of the Bankruptcy Court and related papers pertaining
to transactions outside of the Debtor's ordinary course of business may be
inspected at the office of the Clerk of the Bankruptcy Court, Park Place
Building, 1200 Sixth Avenue, Seattle, Washington. Copies of such papers may
be ordered from Nightrider, Attention: Tom Strange, 1401 Third Avenue, Suite
200, Seattle, Washington 98101, telephone number (205) 233-9066.
3. The Debtor's Schedules of Assets and Liabilities, Statement of
Affairs, List of Equity Security Holders, and Schedules of Executory
Contracts and Unexpired Leases, as amended, may be inspected at the office of
the Clerk of the Bankruptcy Court, Park Place Building, 1200 Sixth Avenue,
Seattle, Washington. Copies of such papers may be ordered from Nightrider,
Attention: Tom Strange, 1401 Third Avenue, Suite 200, Seattle, Washington
98101, telephone number (205) 233-9066.
4. Periodic post-Petition financial reports as filed with the
United States Trustee may be inspected at the office of the United States
Trustee, Park Place Building, 1200 Sixth Avenue, Seattle, Washington.
112
<PAGE>
XXII.
RECOMMENDATION AND CONCLUSION
The Debtor believes that confirmation and implementation of the
Plan are preferable to any of the feasible alternatives because the Plan will
provide substantially greater recoveries for holders of Claims and Equity
Interests. Accordingly, the Debtor urges holders of impaired Claims and
Equity Interests to accept the Plan.
DATED: November 21, 1997 LAMONTS APPAREL, INC.,
a Delaware corporation
By /s/ LOREN R. ROTHSCHILD
_______________________________________
LOREN R. ROTHSCHILD,
Vice-Chairman of the Board of Directors
SUBMITTED BY:
/s/ JEFFREY H. DAVIDSON
______________________________________
JEFFREY H. DAVIDSON and
MICHAEL H. GOLDSTEIN, Members of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
Special Reorganization Counsel
for Debtor and Debtor in Possession
- -and-
/s/ RICHARD J. HYATT
______________________________________
RICHARD J. HYATT (WSBA No. 14048)
RYAN SWANSON & CLEVELAND, PLLC
1201 Third Avenue, Suite 3400
Seattle, WA 98101
(206) 464-4224
Counsel for Debtor and
Debtor in Possession
113
<PAGE>
ANNEX A
PLAN OF REORGANIZATION
A copy of the "Debtor's Modified and Restated Plan of Reorganization under
Chapter 11 of the Bankruptcy Code" was attached as Annex A to the Disclosure
Statement when it was circulated to creditors, equity holders and other
parties of interest.
It has been included in this Filing as Exhibit 99.7.
114
<PAGE>
ANNEX B
FINANCIAL INFORMATION
Audited Consolidated Financial Statements as of and for the Year
ended February 1, 1997 B-1
Management's Discussion and Analysis B-23
Form 10-Q for the Period ended May 3, 1997
- Unaudited Financial Statements B-30
- Management's Discussion and Analysis B-38
Form 10-Q for the Period ended August 2, 1997
- Unaudited Financial Statements B-42
- Management's Discussion and Analysis B-52
Unaudited Financial Statements as of October 4, 1997 and
October 5, 1996 and for the two months ended October 4, 1997
and October 5, 1996 B-57
ANNEX B
<PAGE>
(This page intentionally left blank)
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Lamonts Apparel, Inc.
We have audited the accompanying consolidated balance sheets of Lamonts Apparel,
Inc. (Debtor-in-Possession) as of February 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. 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.
Seattle, Washington
March 28, 1997
B-1
<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.
B-2
<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.
B-3
<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.
B-4
<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, 1997 FEBRUARY 3, 1996 JANUARY 28, 1995 OCTOBER 29, 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.
B-5
<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, 1997 FEBRUARY 3, 1996 JANUARY 28, 1995 OCTOBER 29, 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.
B-6
<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."
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
B-7
<PAGE>
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):
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
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
----------- ----------- -----------
----------- ----------- -----------
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.
B-8
<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.
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
B-9
<PAGE>
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 and property under capital leases, life of lease or useful life
if shorter. Depreciation is computed using primarily the straight-line method
for financial reporting purposes and accelerated depreciation methods for
income tax purposes.
Upon sale or retirement of property and equipment, the related cost and
accumulated depreciation are removed from the accounts of the Company and any
gain or loss is reflected in the consolidated financial statements in the
period the sale or retirement occurred. Maintenance and repair costs are
expensed as incurred. Expenditures for renewals and betterments are
generally capitalized.
Software development costs incurred in connection with significant upgrades
of management information systems are capitalized. Amortization of
capitalized software development costs begins when the related software is
placed in service using the straight-line method over estimated useful lives
of three to five years.
B-10
<PAGE>
LEASEHOLD INTERESTS
In connection with the Recapitalization and the application of purchase
accounting, the excess of the fair rental value of leased facilities under
operating leases over the respective contractual rents has been recorded as an
asset at its discounted net present value and is amortized on a straight-line
basis over the respective remaining lease terms. 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 Recapitalization 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 evaluates 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
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
B-11
<PAGE>
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.
B-12
<PAGE>
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.
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
------- ------- ------- -------
------- ------- ------- -------
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<PAGE>
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
--------- ----------
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%.
B-14
<PAGE>
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 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.
B-15
<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):
STORE CLOSURE COSTS
------------------------------------------
FISCAL FISCAL JANUARY FISCAL
1996 1995 QUARTER 1994
------ ------ ------- ------
Write-off of property and
equipment, net of obligations
under capital leases $ - $2,362 $1,330 $2,972
Adjustments to inventory carrying
values 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
------ ------ ------ ------
------ ------ ------ ------
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.
B-16
<PAGE>
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)
-----------
-----------
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
B-17
<PAGE>
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 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.
B-18
<PAGE>
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. 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.
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.
B-19
<PAGE>
STOCK OPTIONS
The Lamonts Apparel, Inc. 1992 Incentive and Nonstatutory Stock Option Plan
(the "1992 Stock Option Plan"), which was approved by the Board of Directors
and by the stockholders in 1992 and amended by the Board of Directors and by
the stockholders in 1994, provides for the issuance of options to purchase up
to 1,972,845 shares of Common Stock, subject to certain anti-dilution
adjustments. Awards may be granted under the 1992 Stock Option Plan to
individuals, identified by the plan committee, who have or will have a direct
and significant effect on the performance or financial development of the
Company. The following table summarizes the 1992 Stock Option Plan activity:
NUMBER OF
OPTIONS
---------
Balance, October 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).
B-20
<PAGE>
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.
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.
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>
B-21
<PAGE>
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.
B-22
<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.
B-23
<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 interests 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
B-24
<PAGE>
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.
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
B-25
<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.
B-26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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
B-27
<PAGE>
Facility. The FNBB Facility is secured by inventory and substantially all
other assets and is an allowed administrative expense claim with super
priority over other administrative expenses in the Chapter 11 case. The FNBB
Facility imposes limitations on the Company with respect to, among other
things, (i) consolidations, mergers, and sales of assets, (ii) capital
expenditures in excess of specified levels and (iii) the prepayment of
certain indebtedness. Additionally, the Company must comply with certain
operating and financial covenants (as described therein). Although the
Company failed to comply with certain covenants related to inventory levels
for the months ending July 6, 1996 and August 3, 1996, the Company requested
and received a waiver relating to such breaches.
As of 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.
B-28
<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.
1ST QTR 2ND QTR 3RD QTR 4TH QTR TOTAL
--------- --------- --------- --------- -------
(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%
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.
B-29
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
FORM 10-Q
MAY 3, 1997
INDEX
Page
----
Part I. Financial Information
Item 1 Consolidated Financial Statements
- Consolidated Balance Sheets - May 3, 1997 and 3
February 1, 1997
- Consolidated Statements of Operations and Accumulated
Deficit for the three months ended May 3, 1997 and
May 4, 1996 4
- Consolidated Statements of Cash Flows for the three
months ended May 3, 1997 and May 4, 1996 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
B-30
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 3, FEBRUARY 1,
1997 1997
--------- ---------
<S> <C> <C>
Current Assets:
Cash $1,827 $2,066
Receivables - net 2,005 1,595
Inventories 41,422 37,559
Prepaid expenses and other 1,418 1,528
Restricted cash and deposits 813 714
--------- ---------
Total current assets 47,485 43,462
Property and equipment - net of accumulated depreciation and amortization of
$28,326 and $27,506, respectively 29,082 30,653
Leasehold interests 3,370 3,477
Excess of cost over net assets acquired - net 11,510 11,591
Deferred financing costs - net 1,808 1,989
Restricted cash and deposits 1,142 1,142
Other assets 691 958
--------- ---------
Total assets $95,088 $93,272
--------- ---------
--------- ---------
Liabilities not subject to settlement under reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility $26,088 $23,141
Accounts payable 16,142 13,578
Accrued payroll and related costs 1,904 2,285
Accrued taxes 1,302 812
Accrued interest 723 616
Accrued store closure costs 922 1,050
Other accrued expenses 6,501 5,325
Current maturities of obligations under capital leases 12 12
--------- ---------
Total current liabilities 53,664 46,819
Obligations under capital leases 2,850 2,8466
Other 257 302
--------- ---------
Total liabilities not subject to settlement under reorganization proceedings 56,771 49,967
--------- ---------
Liabilities subject to settlement under reorganization proceedings 102,636 102,858
--------- ---------
Commitments and Contingencies
Stockholders' Equity (Deficit):
Common stock, $0.01 par value, 40,000,000 shares authorized, 17,900,053 shares issued
and outstanding 179 179
Additional paid-in capital 62,985 62,972
Accumulated deficit (127,483) (122,704)
--------- ---------
Total stockholders' equity (deficit) (64,319) (59,553)
--------- ---------
Total liabilities and stockholders' equity (deficit) $95,088 $93,272
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
B-31
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
MAY 3, MAY 4,
1997 1996
--------- ---------
<S> <C> <C>
Revenues $37,648 $37,922
Cost of merchandise sold 24,567 24,348
--------- ---------
Gross profit 13,081 13,574
--------- ---------
Operating and administrative expenses 14,380 15,775
Depreciation and amortization 1,872 2,037
Impairment of long-lived assets -- 4,170
--------- ---------
Operating costs 16,252 21,982
--------- ---------
Loss from operations before other income (expense) and
reorganization expenses (3,171) (8,408)
Other income (expense):
Interest expense (contractual interest of $3.4 million in
1997 and 1996) (1,212) (1,198)
Other 3 3
--------- ---------
Loss from operations before reorganization expenses (4,380) (9,603)
Reorganization expenses 399 670
--------- ---------
Net loss (4,779) (10,273)
Accumulated deficit, beginning of period (122,704) (105,406)
--------- ---------
Accumulated deficit, end of period ($127,483) ($115,679)
--------- ---------
--------- ---------
Net loss per common share ($0.27) ($0.57)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
B-32
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------
MAY 3, MAY 4,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($4,779) ($10,273)
Adjustments to reconcile net loss to net cash used in operating activities
before reorganization items:
Depreciation and amortization 1,872 2,037
Impairment of long-lived assets -- 4,170
Reorganization expenses 399 670
Increase in inventories (3,863) (5,414)
Increase in accounts payable 2,564 4,220
Other 1,749 1,963
-------- --------
Net cash used in operating activities before reorganization items (2,058) (2,627)
Operating cash flows used by reorganization items:
Payments for professional fees and other expenses related to the
Chapter 11 proceedings (931) (596)
-------- --------
Net cash used in operating activities (2,989) (3,223)
-------- --------
Cash flows from investing activities:
Capital expenditures (204) (170)
Proceeds from sale of land and building -- 4,459
Other 233 24
-------- --------
Net cash provided by investing activities 29 4,313
-------- --------
Cash flows from financing activities:
Post-petition borrowings under working capital facility 44,905 45,637
Post-petition payments under working capital facility (41,958) (45,987)
Principal payments on obligations under capital leases (212) (221)
Other (14) (17)
-------- --------
Net cash provided by (used in) financing activities 2,721 (588)
-------- --------
Net increase (decrease) in cash (239) 502
Cash, beginning of period 2,066 1,581
-------- --------
Cash, end of period $1,827 $2,083
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Cash interest payments made $1,088 $1,184
-------- --------
-------- --------
Supplemental disclosure of noncash investing and financing activities:
Capital lease relating to sale-leaseback of Alderwood store -- $2,835
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
B-33
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MAY 3, 1997
NOTE 1 - PETITION FOR RELIEF UNDER CHAPTER 11
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the
"Company" or "Lamonts") filed a voluntary petition for relief (the "Filing")
under Chapter 11 ("Chapter 11") of title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court (the "Court") for
the Western District of Washington at Seattle. In Chapter 11, the Company
has continued to manage its affairs and operate its business as a
debtor-in-possession. 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 explore opportunities to
raise capital.
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.
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. In a Chapter 11
reorganization plan, the rights of the creditors may be significantly
altered. Creditors may receive substantially less than the full face amount
of claims. Certain creditors have filed claims with the Court substantially
in excess of amounts reflected in the Company's financial statements. The
Company continues to analyze and reconcile the claims filed by creditors with
the Company's financial records, but believes it has made appropriate
provision for all claims filed. However, no estimate of the amount of
adjustments, if any, from recorded amounts, to amounts to be realized by
creditors, is available at this time. These liabilities are included in the
balance sheet as "liabilities subject to settlement under reorganization
proceedings."
As a result of the Company's Chapter 11 filing, the Company is currently in
default under the indentures governing the Company's 10-1/4% Subordinated
Notes due November 1999 (the "10-1/4% Notes") and the 13-1/2% Senior
Subordinated Notes which were due February 1995 (the "13-1/2% Notes"). As a
result, all unpaid principal of, and accrued pre-petition interest on, such
debt became immediately due and payable. The payment of such debt and
accrued but unpaid interest 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".
6
B-34
<PAGE>
Pre-petition liabilities subject to settlement under reorganization
proceedings include the following (dollars in thousands):
MAY 3, FEBRUARY 1,
1997 1997
-------- ----------
Accounts payable and accrued liabilities $23,128 $23,121
Capital lease obligations 11,000 11,216
10-1/4% Notes (including pre-petition accrued 67,600 67,600
interest) related party
13-1/2% Notes (including pre-petition accrued 838 838
interest)
Notes payable 70 83
-------- --------
$102,636 $102,858
-------- --------
-------- --------
The reductions in capital lease obligations consist of payments to landlords
for store locations in the ongoing business operations of the Company.
In accordance with the Bankruptcy Code, the Company can seek court approval
for the rejection of executory contracts, including real property leases.
Any such rejection may give rise to a prepetition unsecured claim for breach
of contract. In connection with the Company's Chapter 11 proceedings, the
Company continues to review all of its obligations under its executory
contracts. As of June 11,1997, 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 have consisted and will
continue to consist primarily of write-off of property and equipment,
professional fees, lease related costs and severance costs.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries. All
subsidiaries of the Company are inactive. All significant intercompany
transactions and account balances have been eliminated in consolidation. The
financial statements included herein should be read in conjunction with the
audited, annual financial statements for the fiscal year ended February 1,
1997, included in the Company's Annual Report on Form 10-K. The year-end
condensed balance sheet was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles.
The accompanying consolidated financial statements of the Company have been
prepared on a going concern basis of accounting, and, for the periods
subsequent to the Filing, in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, FINANCIAL REPORTING
BY ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE. Recurring losses
from operations and the matters discussed herein related to the Filing raise
substantial doubt about the Company's ability to continue 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, (ii) confirmation of a plan of reorganization under the
Bankruptcy Code, (iii) the ability to achieve profitable operations after
such confirmation and (iv) the ability to generate sufficient cash from
operations to meet its obligations.
The consolidated financial statements presented herein reflect all
adjustments that are, in the opinion of management, necessary to present
fairly the operating results for the periods reported. Except as discussed
in Note 1, all such adjustments are normal and recurring in nature. The
results of operations for the quarterly periods are not necessarily
indicative of results for the entire year.
7
B-35
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS
In the first quarter of 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 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.
Statement No. 121 requires that assets be 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. Based on estimates by management as of May 3, 1997,
subject to the outcome of issues discussed in Note 1, no additional
impairment has occurred during the quarter ended May 3, 1997. Considerable
management judgment is necessary to estimate discounted future cash flows.
Accordingly, actual results could vary significantly from such estimates.
OTHER
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 4th Quarter of its
Fiscal year ending January 31, 1998.
NOTE 3 - LOAN AND SECURITY AGREEMENTS
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement (the "Old DIP Facility") with Foothill Capital
Corporation ("Foothill"). The Old DIP Facility provided for a borrowing
capacity of up to $32.0 million in revolving loans, including up to $15.0
million of letters of credit, subject to borrowing base limitations based
upon, among other things, the value of inventory and certain real property.
On June 4, 1996, the Company entered into a loan and security agreement (the
"BankBoston Facility") with BankBoston, N.A. (f/k/a "The First National Bank
of Boston") ("BankBoston") replacing the Old DIP Facility, after a hearing by
the Court and the entering of an order approving such financing. Although
Foothill had taken no action to declare the Company in default as of the date
on which the Old DIP Facility was terminated, the Company was in violation of
the net worth maintenance covenant in the Old DIP Facility.
Pursuant to the BankBoston Facility, the Company is able to borrow up to $32
million in revolving loans (including $3 million of letters of credit),
subject to borrowing base limitations based upon, among other things, the
value of inventory and certain real property, during the pendency of the
Company's Chapter 11 proceeding or until June 30, 1997, whichever is sooner.
The BankBoston Facility was amended as of May 23, 1997, to extend the term of
the BankBoston Facility to February 27, 1998, this amendment has been
approved by the Court. Subject to BankBoston's approval of a plan of
reorganization and other specified conditions, the BankBoston Facility will
continue for a two year period following the effective date of a plan of
reorganization.
The BankBoston Facility provides that for Base Rate (as defined therein)
loans, interest will accrue at the rate of 1.5% per annum in excess of the
Base Rate, payable monthly in arrears. For Eurodollar loans, the interest
rate will be the Eurodollar Rate (as defined therein) plus 2.75% (adjusted as
provided therein). The BankBoston Facility also provides that in the event of
a default in the payment of any amount due thereunder, the interest rate on
such default shall be the greater of (i) 3.0% per annum in excess of the Base
Rate and (ii) the applicable rate on the loan, payable on demand. The
interest rates for both Base Rate loans and Eurodollar loans are subject to
adjustment after the Plan is approved and other conditions described in the
BankBoston Facility have occurred based on financial ratios of the Company
specified in the BankBoston Facility. At May 3, 1997, the Base Rate was 8.5%
and the Eurodollar Rate for the quarter was 5.69%.
8
B-36
<PAGE>
The Company has expensed fees of approximately $186,000 for the BankBoston
Facility during the quarter ended May 3, 1997. Fees payable under the
BankBoston 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 in the amount of $560,000 after the effective date of a plan
of reorganization and the satisfaction of certain conditions described in the
BankBoston Facility. Subject to the approval of the Court of an amendment to
the fee letter, the fee shall be payable as follows: (a) if the conditions
are satisfied prior to December 31, 1997, $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 Exit Commitments, as
defined), or (b) if the conditions are satisfied on or after December 31,
1997, $336,000 shall be payable on the date the conditions are satisfied and
$224,000 shall be payable on December 31, 1998 (or, if earlier, the time of
termination of the Exit Commitments).
Borrowings under the BankBoston 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 BankBoston Facility. The BankBoston Facility is secured
by inventory and substantially all other assets and is an allowed
administrative expense claim with superpriority over other administrative
expenses in the Chapter 11 case. The BankBoston Facility imposes limitations
on the Company with respect to, among other things, (i) consolidations,
mergers, and sales of assets, (ii) capital expenditures in excess of
specified levels and (iii) the prepayment of certain indebtedness.
Additionally, the Company must comply with certain operating and financial
covenants (as described therein). Although the Company failed to comply with
certain covenants related to inventory levels for the months ending July 6,
1996 and August 3, 1996, the Company requested and received a waiver relating
to such breaches.
NOTE 4 - LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss by the
weighted average number of common shares outstanding during the period. The
common stock equivalents, represented by stock options and warrants were not
considered in the calculation as they either have an exercise price greater
than the applicable market price, or the effect of assuming their exercise or
conversion would be anti-dilutive. The weighted average number of shares
outstanding for the quarters ended May 3, 1997 and May 4, 1996 were
17,900,053 and 17,899,549, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various matters of litigation arising in the
ordinary course of business. In the opinion of management, the ultimate
outcome of all such matters should not have a material adverse effect on the
financial position of the Company, but, if decided adversely to the Company,
could have a material effect upon the Company's anticipated plan of
reorganization and operating results during the period in which the
litigation is resolved. (See also Part II, Item 1.)
9
B-37
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain information and statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations including, without
limitation, statements containing the words "believes", "anticipates",
"expects" and words of a similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause the actual results,
performance, or achievements of the Company, to be materially different from
any future results, performance, or achievements expressed or implied by such
forward-looking statements. Although it is not possible to itemize all the
factors and specific events that could affect the outlook of the Company,
factors that could significantly impact the expected results include, among
others, (i) national and local general economic and market conditions, (ii)
demographic changes, (iii) liability and other claims asserted against the
Company, (iv) competition, (v) the loss of significant customers or
suppliers, (vi) fluctuations in operating results, (vii) changes in business
strategy or development plans, (viii) business disruptions, (ix) the ability
to attract and retain qualified personnel, and (x) the confirmation of the
Plan and the terms thereof. The Company disclaims any obligations to update
any such factors or to announce publicly the result of any revisions to any
forward-looking statements contained or incorporated by reference herein to
reflect untrue events or developments.
BACKGROUND
Lamonts Apparel, Inc. (the "Company") retails brand-name apparel and
accessories for the entire family through its 38 full-line apparel stores.
Lamonts currently operates in malls and regional shopping centers located in
the states of Alaska, Idaho, Oregon, Utah and Washington.
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the
"Company" or "Lamonts") filed a voluntary petition for relief (the "Filing")
under Chapter 11 ("Chapter 11") of title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court (the "Court") for
the Western District of Washington at Seattle. In Chapter 11, the Company
has continued to manage its affairs and operate its business as a
debtor-in-possession. 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 explore opportunities to
raise additional capital.
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.
10
B-38
<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. Certain creditors have filed claims with the Court substantially
in excess of amounts reflected in the Company's financial statements. The
Company continues to analyze and reconcile the claims filed by creditors with
the Company's financial records, but believes it has made appropriate
provision for all claims filed. However, no estimate of the amount of
adjustments, if any, from recorded amounts, to amounts to be realized by
creditors, is available at this time.
As a result of the 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.
Management is continually evaluating store locations and operations to
determine whether to close, downsize or relocate stores that do not meet
performance objectives.
Management believes that Lamonts has made substantial progress in the period
since the Filing. The Company has closed unprofitable stores, eliminated
unprofitable merchandise lines and reduced operating expenses. In addition,
management has implemented new merchandising strategies designed to: (i)
improve the quality of merchandise offered while maintaining price points
geared to the Company's customer base, and (ii) reduce cash operating
expenses.
RESULTS OF OPERATIONS
The following discussion and analysis provides information with respect to
the results of operations for the quarter ended May 3, 1997 ("1st Quarter
1997") compared to the quarter ended May 4, 1996 ("1st Quarter 1996").
REVENUES. Revenues of $37.6 million for the 1st Quarter 1997 decreased 0.7%
on a total store basis from $37.9 million for the 1st Quarter 1996. This
decrease is attributable to the closure of 5 stores that were operating
during the quarter in the prior year. Comparable store revenues increased
7.2% for the 1st Quarter 1997 as compared to the same period for the prior
year. Management believes that comparable store revenues have increased due
to increased levels of inventory and overall improvement in the quality of
the merchandise offered in the stores compared to the 1st Quarter 1996.
GROSS PROFIT. Gross profit, as a percentage of revenues decreased to 34.7%
during the 1st Quarter 1997 compared to 35.8% during the 1st Quarter 1996.
The decrease in gross margin is primarily attributed to the markdowns
associated with the carry over of fall merchandise resulting from lower sales
due to the winter storms.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
of $14.4 million in the 1st Quarter 1997 decreased 8.8% from $15.8 million in
the 1st Quarter 1996. The $1.4 million decrease is primarily the result of a
reduction in operating costs attributable to closed stores operating in the
1st Quarter 1996 of $1.0 million and $0.4 million in other miscellaneous
operating and administrative expenses reflecting the continuing effects of
the operating expense containment program instituted in prior periods.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $1.8
million for the 1st Quarter 1997 decreased $0.2 million as compared to $2.0
million for the 1st Quarter 1996. The decrease primarily relates to assets
retired as a result of store closures and assets becoming fully depreciated
or amortized.
IMPAIRMENT OF LONG-LIVED ASSETS. No impairment of long-lived assets was
recognized during the 1st Quarter 1997, as compared to $4.2 million
recognized in the 1st Quarter 1996.
INTEREST EXPENSE. Interest expense of $1.2 million for the 1st Quarter 1997
did not change from 1st Quarter 1996.
REORGANIZATION EXPENSES. Reorganization expenses of $0.4 million for the 1st
Quarter 1997 and $0.7 million for the 1st Quarter 1996 represent costs
directly related to the Company's Chapter 11 case and consist primarily of
professional fees.
11
B-39
<PAGE>
NET LOSS. The Company reported a net loss of $4.8 million for the 1st Quarter
1997 as compared to a net loss of $10.3 million for the 1st Quarter 1996.
The loss for the 1st Quarter 1997 decreased $5.5 million from the prior
period primarily due to (i) the decrease in operating and administrative
expenses of $1.4 million, (ii) reduction in the impairment of long-lived
assets recognized of $4.2 million, (iii) reduction in reorganization expenses
of $0.3 million, offset by a decrease in gross profit of $0.5 million.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company used $2.1 million of cash for operating activities before
reorganization items for the 1st Quarter 1997, a decrease of $0.5 million as
compared to $2.6 million used in the 1st Quarter 1996. Funds were used
primarily to acquire inventory.
The difference in investing activities from the 1st Quarter 1997 to the 1st
Quarter 1996 of $4.3 million results primarily from net sale proceeds of $4.5
million received in the sale-leaseback of the Company's Alderwood store
during the 1st Quarter 1996.
The Company received $2.7 million in financing activities in the 1st Quarter
1997 as compared to using $0.6 million in the 1st Quarter 1996. The $3.3
million difference is the result of higher net borrowings under the Company's
working capital facility.
As of May 3 1997, the Company had $1.8 million of cash and an additional $0.8
million of current restricted cash, representing the funding of payroll and
taxes in connection with the Filing.
CAPITAL RESOURCES
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement (the "Old DIP Facility") with Foothill Capital
Corporation ("Foothill"). The Old DIP Facility provided for a borrowing
capacity of up to $32.0 million in revolving loans, including up to $15.0
million of letters of credit, subject to borrowing base limitations based
upon, among other things, the value of inventory and certain real property.
On June 4, 1996, the Company entered into a loan and security agreement (the
"BankBoston Facility") with BankBoston, N.A. (f/k/a "The First National Bank
of Boston") ("BankBoston") replacing the Old DIP Facility, after a hearing by
the Court and the entering of an order approving such financing. Although
Foothill had taken no action to declare the Company in default as of the date
on which the Old DIP Facility was terminated, the Company was in violation of
the net worth maintenance covenant in the Old DIP Facility.
Pursuant to the BankBoston Facility, the Company is able to borrow up to $32
million in revolving loans (including $3 million of letters of credit),
subject to borrowing base limitations based upon, among other things, the
value of inventory and certain real property, during the pendency of the
Company's Chapter 11 proceeding or until June 30, 1997, whichever is sooner.
The BankBoston Facility was amended as of May 23, 1997, to extend the term of
the BankBoston Facility to February 27, 1998, this amendment has been
approved by the Court. Subject to BankBoston's approval of a plan of
reorganization and other specified conditions, the BankBoston Facility will
continue for a two year period following the effective date of a plan of
reorganization.
The BankBoston Facility provides that for Base Rate (as defined therein)
loans, interest will accrue at the rate of 1.5% per annum in excess of the
Base Rate payable monthly in arrears. For Eurodollar loans, the interest
rate will be the Eurodollar Rate (as defined therein) plus 2.75% (adjusted as
provided therein). The BankBoston Facility also provides that in the event of
a default in the payment of any amount due thereunder, the interest rate on
such default shall be the greater of (i) 3.0% per annum in excess of the Base
Rate and (ii) the applicable rate on the loan, payable on demand. The
interest rates for both Base Rate loans and Eurodollar loans are subject to
adjustment after the Plan is approved and other conditions described in the
BankBoston Facility have occurred based on financial ratios of the Company
specified in the BankBoston Facility. At May 3, 1997, the Base Rate was 8.5%
and the Eurodollar Rate for the quarter was 5.69%.
The Company has expensed fees of approximately $186,000 for the BankBoston
Facility in the quarter ended May 3, 1997. Fees payable under the BankBoston
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
12
B-40
<PAGE>
capacity. There will be an additional fee in the amount of $560,000 after the
effective date of a plan of reorganization and the satisfaction of certain
conditions described in the BankBoston Facility. Subject to the approval of
the Court of an amendment to the fee letter, the fee shall be payable as
follows: (a) if the conditions are satisfied prior to December 31, 1997,
$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 Exit Commitments, as defined), or (b) if the conditions
are satisfied on or after December 31, 1997, $336,000 shall be payable on the
date the conditions are satisfied and $224,000 shall be payable on December
31, 1998 (or, if earlier, the time of termination of the Exit Commitments).
Borrowings under the BankBoston 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 BankBoston Facility. The BankBoston Facility is secured
by inventory and substantially all other assets of the Company and is an
allowed administrative expense claim with superpriority over other
administrative expenses in the Chapter 11 case. The BankBoston Facility
imposes limitations on the Company with respect to, among other things, (i)
consolidations, mergers, and sales of assets, (ii) capital expenditures in
excess of specified levels and (iii) the prepayment of certain indebtedness.
Additionally, the Company must comply with certain operating and financial
covenants (as described therein). Although the Company failed to comply with
certain covenants related to inventory levels for the months ending July 6,
1996 and August 3, 1996, the Company requested and received a waiver relating
to such breaches.
As of June 11, 1997, the Company had $25.8 million of borrowings outstanding
under the BankBoston Facility with additional borrowing capacity thereunder
of $4.9 million.
The Company's primary cash requirement is the procurement of inventory which
is currently funded through (i) borrowings under the BankBoston Facility (ii)
trade credit and (iii) cash generated from operations. Like other apparel
retailers, the Company is dependent upon its ability to obtain trade credit,
which is generally extended by its vendors and a small number of factoring
institutions that continually monitor the Company's credit lines. If the
Company continues to obtain the trade credit terms it is currently receiving,
the Company believes that borrowings under the BankBoston 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.
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
BankBoston Facility. Such restrictions prohibit the payment of dividends for
the foreseeable future. In addition, the Bankruptcy Code prohibits the
Company's payment of cash dividends (during the pendency of the Company's
Chapter 11 case).
SEASONALITY
The Company's revenues are seasonal, with the Christmas season (included in
the Quarter ending the Saturday closest to January 31) being its strongest
period.
13
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<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
FORM 10-Q
AUGUST 2, 1997
INDEX
Page
----
Part I. Financial Information
Item 1 Consolidated Financial Statements
- Consolidated Balance Sheets - August 2, 1997 and
February 1, 1997 3
- Consolidated Statements of Operations and Accumulated
Deficit for the three months ended August 2, 1997 and
August 3, 1996 4
- Consolidated Statements of Operations and Accumulated
Deficit for the six months ended August 2, 1997 and
August 3, 1996 5
- Consolidated Statements of Cash Flows for the six
months ended August 2, 1997 and August 3, 1996 6
- Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
B-42
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 2, FEBRUARY 1,
1997 1997
--------- ----------
<S> <C> <C>
Current Assets:
Cash $ 2,091 $ 2,066
Receivables - net 3,298 1,595
Inventories 46,438 37,559
Prepaid expenses and other 1,491 1,528
Restricted cash and deposits 975 714
--------- ----------
Total current assets 54,293 43,462
Property and equipment - net of accumulated depreciation
and amortization of $29,732 and $27,506, respectively 27,940 30,653
Leasehold interests 3,263 3,477
Excess of cost over net assets acquired - net 11,429 11,591
Deferred financing costs - net 1,627 1,989
Restricted cash and deposits 1,142 1,142
Other assets 659 958
--------- ----------
Total assets $ 100,353 $ 93,272
--------- ----------
--------- ----------
Liabilities not subject to settlement under reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility $ 28,548 $ 23,141
Accounts payable 21,544 13,578
Accrued payroll and related costs 2,436 2,285
Accrued taxes 1,591 812
Accrued interest 811 616
Accrued store closure costs 1,036 1,050
Other accrued expenses 5,255 5,325
Current maturities of obligations under capital leases 12 12
--------- ----------
Total current liabilities 61,233 46,819
Obligations under capital leases 2,846 2,846
Other 212 302
--------- ----------
Total liabilities not subject to settlement under
reorganization proceedings 64,291 49,967
--------- ----------
Liabilities subject to settlement under reorganization
proceedings 102,415 102,858
--------- ----------
Commitments and Contingencies
Stockholders' Equity (Deficit):
Common stock, $0.01 par value, 40,000,000 shares authorized,
17,900,053 shares issued and outstanding 179 179
Additional paid-in capital 62,997 62,972
Accumulated deficit (129,529) (122,704)
--------- ----------
Total stockholders' equity (deficit) (66,353) (59,553)
--------- ----------
Total liabilities and stockholders' equity (deficit) $ 100,353 $ 93,272
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
B-43
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------
AUGUST 2, AUGUST 3,
1997 1996
--------- ---------
<S> <C> <C>
Revenues $ 49,483 $ 49,657
Cost of merchandise sold 31,471 31,607
--------- ---------
Gross profit 18,012 18,050
--------- ---------
Operating and administrative expenses 16,347 17,201
Depreciation and amortization 1,889 2,000
--------- ---------
Operating costs 18,236 19,201
--------- ---------
Loss from operations before other income (expense) and
reorganization expenses (224) (1,151)
Other income (expense):
Interest expense (contractual interest of $3.4 million in
1997 and 1996) (1,228) (1,257)
Other 1 2
--------- ---------
Loss from operations before reorganization expenses (1,451) (2,406)
Reorganization expenses 595 985
--------- ---------
Net loss (2,046) (3,391)
Accumulated deficit, beginning of period (127,483) (115,679)
--------- ---------
Accumulated deficit, end of period ($129,529) ($119,070)
--------- ---------
--------- ---------
Net loss per common share ($0.11) ($0.19)
--------- ---------
--------- ---------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
4
B-44
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
AUGUST 2, AUGUST 3,
1997 1996
--------- ---------
<S> <C> <C>
Revenues $ 87,131 $ 87,579
Cost of merchandise sold 56,038 55,954
--------- ---------
Gross profit 31,093 31,625
--------- ---------
Operating and administrative expenses 30,727 32,977
Depreciation and amortization 3,761 4,037
Impairment of long-lived assets -- 4,170
--------- ---------
Operating costs 34,488 41,184
--------- ---------
Loss from operations before other income
(expense) and reorganization expenses (3,395) (9,559)
Other income (expense):
Interest expense (contractual interest of
$6.8 million in 1997 and 1996) (2,440) (2,455)
Other 4 5
--------- ---------
Loss from operations before reorganization expenses (5,831) (12,009)
Reorganization expenses 994 1,655
--------- ---------
Net loss (6,825) (13,664)
Accumulated deficit, beginning of period (122,704) (105,406)
--------- ---------
Accumulated deficit, end of period ($129,529) ($119,070)
--------- ---------
--------- ---------
Net loss per common share ($0.38) ($0.76)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
B-45
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
AUGUST 2, AUGUST 3,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($6,825) ($13,664)
Adjustments to reconcile net loss to net cash used
in operating activities before reorganization items:
Depreciation and amortization 3,761 4,037
Impairment of long-lived assets -- 4,170
Reorganization expenses 994 1,655
Increase in inventories (8,879) (14,812)
Increase in accounts payable 7,966 7,599
Other (156) 1,848
--------- ---------
Net cash used in operating activities before
reorganization items (3,139) (9,167)
Operating cash flows used by reorganization items:
Payments for professional fees and other expenses related
to the Chapter 11 proceedings (1,566) (1,360)
--------- ---------
Net cash used in operating activities (4,705) (10,527)
--------- ---------
Cash flows from investing activities:
Capital expenditures (474) (335)
Proceeds from sale of property and equipment 4 4,459
Other 257 45
--------- ---------
Net cash provided by (used in) investing activities (213) 4,169
--------- ---------
Cash flows from financing activities:
Post-petition borrowings under working capital facility 100,962 128,372
Post-petition payments under working capital facility (95,555) (120,576)
Principal payments on obligations under capital leases (436) (445)
Other (28) (33)
--------- ---------
Net cash provided by financing activities 4,943 7,318
--------- ---------
Net increase in cash 25 960
Cash, beginning of period 2,066 1,581
--------- ---------
Cash, end of period $2,091 $2,541
--------- ---------
--------- ---------
Supplemental disclosures of cash flow information:
Cash interest payments made $2,196 $2,489
--------- ---------
--------- ---------
Supplemental disclosure of noncash investing and
financing activities:
Capital lease relating to sale-leaseback of store -- $2,835
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
B-46
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
AUGUST 2, 1997
NOTE 1 - PETITION FOR RELIEF UNDER CHAPTER 11
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the
"Company" or "Lamonts") filed a voluntary petition for relief (the "Filing")
under Chapter 11 ("Chapter 11") of title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court (the "Court") for
the Western District of Washington at Seattle. In Chapter 11, the Company
has continued to manage its affairs and operate its business as a
debtor-in-possession. 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 that, 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 further deferred final confirmation of the Plan in
order to afford Lamonts additional time in which to explore opportunities to
raise capital.
On August 13, 1997, the Company entered into a commitment letter (the
"Commitment Letter") with BankBoston, N.A. (f/k/a "The First National Bank of
Boston") ("BankBoston") pursuant to which BankBoston would provide the
Company with an additional $10 million term loan. The Court approved the
Commitment Letter pursuant to the "Stipulation re Commitment by BankBoston,
N.A. for Term Loan Financing; and Order Thereon" entered into by the Company
and the Committees. The additional credit facility is subject to a number of
conditions, including but not limited to, completion of definitive
documentation, approval of the Court, and customary closing conditions. The
Company has filed a motion for Court approval of the proposed additional
credit facility which is currently set for hearing on September 19, 1997.
There can be no assurances that such approval will be obtained or that such
other conditions will be met. The proposed additional credit facility is
discussed further in Note 3.
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.
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."
7
B-47
<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".
Pre-petition liabilities subject to settlement under reorganization
proceedings include the following (dollars in thousands):
<TABLE>
<CAPTION>
AUGUST 2, FEBRUARY 1,
1997 1997
----------- -----------
<S> <C> <C>
Accounts payable and accrued liabilities $ 23,140 $ 23,121
Capital lease obligations 10,781 11,216
10-1/4% Notes (including pre-petition accrued interest) related party 67,600 67,600
13-1/2% Notes (including pre-petition accrued interest) 838 838
Notes payable 56 8
----------- -----------
$102,415 $102,858
----------- -----------
----------- -----------
</TABLE>
The reductions in capital lease obligations consist of payments to landlords
for store locations in the ongoing business operations of the Company.
In accordance with the Bankruptcy Code, the Company can seek Court approval
for the rejection of executory contracts, including real property leases.
Any such rejection may give rise to a prepetition unsecured claim for breach
of contract. In connection with the Company's Chapter 11 proceedings, the
Company continues to review all of its obligations under its executory
contracts. As of August 2, 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 have consisted and will
continue to consist primarily of write-off of property and equipment,
professional fees, lease related costs and severance costs.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries. All
subsidiaries of the Company are inactive. All significant intercompany
transactions and account balances have been eliminated in consolidation. The
financial statements included herein should be read in conjunction with the
audited, annual financial statements for the fiscal year ended February 1,
1997, included in the Company's Annual Report on Form 10-K. The year-end
condensed balance sheet was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles.
8
B-48
<PAGE>
The accompanying consolidated financial statements of the Company have been
prepared on a going concern basis of accounting, and, for the periods
subsequent to the Filing, in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, FINANCIAL REPORTING
BY ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE. Recurring losses
from operations and the matters discussed herein related to the Filing raise
substantial doubt about the Company's ability to continue 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, (ii) confirmation of a plan of reorganization under the
Bankruptcy Code, (iii) the ability to achieve profitable operations after
such confirmation and (iv) the ability to generate sufficient cash from
operations to meet its obligations.
The consolidated financial statements presented herein reflect all
adjustments that are, in the opinion of management, necessary to present
fairly the operating results for the periods reported. Except as discussed
in Note 1, all such adjustments are normal and recurring in nature. The
results of operations for the quarterly periods are not necessarily
indicative of results for the entire year.
IMPAIRMENT OF LONG-LIVED ASSETS
In the first quarter of 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 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.
Statement No. 121 requires that assets be 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. Based on estimates by management as of August 2, 1997,
subject to the outcome of issues discussed in Note 1, no additional
impairment has occurred during the six months ended August 2, 1997.
Considerable management judgment is necessary to estimate discounted future
cash flows. Accordingly, actual results could vary significantly from such
estimates.
OTHER
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("Statement
No. 128"). All companies are required to comply with the disclosure
requirements of the statement and the Company will adopt the policy in the
4th Quarter of its Fiscal year ending January 31, 1998. Management is
currently evaluating the requirements of Statement No. 128.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Comprehensive Income" ("Statement
No. 130"). Statement No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. Statement No. 130 is effective for fiscal years
beginning after December 15, 1997 and requires restatement of earlier periods
presented. Management is currently evaluating the requirements of Statement
No. 130.
NOTE 3 - LOAN AND SECURITY AGREEMENTS
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement (the "Old DIP Facility") with Foothill Capital
Corporation ("Foothill"). The Old DIP Facility provided for a borrowing
capacity of up to $32.0 million in revolving loans, including up to $15.0
million of letters of credit, subject to borrowing base limitations based
upon, among other things, the value of inventory and certain real property.
9
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<PAGE>
On June 4, 1996, the Company entered into a loan and security agreement (the
"BankBoston Facility") with BankBoston replacing the Old DIP Facility, after
a hearing by the Court and the entering of an order approving such financing.
Although Foothill had taken no action to declare the Company in default as of
the date on which the Old DIP Facility was terminated, the Company was in
violation of the net worth maintenance covenant in the Old DIP Facility.
Pursuant to the BankBoston Facility, the Company is able to borrow up to $32
million in revolving loans (including $3 million of letters of credit),
subject to borrowing base limitations based upon, among other things, the
value of inventory and certain real property, during the pendency of the
Company's Chapter 11 proceeding or until June 30, 1997, whichever is sooner.
The BankBoston Facility was amended as of May 23, 1997, to extend the term of
the BankBoston Facility to February 27, 1998, and this amendment was approved
by the Court. Subject to BankBoston's approval of a plan of reorganization
and other specified conditions, the BankBoston Facility will continue for a
two year period following the effective date of a plan of reorganization.
The BankBoston Facility provides that for Base Rate (as defined therein)
loans, interest will accrue at the rate of 1.5% per annum in excess of the
Base Rate, payable monthly in arrears. For Eurodollar loans, the interest
rate will be the Eurodollar Rate (as defined therein) plus 2.75% (adjusted as
provided therein). The BankBoston Facility also provides that in the event of
a default, the interest rate following such default shall be the greater of
(i) 3.0% per annum in excess of the Base Rate and (ii) the applicable rate on
the loan, payable on demand. The interest rates for both Base Rate loans and
Eurodollar loans are subject to adjustment after the Plan is approved and
other conditions described in the BankBoston Facility have occurred based on
financial ratios of the Company specified in the BankBoston Facility. For
the six months ended August 2, 1997, the weighted average Base Rate was 8.5%
and the weighted average Eurodollar Rate was 5.6%.
The Company has expensed fees of approximately $328,000 for the BankBoston
Facility for the six months ended August 2, 1997. Fees payable under the
BankBoston 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 in the amount of $560,000 after the effective date of a plan
of reorganization and the satisfaction of certain conditions described in the
BankBoston Facility. The fee shall be payable as follows: (a) if the
conditions are satisfied prior to December 31, 1997, $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
Exit Commitments, as defined), or (b) if the conditions are satisfied on or
after December 31, 1997, $336,000 shall be payable on the date the conditions
are satisfied and $224,000 shall be payable on December 31, 1998 (or, if
earlier, the time of termination of the Exit Commitments).
Borrowings under the BankBoston 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 BankBoston Facility. The BankBoston Facility is secured
by inventory and substantially all other assets and is an allowed
administrative expense claim with superpriority over other administrative
expenses in the Chapter 11 case. The BankBoston 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.
10
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<PAGE>
On August 13, 1997, the Company entered into the Commitment Letter with
BankBoston to amend the BankBoston Facility to provide an additional $10
million term loan (the "Term Loan"). The Company and the Committees executed
the "Stipulation re Commitment by BankBoston, N.A. for Term Loan Financing;
and Order Thereon", which was approved by the Court on August 15, 1997.
Pursuant to the Commitment Letter, (a) the proposed Term Loan would mature on
the earlier of (i) twenty-seven months after the closing date of the Term
Loan and (ii) the maturity date of the revolving loans under the BankBoston
Facility, and the maturity date would be subject to extension for two
consecutive one year periods on the terms and conditions set forth in the
Commitment Letter including, among others, payment of specified extension
fees; (b) interest on the Term Loan would be the same as the nondefault rate
for the revolving loans under the BankBoston Facility; (c) collateral for the
Term Loan would be the same as the collateral for the revolving loans under
the BankBoston Facility, including all real estate leasehold interests of the
Company; (d) a third party guarantor of the Term Loan will be issued warrants
under the Company's plan of reorganization granting the right to acquire up
to 20% of the reorganized Company's outstanding equity at an initial
exercise price of $4 million; and (e) fees for the Term Loan will include a
closing fee of $500,000 and additional closing fees and extension fees equal
to 5% of the average outstanding daily principal balance of the Term Loan.
Consummation of the Term Loan is subject to a number of conditions,
including, but not limited to, completion of definitive documentation,
approval of the Court (after notice and a hearing currently scheduled for
September 19, 1997), and customary closing conditions. Pursuant to the
Commitment Letter, all conditions must be satisfied by October 31, 1997.
There can be no assurances that such approval will be obtained or that such
other conditions will be met.
NOTE 4 - LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss by the
weighted average number of common shares outstanding during the period. The
common stock equivalents, represented by stock options and warrants were not
considered in the calculation as they either have an exercise price greater
than the applicable market price, or the effect of assuming their exercise or
conversion would be anti-dilutive. The weighted average number of shares
outstanding for the quarter and six months ended August 2, 1997 were
17,900,053.
The weighted average number of shares outstanding for the quarter and six
months ended August 3, 1996 were 17,899,970 and 17,899,759, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various matters of litigation arising in the
ordinary course of business. In the opinion of management, the ultimate
outcome of all such matters should not have a material adverse effect on the
financial position of the Company, but, if decided adversely to the Company,
could have a material effect upon the Company's anticipated plan of
reorganization and operating results during the period in which the
litigation is resolved. (See also Part II, Item 1.)
11
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<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain information and statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations including, without
limitation, statements containing the words "believes", "anticipates",
"expects" and words of a similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause the actual results,
performance, or achievements of the Company (defined below), to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Although it is not possible to
itemize all the factors and specific events that could affect the outlook of
the Company, factors that could significantly impact the expected results
include, among others, (i) national and local general economic and market
conditions, (ii) demographic changes, (iii) liability and other claims
asserted against the Company, (iv) competition, (v) the loss of significant
customers or suppliers, (vi) fluctuations in operating results, (vii) changes
in business strategy or development plans, (viii) business disruptions, (ix)
the ability to attract and retain qualified personnel, and (x) the
confirmation of the Plan and the terms thereof. The Company disclaims any
obligations to update any such factors or to announce publicly the result of
any revisions to any forward-looking statements contained or incorporated by
reference herein to reflect untrue events or developments.
BACKGROUND
Lamonts Apparel, Inc. (the "Company") retails brand-name apparel and
accessories for the entire family through its 38 full-line apparel stores.
Lamonts currently operates in malls and regional shopping centers located in
the states of Alaska, Idaho, Oregon, Utah and Washington.
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the
"Company" or "Lamonts") filed a voluntary petition for relief (the "Filing")
under Chapter 11 ("Chapter 11") of title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court (the "Court") for
the Western District of Washington at Seattle. In Chapter 11, the Company
has continued to manage its affairs and operate its business as a
debtor-in-possession. 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 that, 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 further deferred final confirmation of the Plan in
order to afford Lamonts additional time in which to explore opportunities to
raise additional capital.
On August 13, 1997, the Company entered into a commitment letter (the
"Commitment Letter") with BankBoston, N.A. (f/k/a "The First National Bank of
Boston") ("BankBoston") pursuant to which BankBoston would provide the
Company with an additional $10 million term loan. The Court approved the
Commitment Letter pursuant to the "Stipulation re Commitment by BankBoston,
N.A. for Term Loan Financing; and Order Thereon" entered into by the Company
and the Committees. The additional credit facility is subject to a number of
conditions, including but not limited to, completion of definitive
documentation, approval of the Court, and customary closing conditions. The
Company has filed a motion for Court approval of the proposed additional
credit facility which is currently set for hearing on September 19, 1997.
There can be no assurances that such approval will be obtained or that such
other conditions will be met. The proposed additional credit facility is
discussed further in the Liquidity and Capital Resources section.
12
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<PAGE>
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.
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. In a Chapter 11
reorganization plan, the rights of the creditors may be significantly
altered. Creditors may receive substantially less than the full face amount
of claims. Certain creditors have filed claims with the Court substantially
in excess of amounts reflected in the Company's financial statements. The
Company continues to analyze and reconcile the claims filed by creditors with
the Company's financial records, but believes it has made appropriate
provision for all claims filed. However, no estimate of the amount of
adjustments, if any, from recorded amounts, to amounts to be realized by
creditors, is available at this time.
As a result of the 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.
Management is continually evaluating store locations and operations to
determine whether to close, downsize or relocate stores that do not meet
performance objectives.
Management believes that Lamonts has made substantial progress in the period
since the Filing. The Company has closed unprofitable stores, eliminated
unprofitable merchandise lines and reduced operating expenses. In addition,
management has implemented new merchandising strategies designed to: (i)
improve the quality of merchandise offered while maintaining price points
geared to the Company's customer base, and (ii) reduce cash operating
expenses.
RESULTS OF OPERATIONS
The following discussion and analysis provides information with respect to
the results of operations for the quarter ("2nd Quarter 1997") and six month
period ("YTD 1997") ended August 2, 1997 compared to the quarter ("2nd
Quarter 1996") and six month period ("YTD 1996") ended August 3, 1996.
REVENUES. Revenues of $49.5 million for the 2nd Quarter 1997 decreased $0.2
million on a total store basis from $49.7 million for the 2nd Quarter 1996.
Revenues of $87.1 million for YTD 1997 decreased $0.5 million on a total
store basis from $87.6 million for YTD 1996. The decrease is attributable to
the closure of 4 stores that were operating during the prior year.
Comparable store revenues increased 5.8% for the 2nd Quarter 1997, as
compared to 2nd Quarter 1996. Comparable store revenues increased 6.4% for
YTD 1997 as compared to YTD 1996. Management believes that comparable store
revenues have increased due to increased levels of inventory and continued
improvement in the quality of the merchandise offered in the stores compared
to the prior year.
GROSS PROFIT. Gross profit, as a percentage of revenues, of 36.4% for the
2nd Quarter 1997 remained unchanged from the 2nd Quarter 1996. Gross profit,
as a percentage of revenues, decreased to 35.7% for YTD 1997, compared to
36.1% for YTD 1996. The decline in gross profit for YTD 1997 was associated
with the carry over of fall merchandise resulting from lower sales due to the
winter storms in certain markets of the Company.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
of $16.3 million for the 2nd Quarter 1997 decreased 5.0% or $0.9 million from
$17.2 million for the 2nd Quarter 1996. Operating and administrative
expenses of $30.7 million for YTD 1997 decreased 6.8% or $2.3 million from
$33.0 million for YTD 1996. The decrease is primarily the result of a
reduction in operating costs of $1.0 million and $2.0 million, in 2nd Quarter
1997 and YTD 1997, respectively, attributable to closed stores operating in
the prior year. In addition, operating and administrative expenses reflect
the continuing effects of the operating expense containment program
instituted in prior periods, partially offset by an increase in advertising
expenses.
13
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<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $1.9
million for the 2nd Quarter 1997 decreased $0.1 million as compared to $2.0
million for the 2nd Quarter 1996. Depreciation and amortization expense of
$3.8 million for YTD 1997 decreased $0.2 million as compared to $4.0 million
for YTD 1996. The decrease primarily relates to assets retired as a result
of store closures and assets becoming fully depreciated or amortized.
IMPAIRMENT OF LONG-LIVED ASSETS. A non-cash charge of $4.2 million for the
impairment of long-lived assets was recognized during YTD 1996 due to the
adoption of Statement of Financial Accounting Standards No. 121, see "Item 1
- -Consolidated Financial Statements - Note 2".
INTEREST EXPENSE. Interest expense was $1.2 million for 2nd Quarter 1997
compared to $1.3 million for 2nd Quarter 1996. The YTD 1997 expense was $2.4
million, compared to $2.5 million for YTD 1996. Interest expense is related
to outstanding borrowings under the BankBoston Facility (as defined below).
REORGANIZATION EXPENSES. Reorganization expenses of $0.6 million for the 2nd
Quarter 1997 decreased $0.4 million from $1.0 million for the 2nd Quarter
1996. The YTD 1997 expense of $1.0 million decreased $0.7 million from $1.7
million for the YTD 1996. The reorganization expenses represent costs
directly related to the Company's Chapter 11 case and consist primarily of
professional fees.
NET LOSS. The Company reported a net loss of $2.0 million for the 2nd
Quarter 1997 compared to a net loss of $3.4 million for the 2nd Quarter 1996.
The $1.4 million decrease from the prior period is primarily due to (i) the
decrease in operating and administrative expenses of $0.9 million, and (ii)
the reduction in reorganization expenses of $0.4 million.
The Company reported a net loss of $6.8 million for the YTD 1997 compared to
a net loss of $13.7 million for the YTD 1996. The decrease of $6.9 million
from the prior period resulted primarily from (i) no impairment of long-lived
assets for YTD 1997 compared to the recognition of $4.2 million for the
impairment of long-lived assets for YTD 1996, (ii) the decrease in operating
and administrative expenses of $2.3 million, and (iii) the reduction in
reorganization expenses of $0.7 million, offset by a decrease in gross profit
of $0.5 million.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company used $3.1 million of cash for operating activities before
reorganization items for YTD 1997, a decrease of $6.1 million as compared to
$9.2 million used for YTD 1996. The improvement is partially due to a
decrease in net loss. In addition, cash used for inventory purchases
decreased $5.9 million to $8.9 million for YTD 1997 from $14.8 million for
YTD 1996.
The difference in investing activities for YTD 1997 from YTD 1996 of $4.4
million results primarily from net sale proceeds of $4.5 million received in
the sale-leaseback of one of the Company's stores during YTD 1996.
The Company received $4.9 million from financing activities for YTD 1997 as
compared to $7.3 million for YTD 1996. The $2.4 million difference is the
result of lower net borrowings under the Company's working capital facility.
As of August 2, 1997, the Company had $2.0 million of cash and an additional
$1.0 million of current restricted cash, representing the funding of payroll
and taxes in connection with the Filing.
CAPITAL RESOURCES
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement (the "Old DIP Facility") with Foothill Capital
Corporation ("Foothill"). The Old DIP Facility provided for a borrowing
capacity of up to $32.0 million in revolving loans, including up to $15.0
million of letters of credit, subject to borrowing base limitations based
upon, among other things, the value of inventory and certain real property.
14
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<PAGE>
On June 4, 1996, the Company entered into a loan and security agreement (the
"BankBoston Facility") with BankBoston, N.A. (f/k/a "The First National Bank
of Boston") ("BankBoston") replacing the Old DIP Facility, after a hearing by
the Court and the entering of an order approving such financing. Although
Foothill had taken no action to declare the Company in default as of the date
on which the Old DIP Facility was terminated, the Company was in violation of
the net worth maintenance covenant in the Old DIP Facility.
Pursuant to the BankBoston Facility, the Company is able to borrow up to $32
million in revolving loans (including $3 million of letters of credit),
subject to borrowing base limitations based upon, among other things, the
value of inventory and certain real property, during the pendency of the
Company's Chapter 11 proceeding or until June 30, 1997, whichever is sooner.
The BankBoston Facility was amended as of May 23, 1997, to extend the term of
the BankBoston Facility to February 27, 1998, and this amendment was approved
by the Court. Subject to BankBoston's approval of a plan of reorganization
and other specified conditions, the BankBoston Facility will continue for a
two year period following the effective date of a plan of reorganization.
The BankBoston Facility provides that for Base Rate (as defined therein)
loans, interest will accrue at the rate of 1.5% per annum in excess of the
Base Rate payable monthly in arrears. For Eurodollar loans, the interest
rate will be the Eurodollar Rate (as defined therein) plus 2.75% (adjusted as
provided therein). The BankBoston Facility also provides that in the event of
a default, the interest rate following such default shall be the greater of
(i) 3.0% per annum in excess of the Base Rate and (ii) the applicable rate on
the loan, payable on demand. The interest rates for both Base Rate loans and
Eurodollar loans are subject to adjustment after the Plan is approved and
other conditions described in the BankBoston Facility have occurred based on
financial ratios of the Company specified in the BankBoston Facility. For
the six months ended August 2, 1997, the weighted average Base Rate was 8.5%
and the weighted average Eurodollar Rate was 5.6%.
The Company has expensed fees of approximately $328,000 for the BankBoston
Facility for the six months ended August 2, 1997. Fees payable under the
BankBoston 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 in the amount of $560,000 after the effective date of a plan
of reorganization and the satisfaction of certain conditions described in the
BankBoston Facility. The fee shall be payable as follows: (a) if the
conditions are satisfied prior to December 31, 1997, $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
Exit Commitments, as defined), or (b) if the conditions are satisfied on or
after December 31, 1997, $336,000 shall be payable on the date the conditions
are satisfied and $224,000 shall be payable on December 31, 1998 (or, if
earlier, the time of termination of the Exit Commitments).
Borrowings under the BankBoston 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 BankBoston Facility. The BankBoston Facility is secured
by inventory and substantially all other assets of the Company and is an
allowed administrative expense claim with superpriority over other
administrative expenses in the Chapter 11 case. The BankBoston Facility
imposes limitations on the Company with respect to, among other things, (i)
consolidations, mergers, and sales of assets, (ii) capital expenditures in
excess of specified levels and (iii) the prepayment of certain indebtedness.
Additionally, the Company must comply with certain operating and financial
covenants (as described therein). Although the Company failed to comply with
certain covenants related to inventory levels for the months ending July 6,
1996 and August 3, 1996, the Company requested and received a waiver relating
to such breaches.
As of September 12, 1997, the Company had $27.8 million of borrowings
outstanding under the BankBoston Facility with additional borrowing capacity
thereunder of $4.2 million.
15
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<PAGE>
On August 13, 1997, the Company entered into the Commitment Letter with
BankBoston to amend the BankBoston Facility to provide an additional $10
million term loan (the "Term Loan"). The Company and the Committees executed
the "Stipulation re Commitment by BankBoston, N.A. for Term Loan Financing;
and Order Thereon", which was approved by the Court on August 15, 1997.
Pursuant to the Commitment Letter, (a) the proposed Term Loan would mature on
the earlier of (i) twenty-seven months after the closing date of the Term
Loan and (ii) the maturity date of the revolving loans under the BankBoston
Facility, and the maturity date would be subject to extension for two
consecutive one year periods on the terms and conditions set forth in the
Commitment Letter including, among others, payment of specified extension
fees; (b) interest on the Term Loan would be the same as the nondefault rate
for the revolving loans under the BankBoston Facility; (c) collateral for the
Term Loan would be the same as the collateral for the revolving loans under
the BankBoston Facility, including all real estate leasehold interests of the
Company; (d) a third party guarantor of the Term Loan will be issued warrants
under the Company's plan of reorganization granting the right to acquire up
to 20% of the reorganized Company's outstanding equity at an initial
exercise price of $4 million; and (e) fees for the Term Loan will include a
closing fee of $500,000 and additional closing fees and extension fees equal
to 5% of the average outstanding daily principal balance of the Term Loan.
Consummation of the Term Loan is subject to a number of conditions,
including, but not limited to, completion of definitive documentation,
approval of the Court (after notice and a hearing currently scheduled for
September 19, 1997), and customary closing conditions. Pursuant to the
Commitment Letter, all conditions must be satisfied by October 31, 1997.
There can be no assurances that such approval will be obtained or that such
other conditions will be met.
The Company's primary cash requirement is the procurement of inventory which
is currently funded through (i) borrowings under the BankBoston Facility (ii)
trade credit and (iii) cash generated from operations. Like other apparel
retailers, the Company is dependent upon its ability to obtain trade credit,
which is generally extended by its vendors and a small number of factoring
institutions that continually monitor the Company's credit lines. If the
Company continues to obtain the trade credit terms it is currently receiving,
the Company believes that borrowings under the BankBoston 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.
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
BankBoston Facility. Such restrictions prohibit the payment of dividends for
the foreseeable future. In addition, the Bankruptcy Code prohibits the
Company's payment of cash dividends (during the pendency of the Company's
Chapter 11 case).
SEASONALITY
The Company's revenues are seasonal, with the Christmas season (included in
the Quarter ending the Saturday closest to January 31) being its strongest
period.
16
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<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 4, OCTOBER 5,
1997 1996
---------- ----------
<S> <C> <C>
Current Assets:
Cash $ 2,319 $ 2,557
Receivables - net 2,521 2,351
Inventories 49,529 47,653
Prepaid expenses and other 1,504 1,923
Restricted cash 1,304 867
---------- ----------
Total current assets 57,177 55,351
Property and equipment - net 27,161 32,349
Leasehold interests 3,192 3,634
Excess of cost over net assets acquired - net 11,374 11,711
Deferred financing costs - net 1,507 2,230
Restricted cash 1,142 1,139
Other assets 1,301 969
----------
Total assets $ 102,854 $ 107,383
---------- ----------
---------- ----------
Liabilities not subject to settlement under
reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility $ 20,678 $ 29,745
Accounts payable 21,393 18,374
Accrued payroll and related costs 2,202 2,132
Accrued store closure costs 0 0
Other accrued expenses 9,236 7,378
---------- ----------
Total current liabilities 53,509 57,629
Long-term debt 10,000 0
Obligations under capital leases 2,843 2,808
Other 182 545
---------- ----------
Total liabilities not subject to settlement under
reorganization proceedings 66,534 60,982
---------- ----------
Liabilities subject to settlement under reorganization
proceedings 103,339 103,609
---------- ----------
Stockholders' Equity (Deficit):
Common stock, $0.01 par value, 40,000,000 shares
authorized, 17,900,053 shares issued
and outstanding 179 179
Additional paid-in capital 63,006 62,959
Minimum pension liability adjustment 0 (250)
Accumulated deficit (130,204) (120,096)
---------- ----------
Total stockholders' equity (deficit) (67,019) (57,208)
---------- ----------
Total liabilities and stockholders' equity (deficit) $ 102,854 $ 107,383
---------- ----------
---------- ----------
</TABLE>
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<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWO MONTHS ENDED
--------------------------
OCTOBER 4, October 5,
1997 1996
---------- ----------
<S> <C> <C>
Revenues $35,843 $35,098
Cost of merchandise sold 22,883 22,428
---------- ----------
Gross profit 12,960 12,670
---------- ----------
Operating and administrative expenses 11,194 10,981
Depreciation and amortization 1,230 1,347
---------- ----------
Operating costs 12,424 12,328
---------- ----------
Income from operations before other
income (expense) and reorganization expenses 536 342
Other income (expense):
Interest expense (880) (877)
Other 1 2
---------- ----------
Loss from operations before reorganization expenses (343) (533)
Reorganization expenses 332 493
---------- ----------
Net loss (675) (1,026)
Accumulated deficit, beginning of period (129,529) (119,070)
---------- ----------
Accumulated deficit, end of period $(130,204) $(120,096)
---------- ----------
---------- ----------
Net loss per common share $(0.04) $(0.06)
---------- ----------
---------- ----------
</TABLE>
B-58
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS ENDED
--------------------------
OCTOBER 4, OCTOBER 5,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(675) $(1,026)
Adjustments to reconcile net loss to net cash
used in operating activities before
reorganization items:
Depreciation and amortization 1,230 1,347
Reorganization expenses 332 493
Decrease (increase) in inventories (3,091) (3,281)
Increase (decrease) in accounts payable (151) 2,359
Other 1,152 (659)
---------- ----------
Net cash provided by (used in)
operating activities before
reorganization items (1,203) (767)
Operating cash flows used by reorganization items:
Payments for professional fees and other expenses
related to the Chapter 11 proceedings (400) (572)
---------- ----------
Net cash provided by (used in) operating
activities (1,603) (1,339)
---------- ----------
Cash flows from investing activities:
Capital expenditures (136) (114)
---------- ----------
Net cash provided by (used in) investing
activities (136) (114)
---------- ----------
Cash flows from financing activities:
Post-petition borrowings under working
capital facility 33,029 42,418
Post-petition payments under working
capital facility (40,897) (40,803)
Proceeds from issuance of long-term debt 10,000 0
Principal payments on obligations under
capital leases (155) (135)
Other (10) (11)
---------- ----------
Net cash provided by (used in) financing
activities 1,967 1,469
---------- ----------
Net increase (decrease) in cash 228 16
Cash, beginning of period 2,091 2,541
---------- ----------
Cash, end of period $ 2,319 $ 2,557
---------- ----------
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,432 $ 539
---------- ----------
---------- ----------
</TABLE>
B-59
<PAGE>
ANNEX C
LIST OF SENIOR CLAIMS
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Creditor Name Claim Filed Claim
/Scheduled No. /Scheduled No.
<S> <C> <C> <C> <C> <C>
1.2 & O CLEANERS Scheduled AMERICAN CLEANING Claim 361
1928 JEWELRY COMPANY Claim 992 AMERICAN ELECTRIC INC Claim 232
4K RADIO Scheduled AMERICAN INSTITUTE OF ARCHITECTS Scheduled
4K RADIO INC DBA KOZE AM/FM Claim 193 AMERICAN LINEN (BLACKFOOT) Scheduled
A & E PRODUCTS/CARLISLE PLASTICS Claim 188 AMERICAN LINEN (EUGENE) Claim 306
A RIFKIN CO Claim 466 AMERICAN LINEN (PORTLAND) Claim 902
A TO Z RENTALS Scheduled AMERICAN LINEN (SPOKANE) Claim 73
AA LOCK & SAFE Claim 241 AMERICAN MARKETING WORKS Claim 723
AAA PRINTING & GRAPHICS Claim 487 AMERICAN NORTHWEST ENTERPRISES Claim 678
AAA SEWER SERVICE Claim 744 AMERICAN PLUMBING & HEATING CO Scheduled
AANNEX RENTS INC/AA PARTY RENTALS Claim 591 AMERICAN RED CROSS Scheduled
ABERDEEN SANITATION Scheduled AMERICAN SPECIALTY/PATRIOT FUND Claim 493
ACADEMY PRESS INC Claim 517 AMERICAN TIMES DBA ACUET WATCH Claim 173
ACCESSORY STREET Claim 108 AMERICAN UNITED INC Claim 19
ACCOUNTEMPS Claim 565 AMITY LEATHER PRODUCTS CO Claim 100
ACCOUNTS PAYABLE RECOVERIES Claim 140 AMSBURY GLASS Scheduled
ACE BOX COMPANY INC Claim 433 ANACOMP INC Claim 514
ACE JANITORIAL & SUPPLY Scheduled ANCHORAGE DAILY NEWS Claim 208
ACTION COMMUNICATIONS INC Scheduled ANCHORAGE RECYCLING CENTER Scheduled
ACTION LAUNDRY Scheduled ANCHORAGE REFUSE INC Scheduled
ACTION SECURITY INC Claim 714 ANCHORAGE TELEPHONE UTILITY Scheduled
ADHESA PLATE MFG INC Scheduled ANCHORAGE WATER & WASTEWATER UTILITY Scheduled
ADIA SERVICES INC Claim 484 ANDERSON, MAGGIE Scheduled
ADT SECURITY SYSTEMS INC Scheduled ANGELIQUE IMPORTS INC Claim 915
ADVANCE FOAM & PLASTICS CO Claim 659 ANN KLEIN II/E. GLUCK CORP Claim 340
ADVANCED INFOMATION SERVICE Scheduled ANN LEWIS JEWELRY Scheduled
ADVENTURES IN ADVERTISING Scheduled APOLLO DRAIN & ROOTER SERVICE Scheduled
ADVERTISING AGE Scheduled APOLLO HANDBAG CO Claim 138
AEI MUSIC NETWORK INC Claim 77 APPLAUSE Claim 82
AETNA CASUALTY & SURETY Scheduled APPLE VALLEY BROADCASTING Claim 30
AETNA/DIV OF JACLYN INC Claim 598 ARBITRON COMPANY Scheduled
AGAPE SERVICE Scheduled ARGENTUM PHOTOGRAPHIC SERVICES INC Claim 724
AIR LIQUIDE AMERICA CORP Scheduled ARGUS SYSTEMS INC Claim 841
AIR PLUS MECHANICAL Claim 342 ARIS ISOTONER INC Claim 815
AIRBORNE FRIEGHT CORP Scheduled ARMADILLO SECURITY Claim 491
A-L WELDING PRODUCTS Scheduled ARROW REFUSE Scheduled
ALASKA AIRLINES INC Scheduled ARROW/BIDERMANN Claim 969
ALASKA BROADCASTING NETWORK Claim 378 ART & RAYS LOCK & SAFE Scheduled
ALASKA CLEANERS Scheduled ART MOORE INC Scheduled
ALASKA DISPLAY Scheduled ARTIC CLEANING SUPPLIES Scheduled
ALASKA ELECTRIC LIGHT & POWER CO Claim 251 ASPLUND SUPPLY INC Scheduled
ALASKA FIRE EXTINGUISHER Scheduled ASSOCIATED AIR FREIGHT Scheduled
ALASKA-JUNEAU COMMUNICATION INC Claim 626 ASSOCIATED GLOBAL SYSTEMS Claim 997
ALASKA'S BEST WATER PRODUCTS Scheduled ASTORIA BUSINESS EQUIPMENT CO Scheduled
ALBANY DEMOCRAT HERALD Claim 504 ASTORIA HIGH SCHOOL Scheduled
ALBANY RADIO CORP/KHPE Claim 747 AT LAST SPORTSWEAR Claim 904
ALEX (PANLINE USA) Scheduled AT&T Scheduled
ALFIN INC Claim 150 AT&T COMMUNICATIONS Claim 779
ALL PURPOSE DOOR REPAIR INC Claim 806 AT&T TELECONFERENCE Scheduled
ALL STATES TRANSPORATION INC Claim 782 AT&T WIRELESS Scheduled
ALLEN D EVERITT KNITTING CO Claim 452 ATHENA Scheduled
ALLIED BUSINESS CO INC Claim 445 AUTHENTIC FITNESS CORPORATION Claim 632
ALLIED PRINTERS Scheduled AUTOMATIC & MANUAL DOOR Scheduled
ALLIED SECURITY Scheduled AXXA DRESS SHIRT DIV Claim 59
ALLIED SECURITY INTERNATIONAL Claim 41 AZ TECH ELECTRIC Claim 612
ALPHA MILLS Scheduled B & B GLASS CO INC Claim 728
ALPHA OMEGA SIGN CO Claim 267 BABY TOGS Scheduled
ALTA COPY & PRINT Scheduled BACHOFNER ELECTIC INC Claim 665
AMBASSADOR MEDIA CORP/KKVI-TV Claim 225 BACKGROUND MUSIC CO Claim 503
AMBASSADOR MEDIA CORP/KPVI-TV Claim 233 BAGOY'S FLORIST INC Claim 249
AMERICAN BLDG MAINTENANCE Scheduled BALI COMPANY/SARA LEE INTIMATES Claim 768
AMERICAN BUILDING MAINTENANCE CO Claim 576 BAMBOO INC Claim 675
</TABLE>
C-1
<PAGE>
ANNEX C
LIST OF SENIOR CLAIMS
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Creditor Name Claim Filed Claim
/Scheduled No. /Scheduled No.
<S> <C> <C> <C> <C> <C>
BANK OF AMERICA Scheduled CCI MECHANICAL SERVICE Scheduled
BANK OF NEW YORK, THE Scheduled CDA GARBAGE SERVICE Claim 218
BANKCARD SERVICES/ERNST Scheduled CELLINI INC Claim 128
BANTAM COLLECTIONS INC Claim 758 CELTIC CAPITAL CORPORATION Scheduled
BARR AUDIO VISUAL INC Claim 266 CENTRALIZED COPY SERVICES INC Claim 394
BASSETT WALKER INC Claim 101 CENTURY BUSINESS CREDIT CORP Claim 97
BATTS INC Claim 261 CENTURY PROPERTIES INC Scheduled
BAUMAN OLYMPIC DBA PENINSULA FUEL Claim 127 CENTURY RICH Scheduled
BAXTER, CYNTHIA M Scheduled CESUCCI DESIGNS WEST Scheduled
BCSR INC Scheduled CHALK LINE INC Claim 894
BEAUMONT & CO Claim 360 CHAMPION JOGBRA, JBI Claim 338
BELDOCH INDUSTRIES CORP Claim 88 CHANNEL 2 BROADCASTING INC Claim 355
BELLAIR EXPEDITING NORTHWEST INC Claim 403 CHEROKEE WATCHES/SAVANT LTD Scheduled
BELLEVUE ART & FRAME Scheduled CHILDREN'S MEDIA NETWORK INC Claim 172
BELLEVUE ATHLETIC CLUB Scheduled CHORUS LINE Claim 482
BELLEVUE COMMUNITY COLLEGE Scheduled CHRISTIAN DIOR PERFUMES CO Claim 365
BELLEVUE HOLIDAY INN Scheduled CHRONCILE, THE Scheduled
BELLEVUE RADIO INC Claim 685 CHUGACH ELECTRIC ASSOCIATION INC Claim 376
BERKELEY DESIGNS Claim 283 CINTULA ENTERPRISES DBA ABLE LOCK Claim 102
BERKLEY SHIRT CO INC Claim 125 CITIZEN WATCH COMPANY OF AMERICA Claim 373
BERNETTE TEXTILE Scheduled CITY OF ABERDEEN-FINANCE DEPT Scheduled
BEST KNITTING MILLS INC Claim 391 CITY OF BELLEVUE TREASURY Scheduled
BEST LOCKING SYSTEMS OF PORTLAND Claim 521 CITY OF BELLEVUE UTILITY BILLING Scheduled
BESTFORM FOUNDATIONS INC Claim 557 CITY OF COEUR D'ALENE Claim 320
BFI Claim 313 CITY OF CORVALLIS FINANCE DEPT Claim 547
BIG BALL SPORTS INC Claim 719 CITY OF EVERETT UTILITY SERVICE Scheduled
BIG VAC INC Claim 370 CITY OF HILLSBORO UTILITIES COMMISSION Scheduled
BLACKMER CONSTRUCTION INC Claim 660 CITY OF IDAHO FALLS UTILITY DEPT Scheduled
BLASKO, TRACY H. Scheduled CITY OF KENNEWICK Claim 447
BLUE RIBBON LINEN SUPPLY Scheduled CITY OF KIRKLAND UTILITIES Scheduled
BLUE SPRINGS WATER Scheduled CITY OF LEWISTON Claim 500
BOISE CASCADE OFFICE PRODUCTS Claim 11 CITY OF LEWISTON Scheduled
BOISE CASCADE OFFICE PRODUCTS Claim 12 CITY OF LYNNWOOD-UTILITIES Scheduled
BOMAC INTERNATIONAL CORP Claim 791 CITY OF MARYSVILLE Claim 29
BOND, RICKI Scheduled CITY OF MOSCOW Scheduled
BONNY'S BAKERY Claim 406 CITY OF MOSES LAKE Scheduled
BOWE INDUSTRIES DBA CHANGES Claim 129 CITY OF OGDEN UTILITIES Claim 442
BOXES PLUS Scheduled CITY OF OLYMPIA Claim 689
BRASKING INC DBA IMPRESSIONS Claim 592 CITY OF POCATELLO UTILITY BILLING Claim 183
BREM-AIR DISPOSAL INC Scheduled CITY OF PORT ANGELES Claim 260
BRITISH MOTOR COACH INC Scheduled CITY OF PUYALLUP Claim 676
BROWNING FERRIS INDUSTRIES Scheduled CITY OF SEATTLE Claim 933
BRYSTIE INC Claim 48 CITY OF SEATTLE FINANCE DEPT Scheduled
BUD BARTON'S GLAS-CO INC Scheduled CITY OF SEATTLE TREASURY Scheduled
BUGLE BOY INDUSTRIES INC Claim 759 CITY OF SEATTLE TREASURY Scheduled
BULLET INC Scheduled CITY OF SOLDOTNA Scheduled
BUREAU OF WATER WORKS Scheduled CITY OF SPOKANE Claim 642
BUSTER BROWN APPAREL INC Claim 622 CITY OF TACOMA PUBLIC UTILITIES Claim 50
BUSTER BROWN DBA PETER RABBIT Claim 621 CITY OF TIGARD Claim 275
BUXTON CO Scheduled CITY OF UNION GAP Claim 525
BYER CALIFORNIA Claim 792 CITY OF VANCOUVER Claim 903
C & C GLASS & MILLWORK Claim 787 CITY OF WARRENTON Scheduled
CABLE LANGENBACK ET AL Claim 210 CITY OF WASILLA-WATER UTILITY Scheduled
CADEAUX Claim 877 CITY PARCEL Scheduled
CAFE' FONTE Scheduled CLARK PUBLIC UTILITES Claim 70
CALIFORNIA KRUSH/DIV OF D & M Scheduled CLASSIC ONE EAST Scheduled
CAPE CODE CRICKET LANE Claim 650 CLAUDE Scheduled
CAPITAL MERCURY SHIRT CORP Claim 323 CLEARR CORP Claim 603
CAROL FOR EVA GRAHAM INC Claim 222 CLEARR CORP Scheduled
CASCADE NATURAL GAS CORP Claim 112 CLIPPER EXPRESS COMPANY Claim 653
CASSIE COTILLION INC Claim 854 CLOTHES CIRCIUT Scheduled
CATALINA Scheduled C'MON SPORTSWEAR LTD Claim 962
</TABLE>
C-2
<PAGE>
ANNEX C
LIST OF SENIOR CLAIMS
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Creditor Name Claim Filed Claim
/Scheduled No. /Scheduled No.
<S> <C> <C> <C> <C> <C>
CMS CASUALS INC Claim 181 DANECRAFT Scheduled
CNTY-BENTON PUD Claim 177 DANSKIN INC Claim 566
CNTY-CACHE SERVICE AREA Scheduled DANZAS CORP Claim 98
CNTY-DOUGLAS PUD #1 Claim 219 DATA BASE INC Claim 135
CNTY-DOUGLAS SEWER DISTRICT #1 Scheduled DATASERV INC Claim 866
CNTY-GRAYS HARBOR PUD Claim 510 DATAVISION INC Claim 441
CNTY-KING WATER DISTRICT #49 Claim 237 DAVIDSON & ASSOCIATES INC Scheduled
CNTY-KITSAP PUBLIC WORKS Scheduled DAWES TRANSPORT INC Scheduled
CNTY-KOOTENAI/DEPT OF LEGAL SVCS Claim 405 DCNL INC Scheduled
CNTY-SPOKANE UTILITIES Scheduled DELON ENTERPRISES Scheduled
COCHRAN ELECTRIC CO INC Scheduled DEPARTMENT 56 INC Claim 374
COEUR D'ALENE PRESS Claim 243 DEPOSITORY TRUST COMPANY, THE Scheduled
COLE OF CALIFORNIA Scheduled DERBY DAYS INC Scheduled
COLLECTION XIIX Scheduled DESPERADO FASHIONS INC Claim 911
COLOR SERVICE INC Scheduled DHL CORP Scheduled
COLORBOK PAPER PRODUCTS INC Claim 116 DIMOND HIGH SCHOOL Scheduled
COLUMBIA BASIN HERALD Scheduled DIRECT TO RETAIL Scheduled
COLUMBIA ELECTRIC SUPPLY Scheduled DISPLAY HOUSE Scheduled
COLUMBIA EMPIRE BROADCASTING Scheduled DOAK'S LOCK & KEY Scheduled
COLUMBIA FIRE EQUIP Scheduled DOLLAR STRETCHERS Scheduled
COLUMBIA LOCK & SAFE Claim 271 DONALD KINGSLEY Scheduled
COLUMBIAN Claim 109 DONDEVO NORTHGATE FLORIST Claim 196
COMCO BROADCASTING Claim 264 DONNKENNY APPAREL INC Claim 75
COMCO BROADCASTING Claim 289 DOORS/WINDOWS UNLIMITED INC Scheduled
COMMERICAL FILTER SALES & SERVICE Claim 799 DOWNTOWN CORVALLIS ASSOCIATION Scheduled
COMMUNITY GLASS COMPANY INC Claim 359 DUMAS INC Claim 285
COMMUNITY PACIFIC BROADCASTING Claim 471 E WENATCHEE WATER DISTRICT Scheduled
COMPUSERVE Scheduled EAGLE COMMUNICATIONS INC Claim 318
COMPUTER REPAIR INC Scheduled EARTHQUAKE Scheduled
CONSOLIDATED ELECTRIC-PORTLAND Scheduled EASTGATE SEWER DISTRICT Scheduled
CONSOLIDATED ELECTRIC-SALT LAKE Scheduled EASTSIDE CATHOLIC HIGH SCHOOL Scheduled
CONSOLIDATED ELECTRIC-SPOKANE Scheduled EASTSIDE DISPOSAL Claim 83
CONSOLIDATED FREIGHTWAYS CORP Claim 158 EASTSIDE PAINT COMPANY Scheduled
CONTAINER HAULING SERVICE-BELLEVUE Claim 86 ECSI EXECUTONE Claim 624
CONTAINER HAULING SERVICE-BELLEVUE Claim 87 ED HARDESTY/HARDESTY ENTERPRISES Scheduled
CONTRACT DATA SCAN INC Claim 379 EDEN TOYS INC Claim 706
CONTROL SENECA CORPORATION Claim 691 EDGAR BEREBI ASSOCIATES Claim 754
COON INLET SOCCER Scheduled EDWARD LEVENSON INC/EJ ENTERPRISES Claim 358
COPIER SPECIALIST Scheduled EHS ELECTRICAL CONTRACTORS Claim 236
COPIES PLUS Scheduled EILEEN SEALS INTERNATIONAL Claim 494
COPY WORKS Scheduled EILEEN WEST Claim 380
CORVALLIS DISPOSAL CO Scheduled EIR RECYCLE Scheduled
CORVALLIS RENTAL INC Scheduled ELECTRIC SMITH INC Scheduled
COSMOPOLITAN HANDBAG CO INC Claim 583 ELECTRONIC TRANSACTION CORP Claim 613
CR GIBSON CO Claim 486 ELIZABETH ARDEN INC Claim 750
CRAIG CLOTHING CO Scheduled ELLEN DESIGNS INC Scheduled
CRANDELL ENTERPRISES INC Scheduled EMERALD CITY RECYCLE Claim 113
CRAWFORD DOOR SALES/WAYNE-DALTON Scheduled EMERY WORLDWIDE Scheduled
CRAWFORD'S BUSINESS FURNITURE Scheduled EMPIRE GLASS INC Scheduled
CROSBY INCORPORATED Scheduled ENA COURIERS Claim 186
CROWNTUFT MTG Claim 852 ENSTAR NATURAL GAS COMPANY Claim 156
CRYSTAL BRANDS Scheduled ENTERAINMENT COMMUNICATIONS INC Claim 551
CRYSTAL KNITTERS Scheduled ENTERPRISE NEWSPAPERS, THE Claim 411
CRYSTAL LINEN Claim 639 ENVIROTECT SYSTEMS INC Claim 227
CUMMINS NORTHWEST INC Scheduled ESCANTE INC Claim 455
CURRANTS Scheduled ESCAPADES Scheduled
CUSTOM LIGHTING SERVICE Claim 33 ESPIRT DE CORPS Scheduled
CUSTOM VACUUM Scheduled ESQUIRE NECKWEAR INC Scheduled
DAILY ASTORIAN, THE Claim 468 ESSENTIAL SERVICES CORP Claim 869
DAILY WORLD, THE Claim 395 ESTEY CORP, THE Claim 757
DALOW INDUSTRIES INC Claim 553 EUGENE WATER & ELECTRIC BOARD Claim 352
</TABLE>
C-3
<PAGE>
ANNEX C
LIST OF SENIOR CLAIMS
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Creditor Name Claim Filed Claim
/Scheduled No. /Scheduled No.
<S> <C> <C> <C> <C> <C>
EUREKA COMPANY, THE Claim 663 GANT CORPORATION Claim 339
EURO TEK STORE FIXTURE CORP Claim 396 GARDEN CITY PAINT & GLASS INC Scheduled
EUROPEAN DESIGNER FRAGRANCES Claim 847 GAVORAS SUPER VALU FOODS Claim 861
EUROPECRAFT Claim 963 GE INFORMATION SERVICES Scheduled
EXCEL SERVICES Scheduled GEM STATE TROPHIES Claim 223
EXCEPTIONAL FORESTERS INC Scheduled GEMMY INDUSTRIES Claim 420
XECUTIVE WINDOW CLEANING Scheduled GENERAL BINDING CORPORATION Scheduled
FABRICARE CLEANING CENTER Scheduled GENERAL COMMUNICATIONS INC Claim 709
FAIRBANKS DAILY NEWS-MINER Scheduled GENERAL ELECTRIC CAPITAL CORP Scheduled
FAIRBANKS RESOURCE AGENCY Claim 554 GENERAL FIRE & SAFETY Scheduled
FAIRCHILD PUBLICATIONS Scheduled GENERAL TELEPHONE CO Scheduled
FARAH USA INC Claim 279 GENEXUS INTERNATIONAL INC Claim 761
FARMER BROS CO Scheduled GIBBS LOCK & SAFE Scheduled
FARRINTON SPECIALISTS Claim 407 G-III LEATHER FASHIONS INC Claim 910
FARRINTON SPECIALISTS Claim 526 GILES ALASKAN IMAGES PHOTO Claim 562
FASHION MANUFACTURING Scheduled GIORGIO BEVERLY HILLS INC Claim 778
FASHION NECKWEAR COMPANY INC Claim 692 GIOVANNI JEWELRY COMPANY Claim 561
FEDERAL EXPRESS Claim 49 GJB ENTERPRISES Scheduled
FEDERAL WAY DISPOSAL Claim 542 GLAMOUR RINGS Claim 213
FIDELITY & DEPOSIT CO/NANTUCKET Claim 968 GLASCO GLASS COMPANY Scheduled
FIDELITY COLLECTION SERIVCE Claim 645 GLASS, SASH & DOOR SUPPLY INC Claim 921
FIELDS ROOF SERVICE INC Claim 185 GLAZER'S CAMERA SUPPLY Claim 273
FIFTH AVENUE SHOE REPAIR Scheduled GLEEM CHEMICAL Scheduled
FINLAY FINE JEWELRY CORPORATION Claim 721 GLICKSON,SAUL Claim 288
FINOVA CAPITAL CORP Claim 282 GMA RESEARCH CORPORATION Claim 716
FIRE CHIEF EQUIPMENT INC Claim 176 GOLD INC Claim 44
FIRST ASIAN TRADING CO Scheduled GOOD LAD CO LTD Scheduled
FIRST BANK Claim 879 GOPHER SPORT Claim 356
FIRST BANK-NE Scheduled GRAHAM OFFICE SUPPLY INC Scheduled
FIRST FACTOR/ALYSSA CARR Claim 6 GRANT CNTY JOURNAL Scheduled
FIRST FACTOR/TUMBLE TOGS Claim 7 GRAPHICS NINE INC Claim 572
FIRST NATIONAL BANK OF ANCHORAGE Claim 907 GRASS ROOTS Scheduled
FIRST OPTION SPORTSWEAR LTD Claim 777 GREAT AMERICAN KNITTING/BIDERMANN Claim 4
FIRST SECURITY-ID Scheduled GREAT ORIGINALS Claim 599
FIRST SECURITY-ID Scheduled GREEN EAGLE INC Claim 367
FIRST SECURITY-UTAH Scheduled GRIMMER TRANSFER & STORAGE Scheduled
FISHER BROADCASTING INC Claim 673 GRINNELL FIRE PROTECTION Scheduled
FISHMAN & TOBIN Scheduled GRUEN MARKETING CORP Claim 780
FLOOR FACTORS Scheduled GTE NORTHWEST Scheduled
FOR PETES SAKE Scheduled GTE NORTHWEST/ANDERSON FINANCIAL Claim 959
FORCE 4 Claim 546 GUERLAIN INC Claim 136
FOREST PARK CLEANERS Scheduled H&H CLEANING Scheduled
FORMS MANAGEMENT INC Scheduled HADDAD APPAREL GROUP/BUGLE BOY Claim 611
FOSSIL Scheduled HADDAD APPAREL GROUP/MIGHTY MAC Claim 618
FOUR SEASONS INC Scheduled HAGGAR CLOTHING COMPANY Claim 643
FOX CLEANERS Claim 575 HALMODE APPAREL INC Claim 37
FOX COMMUNICATIONS CORPORATION Scheduled HALSTON BORGHESE INC Claim 818
FRAGRANCES GROUP LTD, THE Scheduled HANES HOSIERY/SARA LEE Claim 174
FRANKLIN CONTAINER SERVICES INC Claim 449 HARMON GLASS Scheduled
FRED HAYMAN BEVERLY HILLS Scheduled HAROT Scheduled
FREDS DRY CLEANING PICKUP SERVICE Claim 385 HARRIS, MYRTLE Scheduled
FRESH START Scheduled HAULAWAY STORAGE CONTAINERS Scheduled
FRIDEN NEOPOST Scheduled HAZEN HIGH SCHOOL Scheduled
FRITZI CALIFORNIA Claim 532 HEALTHTEX INC Claim 536
FRONTIER CLEANING SERVICE Claim 292 HEARTLAND APPAREL CORP Claim 40
FRONTIERSMAN/VALLEY SUN Scheduled HEATH NORTHWEST INC Claim 171
FRUITLAND MUTUAL WATER COMPANY Scheduled HELGET GAS PRODUCTS INC Scheduled
FURST GROUP, THE Claim 961 HERALD JOURNAL Scheduled
G&K SERVICES Scheduled HERALD NEWSPAPER, THE Claim 348
GALERIE AU CHOCOLAT Claim 853 HERITAGE WATER CO OF UTAH Scheduled
GAMBELLA Scheduled HERSHEY'S CHOCOLATE WORLD Claim 118
</TABLE>
C-4
<PAGE>
ANNEX C
LIST OF SENIOR CLAIMS
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Creditor Name Claim Filed Claim
/Scheduled No. /Scheduled No.
<S> <C> <C> <C> <C> <C>
HI GIRLS INC Claim 111 JOURNAL AMERICAN NEWSPAPER Claim 950
HIGHSMITH BROADCASTING Claim 886 JUDIE INGRAM COMPANY Claim 590
HILLSBORO ARGUS Scheduled JUMBO COFFEE SERVICE Claim 890
HILLSBORO GARBAGE DISPOSAL Claim 882 JUST ASK INC DBA GLASS DOCTOR Claim 238
HILSON JANITORIAL Scheduled K APPLIANCE SALES & SERVICE Claim 204
HIN BASE LIMITED Scheduled KAPY Scheduled
HOGLAND TRANSFER Claim 581 KART-KZRT-KMVX Scheduled
HOLY FAMILY CATHEDRAL Scheduled KAST AM & FM Claim 702
HOMER ELECTRIC ASSOCIATION INC Scheduled KATHY ANNE INC Scheduled
HORIZON ELECTRIC INC Scheduled KATW Scheduled
HOST APPAREL INC Claim 21 KAYO/K099 Scheduled
HOST FOR HER INC Claim 23 KAYSER-ROTH CORPORATION Claim 932
HOST/NIGHTWEAR BY VAN HEUSEN Claim 24 KAYU - TV Claim 927
HOSTAPPAREL/PAJAMA CRAFT Claim 22 KBBO/KRSE RADIO Claim 469
HUGHES ELECTRICAL CONTRACTORS Scheduled KBOY Scheduled
HUGHES NETWORK SYSTEMS INC Scheduled KBSG AM/FM & KNDD FM Claim 889
HUMANIX CORP Claim 250 KBSN/KDRM RADIO Claim 713
HUMPHREYS INC Claim 813 KBZN Scheduled
HYDRAULICS UNLIMITED Claim 770 KCIS- AM/KCMS-FM Claim 601
I C ISAACS & COMPANY Scheduled KCJT-TV CH 17 Claim 700
I C MANUFACTURING Scheduled KCLX/KZZL Scheduled
IDA VENDING COMPANY Claim 382 KCMX Scheduled
IDAHO POWER COMPANY Claim 46 KCNA-FM Scheduled
IDAHO POWER COMPANY Claim 399 KCPQ-TV Scheduled
IDAHO STATE JOURNAL Claim 117 KCY/KBW-TV(4049) Claim 187
IDAHO WIRELESS CORP Claim 656 KDRK-FM Scheduled
IFG Scheduled KDUK-AM & KLCX-FM/DEBT ACQUISITION Scheduled
IMAGE WORKS INC Claim 272 KEENEY'S OFFICE PRODUCTS INC Claim 170
IMAGETECH Scheduled KEGX Claim 936
IN 2 SPORT Scheduled KELLEY BUSINESS MACHINES Scheduled
INDUSTRIAL INDEMNITY Claim 168 KELLWOOD CO/INTIMATE CONCEPTS Claim 851
INFINITY SYSTEMS/KKRT-KSSY Claim 414 KELLY SERVICES INC Claim 124
INFINITY SYSTEMS/KKRV Claim 415 KELSUN DISTRIBUTORS Claim 199
INFOTECH COMPUTER SYSTEMS Claim 377 KENSINGTON SQUARE Scheduled
INTAPP GROUP, THE Scheduled KEX/KKRZ Claim 844
INTER STORE TRANSFER Scheduled KEY ITEM SALES Scheduled
INTERCOASTAL DATA CORPORATION Scheduled KEYF-FM Scheduled
INTERMOUNTAIN GAS COMPANY Claim 145 KEYG-WHEELER BROADCASTING INC Claim 498
INTERNATIONAL INTIMATES INC Claim 310 KEYW RADIO Claim 752
INTERNATIONAL NEWS Scheduled KEZI INC Claim 579
INTERNATIONAL PAPERFLOW Claim 400 KEZJ RADIO Claim 586
INTIMO Scheduled KEZX AM & FM Claim 286
IRENE CLOUGH Scheduled KFAR/KWLF Scheduled
ISACO INTERNATIONAL CORPORATION Claim 704 KFFM/KMWX Scheduled
IVEY SERIGHT INTERNATIONAL INC Claim 680 KFIY Claim 440
J & H SEWING & VACUUM Scheduled KFQD/KWHL/KMXS-PIONEER BROADCASTING Claim 257
JANSPORT INC Claim 68 KFTZ- FM Claim 529
JANTZEN INC Claim 947 KGA -AM Scheduled
JEANETTE'S FLORAL DESIGNS Scheduled KGY INC Claim 507
JEMCO INC Claim 769 KHQ INC Claim 253
JEWELRY HOLDING CO INC Claim 316 KHTR-FM RADIO/PULLMAN, WA Scheduled
JEWELRY WAREHOUSE INC, THE Claim 563 KIDK TV Claim 462
JEZLAINE LTD Scheduled KING BROADCASTING CO Claim 298
JOCKEY INTERNATIONAL INC Claim 62 KINKO'S Scheduled
JODY COYOTE Scheduled KIRBY SALES & SERVICE Claim 401
JOE BOXER GIRLFRIEND Claim 20 KIRO INC Claim 509
JOEL FERRIS HIGH Scheduled KISN AM/FM Scheduled
JOHN CASABLANCAS MODEL Claim 284 KIT/KATS/KXXS Scheduled
JOHN ROBERT POWERS Claim 66 KITS CAMERAS Claim 248
JOHN ROBERT POWERS SCHOOL Claim 417 KKRO ARROW/KEAG-FM KOOL Scheduled
JOHNNY'S FLOWERS Scheduled KLCE Scheduled
JOHN'S PLUMBING & PUMPS INC Claim 240 KLGN/KBLQ RADIO Scheduled
</TABLE>
C-5
<PAGE>
ANNEX C
LIST OF SENIOR CLAIMS
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Creditor Name Claim Filed Claim
/Scheduled No. /Scheduled No.
<S> <C> <C> <C> <C> <C>
KLIX AM/FM Claim 585 LANCOME Claim 755
KLO Scheduled LANDSCAPE MANAGEMENT INC Scheduled
KLSR FOX TV-25 Scheduled LARRY'S QUALITY HEATING & PLUMBING Claim 765
KMPS RADIO/KZOK RADIO Claim 195 LAUREL BURCH INC Scheduled
KMTR-TV Scheduled LAURES INC Scheduled
KMVT Scheduled LAWSON PRODUCTIONS INC Claim 268
KNLT Claim 937 LEADING FLORAL CO Claim 505
KNOBEL'S ELECTRIC INC Scheduled LEE APPAREL COMPANY INC Claim 881
KOALA CORPORATION Claim 543 LEE ENTERPRISES/CORVALLIS GAZETTE Claim 508
KOLTOV INC Claim 214 LEES MANUFACTURING VP Claim 330
KOMO RADIO Claim 884 LEGACY USA CO Scheduled
KOMO TV Claim 814 LEISURE LIFE INDUSTRIES INC Claim 265
KONA Scheduled LEMON GRASS Scheduled
KORE SOURCING INC Scheduled LEO SHAPIRO & ASSOCIATES INC Scheduled
KOSZ FM Claim 473 LETTERS UNLIMITED Claim 247
KPAX COMMUNICATIONS INC Claim 263 LETWIN GARMENT FACTORY LTD Scheduled
KPNW/KODZ Scheduled LEVLE MODES INC Claim 107
KQQQ-AM RADIO/PULLMAN, WA Scheduled LEWIS CLARK RECYCLERS INC Scheduled
KREM-TV Claim 920 LH MORRIS ELECTRONIC INC Scheduled
KRISTESSE INC Claim 217 LILY OF FRANCE Claim 556
KRKT Scheduled LILYETTE/DIV OF NCC INDUSTRIES INC Claim 730
KRPL INC DBA KRPL/KZFN RADIO Claim 351 LITEMOR DISTRIBUTORS INC Claim 476
KRPM-K106 Scheduled LITTLE DIPPER SPORTS INC Scheduled
KRUSI, PETE/KRUSHER RECYCLING
SERVICE Scheduled LIZ CLAIBORNE INC Claim 729
KRWM-FM/PUGET SOUND BROADCASTING Claim 839 LIZ CLAIBORNE INC Claim 732
KRWQ/KMED Claim 408 LIZ SOTO Scheduled
KSEI/KMGI RADIO Claim 463 LOCK DOCTOR, THE Scheduled
KSHO RADIO Claim 203 LOCK RANGERS SAFES & SECURITY INC Claim 300
KSOS Scheduled LOGAN CITY MUNICIPAL CORPORATION Claim 636
KSTW-TV Claim 246 LOGO 7 INC/UNIVERSAL INDUSTRIES INC Claim 312
KTCR Claim 935 LONDON FOG INDUSTRIES/PACIFIC TRAIL Claim 797
KTMT/KMFR Scheduled LONDON STAR LIMITED Claim 512
KTRW/KZZU Scheduled LONGSTREET Claim 605
KUGN Scheduled LORENZO DE MEDICI INC Claim 302
KUIK Scheduled LYNDEN TRANSPORT Claim 81
KULF-AM & FM Claim 878 LYNN WOODWARD ELECTRIC Scheduled
KUPI RADIO Claim 457 LYNNWOOD HIGH SCHOOL Scheduled
KUPL Scheduled M&L INTERNATIONAL INC Claim 331
KVNU Scheduled MACDONALDS MILLER ALASKA INC Claim 443
KWWW-FM/KWWX-AM Scheduled MACDONALDS MILLER SERVICE Scheduled
KXA 99 RADIO Scheduled MACRO COM CORP Claim 496
KXL RADIO Claim 197 MADE IN THE SHADE Scheduled
KXLR-FM Scheduled MADGE'S MENDING Claim 830
KXRO/KDUX Claim 474 MAGIC VALLEY LOCK & KEY Scheduled
KXXO Scheduled MAGIC VALLEY REFRIGERATION Scheduled
KYCW ALLIANCE BROADCASTING Claim 524 MAIDENFORM INC Claim 845
KYES-TV Claim 900 MAIL BOXES ETC USA #826 Scheduled
KYLT/KZOQ RADIO Claim 309 MAIL TRIBUNE Scheduled
KYSN COUNTRY Scheduled MAILBOXES PLUS Scheduled
KZTA Scheduled MAINSTREAM SWIMSUITS INC Claim 610
L & J ACCESSORIES Claim 644 MALIBU BEACH CLUB/B J DESIGNS Claim 560
L & M COURIER INC Scheduled MALLORY & CHURCH CORP Scheduled
L A INTIMATES/DIV OF KELLWOOD Claim 848 MAMAHON'S EMERGENCY LOCKSMITH Scheduled
L H MORRIS ELECTRIC INC Claim 918 MANHATTAN BELTS & SUSPENDERS Claim 56
L V MYLES INC/HAPPY PEOPLE Claim 80 MANTEY PLUMBING INC Scheduled
LA GEAR Scheduled MARQUEE SCREEN & DESIGN INC Claim 880
LAKEHAVEN UTILITY DISTRICT Claim 105 MARTIN STATIONERS INC Scheduled
LAKESIDE DISPOSAL & RECYCLING Scheduled MARTINI CLEANERS Claim 784
LAKEWOOD REFUSE SERVICE INC Scheduled MARVIN LABA & ASSOCIATES Claim 329
LAKEWOOD WATER DISTRICT Scheduled MATANUSKA ELECTRIC ASSN INC Claim 375
LANCASTER GROUP USA Claim 763 MATANUSKA TELEPHONE ASSOC INC Scheduled
</TABLE>
C-6
<PAGE>
ANNEX C
LIST OF SENIOR CLAIMS
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Creditor Name Claim Filed Claim
/Scheduled No. /Scheduled No.
<S> <C> <C> <C> <C> <C>
MAXINE OF HOLLYWOOD INC Claim 307 NATIONAL BUSINESS SYSTEMS INC Claim 951
MB'S Scheduled NATIONAL COURIER SYSTEMS Scheduled
MCALERNEY, TIM Scheduled NATIONAL INFOMATION DATA CENTER Scheduled
MCC Scheduled NATIONAL SANITARY SUPPLY CO Scheduled
MCCALLUM ENVELOPE & PRINTING CO Claim 801 NATIONAL STORE FIXTURES & DISPLAY Claim 528
MCCAW COMMUNICATIONS Scheduled NATIONAL SYSTEMS INC Scheduled
MCCRORY CORP Scheduled NAUTICA WATCHES Scheduled
MCCUBBIN HOSIERY INC Claim 366 NEAL'S SHOE REPAIR Scheduled
MCKENZIE RIVER BROADCASTING CO INC Claim 184 NEEDLE NOOK Scheduled
MECA Claim 513 NEIFFER, STEPHEN Scheduled
MEDFORD WATER COMMISSION Scheduled NEIGHBORHOOD PROMOTIONS Scheduled
MEDIA PLUS+ INC Claim 191 NEUTROGENA CORP Claim 803
MELE MANUFACTURING Scheduled NEW CENTURY MEDIA Claim 364
MELKONIAN, CHARLEY/COUNTRY
CLEANERS Scheduled NEW REVIEW PUBLISHING/MOSCOW Claim 207
MENDES, ALBERTO A Claim 269 NEW YORK TIMES SALES INC, THE Scheduled
MERIT MECHANICAL, INC Scheduled NEWPRO DESIGNS INC Scheduled
MESPO UMBRELLAS LTD Claim 703 NEWS TRIBUNE, THE Claim 430
METRO SERVICE COMPANY Claim 413 NICK RAFFO GARBAGE CO Claim 541
METZLER, STEVEN Scheduled NIKE INC Claim 305
MICHAEL FRIEDMAN CORP Claim 453 NOEL JOANNA INC Scheduled
MICHAEL G Scheduled NOLAN GLOVE CO Scheduled
MICHELE FASHIONS/ISAAC HAZAN & CO Claim 69 NORCO Scheduled
MICHELLE TEECE Scheduled NORDSTROM Claim 428
MICKEY & CO/DONNKENNY APPAREL INC Claim 74 NORTH AMERICAN GRAPHICS Scheduled
MICROGRAPHICS SYSTEMS INC Scheduled NORTH COAST INDUSTRIES Claim 555
MIDWEST LOCK & SAFE INC Scheduled NORTH IDAHO BROADCASTING CO Claim 372
MIKASA Claim 299 NORTHERN BUSINESS MACHINES INC Claim 368
MIKE BACHMAN PLUMBING Claim 495 NORTHERN TELEVISION Claim 548
MILACA MILLS INC Claim 230 NORTHGATE COBBLERS Scheduled
MILES FINANCIAL SERVICES INC
(AGFA) Scheduled NORTHGATE PHARMACY Scheduled
MINUTEMAN PRESS Scheduled NORTHSHORE UTILITIY DISTRICT Scheduled
MIRIAM HASKELL JEWELS Scheduled NORTHWEST CABLE ADVERTISING Claim 52
MISS ELAINE INC Claim 577 NORTHWEST GLASS INC Scheduled
MISSOULIAN Claim 481 NORTHWEST HANDLING SYSTEMS INC Scheduled
MMG CORP Claim 531 NORTHWEST NATURAL GAS Scheduled
MNS DBA MASTERMARK Claim 179 NORTHWEST PROMOTIONAL PRODUCTS Claim 444
MODERN ELECTRIC WATER COMPANY Claim 475 NORTHWEST TV/KVAL-TV Claim 182
MOMENTUM/A PRIMESOURE COMPANY Claim 568 NORTHWEST WHOLESALE FLORIST INC Claim 79
MONARCH MARKING Claim 966 NOTATIONS Claim 539
MONET GROUP INC, THE Claim 733 NSMLC - TELEPHONE PIONEERS Scheduled
MONET GROUP/MONET JEWELERS Claim 735 NUTMEG MILLS Scheduled
MONET GROUP/TRIFARI Claim 734 NW TRANSPORT SERVICE INC Claim 931
MONTANA POWER Scheduled OAK HARBOR FRIEGHT LINES INC Claim 588
MORNING SUN INC Claim 346 OAK HILL SPORTSWEAR CORP Claim 93
MORSLEY INC Claim 324 OAKES, TIMOTHY J Scheduled
MOTOR CARGO Scheduled O'BRYAN BROTHERS INC Claim 134
MOTOR VEHICLES DIVISION-SALEM, OR Scheduled OFF SPRING Scheduled
MOUNTAIN AIRGAS Claim 891 OFFICETEAM Claim 564
MOUNTAIN FUEL SUPPLY COMPANY Claim 465 OFFICIAL DISTRIBUTING COMPANY Claim 167
MOUNTAIN WATER COMPANY Claim 332 OFFSHOOTS Scheduled
MOUNTAIN WATER COMPANY Claim 333 O'LEARY MATHIS SWEEPING SERVICE Claim 274
MOVIE STAR INC Claim 39 OLYMPIAN Scheduled
MR VACUUM Scheduled OLYMPIC DISPOSAL Scheduled
MSC Scheduled OLYMPIC PAPER COMPANY Scheduled
MUNICIPAL LIGHT & POWER Scheduled OOOPS A DAISY Claim 767
MUNICIPAL UTILITIES SYSTEM Scheduled OR-BUILDING CODES DIVISION Claim 655
MUZAK Scheduled OREGONIAN PUBLISHING CO., THE Claim 3
MUZAK LP Claim 810 ORION FASHIONS INC Claim 104
MUZAK-PORTLAND Scheduled OSHKOSH B'GOSH INC Claim 334
MW SAMARA INC Claim 916 OUTLAW JEANS Scheduled
MY-COMM INC Scheduled OUTRAGEOUS INC Scheduled
MYSTIC APPAREL INC Claim 215 OVERNIGHT TRANSPORTATION Claim 647
</TABLE>
C-7
<PAGE>
ANNEX C
LIST OF SENIOR CLAIMS
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Creditor Name Claim Filed Claim
/Scheduled No. /Scheduled No.
<S> <C> <C> <C> <C> <C>
PACIFIC ALASKA FORWARDERS INC Scheduled PUGET SOUND POWER & LIGHT Claim 392
PACIFIC BROADCASTING CO Scheduled PUNCH INC Claim 180
PACIFIC CLEANERS Scheduled PUYALLUP SOUTH HILL SELF STORAGE Scheduled
PACIFIC FLOWER MARKET Scheduled PYRAMID HANDBAGS INC Claim 328
PACIFIC POWER Claim 589 QFC - FACTORIA Claim 344
PACIFIC PUBLISHING CO Claim 398 QUAIL CREST FOODS INC Claim 278
PAK BUSINESS BUREAU INC Claim 161 QUALITY LINEN & TOWEL SUPPLY Claim 234
PALOUSE EMPIRE INC Claim 520 QUESTAR RADIO COMMUNICATIONS Claim 446
PAPERPLAINS Scheduled QUESTAR RADIO COMMUNICATIONS Claim 683
PARAMOUNT PEST CONTROL INC Scheduled QUICK MAIL UNLIMITED Scheduled
PARFUMS PARQUET Scheduled QUICK RESPONSE SERVICES INC Claim 516
PARIS ACCESSORIES Scheduled R & H ENTERPRISES Scheduled
PARK CITY TRUCK LINES INC Claim 637 RAIN ROOF ROOFING CO Scheduled
PARLUX FRAGRANCES INC Claim 587 RAINBOW NEON SIGN CO Scheduled
PASSWORD ANSWER SERVICE Scheduled RAINBOW PHOTO CO Scheduled
PAUL SEBASTIAN INC Scheduled RAINBOW SWEEPERS Scheduled
PAYLESS DRUG Scheduled RAINER CHAPTER APA Scheduled
PAYLESS DRUG Scheduled RAISIN CO, THE Scheduled
PCA APPAREL INC Claim 335 RALPH LAUREN FRAGRANCES/COSMAIR Claim 846
PECK'S SHOE CLINIC Scheduled RAMA Scheduled
PENINSULA CLARION Claim 711 RAMPAGE Scheduled
PENINSULA DAILY NEWS Scheduled RANDA CORP Claim 67
PENINSULA GATEWAY INC, THE Claim 303 RCM CORP Scheduled
PENINSULA SANITATION CO INC Scheduled READMORE COMMUNICATIONS Scheduled
PEPSI COLA BOTTLING CO Scheduled RED DOOR, THE Scheduled
PERI PETITES Claim 781 REEBOK INTERNATIONAL LTD Claim 594
PERKINS COIE Claim 499 REGIS GARD LTD - KOREA BRANCH Scheduled
PERRIER INC/BASIC ELEMENTS Claim 216 REGISTER GUARDIAN Scheduled
PERUGINA BRANDS OF AMERICA Claim 327 RESCOM ELECTRIC INC Claim 295
PHILLIPS/VAN HEUSEN Claim 773 RESCUE ROOTER Claim 231
PHILLIPS/VAN HEUSEN - DESIGNER GRP Claim 938 RETLAW BROADCASTING CO/KIMA-TV Claim 540
PHILLIPS/VAN HEUSEN - SOMERSET Claim 939 REVLON INC Claim 649
PINNACLE PRODUCTIONS INTERNATIONAL Claim 760 RG BARRY CORPORATION Claim 671
PIONEER PRINTING Scheduled RHO COMPANY Claim 674
PIP PRINTING Claim 559 RHODA LEE INC Claim 301
PITTSBURGH PLASTICS MFG INC Scheduled RIBBONS INC/RIBBONS ACCESSORIES Claim 994
PLANT WORLD Scheduled RICS TRANSFER CO INC Claim 808
PLANTSALOT Scheduled RISBERG'S TRUCK LINES Claim 190
PLATINUM HOSIERY Scheduled RISK IT GEAR INC Claim 35
PLATT ELECTRIC SUPPLY Claim 418 RITTENHOUSE Claim 914
PLAYTEX APPAREL INC Claim 901 RIVIERA CONCEPTS OF AMERICA INC Claim 470
PLAZA CLEANERS Scheduled ROADWAY EXPRESS INC Claim 836
PLEASANCE, MARTHA Scheduled ROADWAY PACKAGE SYSTEMS INC Claim 166
POLAR GRAPHICS Claim 451 ROBB'S REPAIR Scheduled
PORTLAND GENERAL ELECTRIC Claim 697 ROBLN LYN CREATIONS INC Claim 580
PORTLAND RADIO/KINK-FM Claim 354 ROBLN LYN CREATIONS INC Claim 582
POST OFFICE & MORE Scheduled ROFFE ACCESSORIES Scheduled
POST REGISTER, THE Claim 96 ROMAN CO Claim 597
POT O GOLD Scheduled ROSE, ROBERT Claim 363
POULSBO GLASS & UPHOLSTERY Claim 567 ROSENTHAL & ROSETHAL INC Claim 28
POWER BUSINESS CENTER Scheduled ROSETTI HANDBAGS & ACCESSORIES INC Claim 479
POWER CITY ELECTRIC Scheduled ROSS DISPLAY FIXTURE CO INC Claim 584
PRATT, REGINA Scheduled ROSS SPORTSWEAR INC Claim 805
PRECISION CARPET CLEANING Scheduled ROTO ROOTER Scheduled
PREFERRED HOMES Claim 558 ROTO ROOTER SEWER SERVICE Claim 154
PRESERVATIVE PAINT Scheduled ROWAN PACIFIC RIM DECORATORS INC Claim 489
PRESTIGE LEATHER CREATIONS Claim 917 ROYAL TOUCH INC Scheduled
PRICE WATERHOUSE LLP Claim 727 ROYTEX INC Claim 72
PRO SERVICE ELECTRIC Scheduled RUBATION REFUSE REMOVAL INC Claim 423
PSI WASTE SYSTEMS INC Scheduled RUBY CORP Scheduled
PUD OF SNOHMISH Claim 148 RUSSELL-NEWMAN INC Claim 948
PUGET SOUND BUS JOURNAL Scheduled RYAN LIGHTING GROUP INC Scheduled
</TABLE>
C-8
<PAGE>
ANNEX C
LIST OF SENIOR CLAIMS
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Creditor Name Claim Filed Claim
/Scheduled No. /Scheduled No.
<S> <C> <C> <C> <C> <C>
RYDER TRUCK RENTAL INC Scheduled SOUND BROADCASTING INC/KMAS Claim 826
S SCHWAB & CO INC Claim 32 SOUND PRODUCTS INC Claim 347
S&K MAINTENANCE Claim 319 SOUND PUBLISHING Claim 667
SAB-TEC STATIONERS Scheduled SOUND PUBLISHING Claim 668
SAFECO INSURANCE CO OF AMERICA Claim 885 SOUNDCOM INC Scheduled
SAFEWAY #1203 Scheduled SOUSLEY SOUND & COMMUNICATIONS Scheduled
SAFEWAY #420 Scheduled SOUTH HILL OFFICE SUPPLY INC Scheduled
SAFEWAY (ANCHORAGE) Scheduled SOUTHEASTERN NEWSPAPERS CORP Claim 825
SAFEWAY INC (BELLEVUE) Claim 666 SOUTHGATE LTD Scheduled
SALEM SPORTSWEAR Claim 60 SOUTHWEST SUBURAN SEWER Scheduled
SALLY LOU FASHIONS Claim 192 SPACE NEEDLE CORPORATION Scheduled
SANI PAC Claim 461 SPAID, K. DBA VILLAGE CLEANERS Claim 384
SANOFI BEAUTE INC Claim 456 SPECIALITY LIGHTING Claim 518
SANRIO INC Claim 304 SPENARD BUILDERS SUPPLY INC Scheduled
SANTAS CLEANERS Claim 397 SPOKANE PLUMBING & HEATING INC Scheduled
SANTINAS HOUSE OF FLOWERS Scheduled SPOKANE VALLEY NEWS Claim 293
SARA LEE KNIT PRODUCTS Claim 386 SPOKEMAN REVIEW, THE Claim 956
SASHA HANDBAGS INC Claim 569 SQUARE ONE PRINTING Scheduled
SATELLITE BUSINESS SERVICES INC Claim 511 STAFFING RESOURCES INC Claim 390
SCARVES BY VERA/SALANT CORP Claim 76 STANDARD EXAMINER NEWSPAPER Claim 228
SEASONS INC Claim 658 STANLEY CREATIONS INC Claim 388
SEATTLE DISPOSAL Claim 114 STAR OF INDIA FASHIONS INC Claim 600
SEATTLE FARWEST SERVICE CORP Claim 175 STAR SANITATION SERVICES INC Scheduled
SEATTLE LIMOUSINE Scheduled STARTER CORP Claim 15
SEATTLE MODELS GUILD Scheduled STATUS DESIGN GROUP/SWAN INTERN'L Claim 745
SEATTLE TIMES, THE Claim 952 STERN FRAGRANCES Claim 682
SECURITY ALARM Scheduled STERN, MIKE Scheduled
SECURITY LOCK & KEY Claim 472 STITCHIN' TIME Scheduled
SEINO AMERICA INC Scheduled STONE GEAR KIDS Scheduled
SERVICE MASTER Scheduled STONE'S LOCK & KEY Scheduled
SERVICE MASTER OF SEATTLE Claim 912 STROUSE ADLER CO Claim 478
SERVICE MASTER PBM OF ANCHORAGE Claim 427 STUART ALAN LTD Scheduled
SHADOWLINE INC Claim 137 SUBURBAN WEST MAINTENANCE INC Claim 252
SHAGELA CONSTRUCTION/BOWER, DICK Claim 602 SUN NEWSPAPER, THE Claim 677
SHAH SAFARI INC Claim 16 SUN RIVER ELECTIC SERVICE INC Scheduled
SHAMROCK CONSTRUCTION Claim 593 SUN SPORTSWEAR Scheduled
SHANNON ACCESORIES Scheduled SUNBROOK COMMUNICATIONS Scheduled
SHASHO/JONES DIRECT INC Claim 672 SUNRICH FLOOR (EVERETT) Scheduled
SHC INC Scheduled SUNRICH FLOOR (WOODINVILLE) Scheduled
SHEDRAIN CORP Scheduled SUNSET WIRE ROPE CO Scheduled
SHOE STOP Scheduled SUNSHINE DISPOSAL INC Scheduled
SHUBES MANUFACTURING Scheduled SUNSTAR INDUSTRIES INC Claim 92
SIGN SYSTEMS NORTHWEST Scheduled SUPERIOR CLEANERS Claim 226
SILVER SCREEN T'S Claim 337 SUPREME INTERNATIONAL CORP Claim 502
SILVERADO BROADCASTING Claim 38 SUPREME SLIPPER MFG CO INC Claim 287
SILVERDALE WATER DISTRICT #16 Scheduled SUSAN CRANE INC Scheduled
SILVESTRI CORP Claim 91 SUTTON TIME/DIV OF E. GLUCK Claim 350
SIMON'S Scheduled SVDP Scheduled
SKYVIEW HIGH SCHOOL Scheduled SWANK Scheduled
SL PETITES Claim 326 SYMBOL TECHNOLOGIES INC Claim 619
SLOAN, RON Scheduled SYMPHONY SCARFS Scheduled
SMART SET GLOVES LTD Scheduled T CAPPELLI HANDBAGS/TILLEPPAC INC Claim 467
SMITHY ACCESSORIES Claim 61 T&M VENDING Claim 194
SNACKS GOURMENT Scheduled T&T INSTANT PLUMBING Scheduled
SNAKE RIVER GLASS INC Claim 506 TACHER COMPANY INC, THE Claim 838
SNOW WHITE CLEANERS Scheduled TACOA INC Claim 429
SOCK & ROLL/PLANT THE EARTH Claim 244 TACONY CORP Claim 221
SOLID WASTE Scheduled TANDEM COMPUTERS INC Claim 141
SONICAIR Claim 646 TANDEM IMPORTS CORP Claim 431
SOOK'S TAILOR SHOP Scheduled TAPSCAN INC Claim 51
SOS ALARM Claim 684 TARGET RADIO Scheduled
SOS DATA SERVICE Scheduled TBAC PRINCE GARDNER Claim 291
</TABLE>
C-9
<PAGE>
ANNEX C
LIST OF SENIOR CLAIMS
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Creditor Name Claim Filed Claim
/Scheduled No. /Scheduled No.
<S> <C> <C> <C> <C> <C>
TCI CABLE VISION OF WA INC Scheduled US WEST COMMUNICATIONS Claim 707
TEC MECHANICAL SERVICE CO Scheduled US WEST DIRECT Scheduled
TECHNOLOGY UNLIMITED, INC Claim 483 UTAH POWER & LIGHT Claim 934
TEKNO COPY Scheduled UT-INDUSTRIAL COMMISSION-SAFETY Scheduled
TELE-CONTRACTING SPEC INC Scheduled VAL MODE Scheduled
TELEPAGE NW Scheduled VALLEY CHRISTIAN SCHOOL Scheduled
TELE-WAVES PAGERS Scheduled VALLEY DAILY NEWS Scheduled
TEMP-RIGHT Scheduled VANITY FAIR MILLS INC Claim 381
TENDER SENDER Claim 277 VICTORIA CREATIONS INC Claim 772
TIMES COMMUNITY NEWSPAPERS Claim 65 VICTORY LAUNDRY Scheduled
TIMES NEWS Claim 450 VIKING FREIGHT SYSTEM Claim 652
TIMEX CORPORATION Claim 981 VILLA LIGHTING SUPPLY INC Scheduled
TJ LAWFORD Scheduled VISION PRODUCTS Claim 357
TMP WORLDWIDE/NYPSA Scheduled VITTORIA INTERNATIONAL ASSESSORIES Claim 54
TNT REDDAWAY TRUCKLINE Claim 239 VORHEES, FRANK/THE CASTER EXCHANGE Scheduled
TNT UNITED TRUCK LINES INC Claim 25 VT INTERNATIONAL LTD Claim 325
TODOROFF, DON Claim 669 WALL STREET JOURNAL Scheduled
TOP BRAND SPORTSWEAR Claim 609 WALL, DONALD Scheduled
TOTAL ELECTIC SUPPLY COMPANY Claim 311 WALLACE COMPUTER SERVICES INC Claim 71
TOTES INC Claim 345 WALLACE, MARK M Claim 189
TOWN ASSOCIATES INC Claim 804 WALPERT INDUSTRIES LTD Claim 297
TP FREIGHT Scheduled WALSH CONSTRUCTION CO Claim 533
TRANE OREGON SERVICE CO Claim 119 WALTER HEIMLER INC Claim 13
TRANSAMERICA OCCIDENTAL LIFE Scheduled WARNACO INC Claim 14
TRANSPORT INTERNATIONAL POOL INC Claim 55 WARNER, TOM Scheduled
TREASURE CHEST ADVERTISING CO INC Claim 103 WARREN FEATHERBONE COMPANY Claim 163
TRENDS CLOTHING Scheduled WARREN GORMAN Claim 657
TRI CITY HERALD Claim 130 WASHINGTON FIRE & SAFETY EQUIPMENT Claim 534
TRIBUNE PUBLISHING CO DBA/LEWISTON Claim 206 WASHINGTON NATURAL GAS Claim 115
TRI-COASTAL ACCESSORIES INC Claim 550 WASHINGTON SIGN COMPANY, THE Scheduled
TRI-COASTAL DESIGN GROUP INC Claim 549 WASHINGTON WATER POWER CO Claim 142
TRIMFIT INC Claim 393 WASILLA REFUSE INC Claim 419
TRINA INC Claim 281 WASTE MANAGEMENT OF OREGON Scheduled
TRIPLE I COURIER SERVICES Claim 262 WASTE MANAGEMENT OF SEATTLE Claim 448
TRIPLE T FOOTWEAR LTD Claim 402 WASTE MANAGEMENT-KENNEWICK Claim 294
TROPHIES BY BIG DADDY Scheduled WASTE MANAGEMENT-NORTHWEST Claim 628
TRUE FORM INTIMATE APPAREL Claim 362 WASTE MANAGEMENT-WENATCHEE Claim 523
TRUMPER COMMUNICATIONS/PORTLAND Claim 198 WASTE PAPER SERVICE Scheduled
TSUMURA INTERNATIONAL Claim 459 WATER DISTRICT #49 Scheduled
TU OF THE NORTHLAND Scheduled WATSON BROTHERS LTD Claim 242
TUM A LUM Scheduled WCI FINANCIAL SERVICES INC Claim 615
TURNER, BOB Scheduled WEE WILLES VACUUM Scheduled
TWO HANDS INC Claim 544 WEINGEROFF ENTERPRISES Claim 545
U GOT IT INC Claim 122 WELDERS SERVICE INC Scheduled
U HAUL INTERNATIONAL INC Scheduled WELLS FARGO AMORED SERVICES CORP Claim 99
UDELHOVEN OILFIELD SYSTEMS Scheduled WEMCO INC/BARRETT FACTOR Claim 149
UNIFORCE SERVICES INC Claim 146 WENATCHEE WORLD Claim 464
UNIFORCE SERVICES INC Claim 147 WESTERN BROADCASTING COMPANY Claim 736
UNION BULLETIN Scheduled WESTERN BUILDERS SUPPLY INC Claim 259
UNISOURCE CORP Claim 42 WESTERN MICRO SERVICES INC Claim 258
UNITED PARCEL SERVICE Claim 627 WESTERN PAPER CO Claim 255
UNITED PARCEL SERVICE Claim 681 WESTONE BANK-OGDEN UT Claim 416
UNITED SYSTEMS INC Claim 753 WESTPORT CORP Claim 200
UNITED WAY OF ANCHORAGE Scheduled WESTWOOD CLEANERS Scheduled
UNITED WAY OF BENTON COUNTY Scheduled WHISTLES INC Claim 205
UNITED WAY OF MISSOULA CNTY Claim 371 WHITMORE OXYGEN CO Claim 748
UNITED WAY/COLUMBIA-WILLIAMETTE Scheduled WILLHIGHT RESEARCH INC Claim 144
UNIVERSITY CITY SIGN ADVTG Claim 941 WILLIAM CARTER COMPANY, THE Claim 688
US ELEVATOR Scheduled WILLIAM E CONNER & ASSOCIATES LTD Claim 530
US TV OF WASHINGTON STATE/KTZZ-TV Claim 202 WILLIAM THOMPSON Scheduled
US WEST CELLULAR Scheduled WILSON ENGRAVING CO Claim 480
US WEST COMMUNICATION Scheduled WIRE COMMUNICATIONS Claim 90
</TABLE>
C-10
<PAGE>
ANNEX C
LIST OF SENIOR CLAIMS
<TABLE>
<CAPTION>
Creditor Name Claim Filed Claim Creditor Name Claim Filed Claim
/Scheduled No. /Scheduled No.
<S> <C> <C> <C> <C> <C>
WORKMAN PUBLISHING CO INC Claim 296
WOSCA SHIPPERS COOPERATIVE Claim 432
WOVENCRAFT Claim 802
WYEAST COLOR INC Claim 229
XEROX CORPORATION Claim 651
XEROX CORPORATION Claim 909
XTRMZ LTD Claim 725
YAKIMA HERALD-REPUBLIC Claim 954
YAKIMA VALLEY JANITORIAL Scheduled
YEHASSO Scheduled
YELLOW FREIGHT SYSTEM INC Claim 701
YOUNG ELECTRIC SIGN COMPANY Claim 224
ZARAGOZA DESIGN Claim 235
ZEE MEDICAL SERVICES Claim 322
ZELLERBACH Claim 964
ZHG INDUSTRIES Scheduled
</TABLE>
C-11
<PAGE>
<TABLE>
ANNEX D
SCHEDULE OF PENDING OR THREATENED LITIGATION
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
1. Jan Boatman v. Lamonts Apparel, Inc. 2. Edith and Fred Dowell v. Lamonts Apparel, Inc.
Washington Superior Court, King County Washington Superior Court, Thurston County
Cause No. 96-2-29290-7 SEA, filed 11/7/96 Cause No. 96-2-2933-2, filed 8/16/96
Personal injury Personal Injury
Plaintiff: Jan Boatman Plaintiff: Edith and Fred Dowell
c/o William J. Murphy c/o Steven R. Meeks
P.O. Box 3105 Meeks Morgan Bauer
Federal Way, WA 98063 1235 Fourth Avenue East, #200
Olympia, WA 98506
3. Sharon Eck v. Lamonts Apparel, Inc. 4. Lamonts Apparel, Inc. v. Hickel Investment Company
No lawsuit has been filed United States District Court for Alaska
Potential Injury Cause No. A95-0463 (HRH), filed 3/21/95
Potential plaintiff: Sharon Eck Recovery of overpayment of CAM charges
2100 S. 375th Defendant: Hickel Investment Company
Federal Way, WA 98003 P.O. Box 101700
Anchorage, AK 99510
5. Diane Lindley v. Lamonts Apparel, Inc. 6. Lamonts Apparel, Inc. v. Si-Lloyd Associates
No lawsuit has been filed Oregon Court of Appeals
Personal Injury Cause No. CA A91907, filed 2/16/96
Potential plaintiff: Diane Lindley Lease dispute
P.O. Box 114 Defendant: Si-Lloyd Associates
Provo, UT 84332 c/o Katherine McDowell
Stoel Rives Boley Jones & Grey
Standard Insurance Center
900 S.W. Fifth Avenue, #2300
Portland, OR 97204-1268
7. Glen Hegbloom v. Lamonts Apparel, Inc. 8. Georgia Proctor v. Lamonts Apparel, Inc.
Pending EEOC Charge No. 380951541, filed 9/19/95 Washington Superior Court, Pierce County
No lawsuit has been filed Cause No. 93-2-11166-1, filed 11/9/93
Discrimination under Americans with Disabilities Act Personal injury
Potential plaintiff: Glen Hegbloom Plaintiff: Georgia Proctor
3511 Alderwood Mall Blvd., #203 1815 N. Vasault
Lynnwood, WA 98036-4725 Tacoma, WA 98498
9. Karen Kilsgaard v. Lamonts Apparel, Inc. 10. Carlotta King v. Lamonts Apparel, Inc.
Washington Superior Court, Pierce County Oregon Superior Court, Multnomah County
Cause No. 93-2-05817-0, filed 7/13/93 Cause No. 9509-06410, filed 9/95
Personal injury Personal injury
Plaintiff: Karen Kilsgaard Plaintiff: Carlotta King
c/o Alvin Mayher, Jr. c/o J. Randolph Pickett
Mayhew-Froehling 621 S.W. Morrison Street, #900
2728 E. Main Street Portland, OR 97205
Puyallup, WA 98372
D-1
<PAGE>
ANNEX D
SCHEDULE OF PENDING OR THREATENED LITIGATION
- -----------------------------------------------------------------------------------------------------------------
11. Theodora Mick v. Lamonts Apparel, Inc. 12. Elva McLane v. Lamonts Apparel, Inc.
No lawsuit has been filed Washington Superior Court, Snohomish County
Personal Injury Cause No. 95-2-076091, filed 10/3/95
Potential plaintiff: Theodora Mick Personal Injury
1616 E. 30th Ave. #126 Plaintiff: Elva McLane
Spokane, WA 98203 C/o James E. Deno
3411 Colby Avenue
Everett, WA 98201
13. Lamonts Apparel, Inc. v. Prudential Insurance 14. Dain Childers Corporation v. Lamonts Apparel, Inc.
Co. of America Washington Superior Court, Clark County
Oregon Superior Court, Multnomah County Cause No. 94-2-02799-2, filed 8/94
Cause No. 94-09-06103, filed 9/2/94 Breach of contract
Breach of contract Plaintiff: Dain Childers Corporation
Defendant: Stephen Janik 24495 Butteville Rd. N.E.
One Main Place Aurora, OR 97002
101 S.W. Main Street, #1100
Portland, OR 97204-3274
15. New Jersey Dept. of Environmental Protection I SRA 16. David Bradlow, assignee for the Benefit of
Case Nos. 88A14 and 88990 issued 10/22/88 Creditors of Laurel Burch, Inc. v. Lamonts
No lawsuit has been filed Apparel, Inc.
Regulatory action pursuant to the Industrial California Municipal Court, Alameda County
Site Recovery Act Case No. 456357-8, filed 12/8/94
Potential plaintiff: New Jersey Dept. of Breach of contract
Environmental Protection Plaintiff: David Bradlow
Attn: Kenneth J. Kahora c/o Andrea J. Ingram
401 E. State Street, CN028 Rosenblum, Parish & Isaacs
Trenton, NJ 08625 555 Montgomery Street, 15th Floor
San Francisco, CA 94111
17. Lorna Moore v. Lamonts Apparel, Inc. 18. Rosie Reichenberg v. Lamonts Apparel, Inc.
No lawsuit has been filed No lawsuit has been filed
Personal injury Personal injury
Potential plaintiff: Lorna Moore Potential Plaintiff: Rosie Reichenberg
c/o Robert G. Ringo P.O. Box 168
P. O. Box 1108 Pierce, ID 93546
Corvallis, OR 97339
19. Louis Stiles v. Lamonts Apparel, Inc. 20. Paula Baccetti v. Lamonts Apparel, Inc.
No lawsuit has been filed Claim for adminstrative expense claim has been filed
Personal injury Discrimination, retaliation, and torts
Potential plaintiff: Louis Stiles Potential plaintiff: Paula Bacetti
c/o Marcus B. Wash c/o Andrea Brenneke
2500 Rainier Tower MacDonald, Hoague & Bayless
1301 Fifth Ave. 1500 Hoge Building
Seattle, WA 98101 705 Second Ave.
Seattle, WA 98104-1745
21. The Debtor has threatened or pending litigation 22. Any claims or rights of the Debtor under its leases or
for a number of personal injury matters not listed otherwise to any offset, credit or reimbursement for
herein that are covered by insurance and where the overpayment of taxes, insurance or common area maintenance
alleged damages incurred do not exceed $10,000. charges.
</TABLE>
D-2
<PAGE>
ANNEX E
Judge: The Honorable Thomas T. Glover
Chapter: 11
Hearing Location: Seattle, Room 416
Hearing Date: January 6, 1997
Hearing Time: 3:00 p.m.
Response Date: December 2, 1996
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
In Re:
LAMONTS APPAREL, INC., BANKRUPTCY NO. 95-00100
a Delaware corporation, dba
LAMONTS, LAMONTS FOR KIDS, INTERIM FINDINGS OF FACT
fka TEXSTYRENE CORPORATION, AND CONCLUSIONS OF LAW RE
a Delaware corporation, ARIS CONFIRMATION OF DEBTORS
CORPORATION, a Delaware AMENDED PLAN OF
corporation, LAMONTS REORGANIZATION UNDER
CORPORATION, a Delaware CHAPTER 11 OF THE
corporation, and LAMONTS BANKRUPTCY CODE
APPAREL, INC., a Washington
corporation,
Debtor.
Taxpayer Identification
No. 75-2076160
DEBTOR'S FORMER ADDRESS:
3650 131st Avenue S.E.
Bellevue, WA 98006
DEBTOR'S CURRENT ADDRESS:
12413 Willows Road N.E.
Kirkland, WA 98034
- -----------------------------------
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
INTERIM FINDINGS OF FACT AND CONCLUSIONS 3699 WILSHIRE BLVD., SUITE 900
OF LAW RE CONFIRMATION OF DEBTOR'S LOS ANGELES, CA 90010
AMENDED PLAN OR REORGANIZATION UNDER TELEPHONE: (213)251-5100
CHAPTER 11 OF THE BANKRUPTCY CODE - 1 Special Reorganization Counsel for
Debtor and Debtor in Possession
E-1
<PAGE>
AT SEATTLE, WASHINGTON, IN SAID DISTRICT, ON THIS 6TH DAY OF JANUARY, 1997.
The hearing (the "Confirmation Hearing") under Bankruptcy Code
section 1128(a) and Bankruptcy Rule 3020(b)(2) to consider the confirmation of
the "Debtor's Amended Plan of Reorganization under Chapter 11 of the Bankruptcy
Code" (the "Plan") filed by Lamonts Apparel, Inc. ("Lamonts"), debtor and debtor
in possession in the above-captioned chapter 11 case, commenced on January 6,
1997, at 3:00 p.m., before the undersigned United States Bankruptcy Judge.
Appearances were entered as indicated in the record.
The Plan, the "Amended Disclosure Statement re Plan of Reorganization under
Chapter 11 of the Bankruptcy Code" (the "Disclosure Statement"), and the other
solicitation materials, in the form previously approved by this Court, having
been transmitted to all of Lamonts' known creditors and equity security holders
and to all other parties entitled to notice in accordance with the Bankruptcy
Rules and this Court's prior orders; the Court having considered the memorandum
of points and authorities and declarations filed in support of confirmation of
the Plan, the representations and arguments of counsel, and the record in this
case; there being no unresolved objections to confirmation of the Plan
outstanding; and for good cause appearing, the Court hereby makes the following
E-2
<PAGE>
interim findings of fact and conclusions of law pending final confirmation of
the Plan:
FINDINGS OF FACT
1. Lamonts, a Delaware corporation, filed its voluntary petition under
chapter 11 of the Bankruptcy Code on January 6, 1995.
2. On August 23, 1996, Lamonts filed a plan of reorganization and a
proposed disclosure statement. On October 23, 1996, Lamonts amended its plan of
reorganization and proposed disclosure statement.
3. On October 24, 1996, after a hearing on notice to all known creditors,
all known equity security holders, the United States Trustee, the Securities and
Exchange Commission, and other parties entitled to notice, this Court entered
its "Order (1) Approving Disclosure Statement as Amended, (2) Fixing Time for
Objections to Confirmation of the Plan, (3) Scheduling Confirmation Hearing,
(4) Approving Form and Manner of Notice, (5) Fixing Last Day for Casting Ballots
Accepting or Rejecting the Plan, and (6) Specifying Certain Other Solicitation
and Confirmation Deadlines and Procedures" (the "Disclosure Statement Order")
and the "Order and Notice of (1) Approval of Disclosure Statement, (2) Hearing
on Confirmation of Plan, (3) Last Day for Filing Objections to the Plan,
(4) Last Day for Casting Ballots
E-3
<PAGE>
Accepting or Rejecting the Plan, and (5) Certain Related Deadlines and
Procedures" (the "Notice of Confirmation Hearing").
4. The Notice of Confirmation Hearing was duly served upon all known
creditors, all known equity security holders, the United States Trustee, the
Securities and Exchange Commission, and other parties entitled to notice, along
with: a copy of the Disclosure Statement, which included the Plan; a
solicitation letter from Lamonts; solicitation letters from the three official
committees which have been duly appointed in this case (the "Committees"); and,
to the classes of creditors and equity security holders entitled to vote on the
Plan, appropriate ballots for such classes; each in the form previously approved
by this Court.
5. A summary of the Notice of Confirmation Hearing was published once in
The Wall Street Journal (national edition), and in The Seattle Times, as
previously ordered by this Court.
6. The Disclosure Statement Order fixed January 6, 1997, at 3:00 p.m., as
the date for the commencement of the Confirmation Hearing; fixed December 2,
1996, as the last date for serving (so as to be received by that date) and
filing any objections to confirmation of the Plan; and fixed December 16, 1996,
as the last date for receipt by the Ballot Tabulator of ballots accepting or
rejecting the Plan.
E-4
<PAGE>
7. All objections to confirmation of the Plan have been fully resolved,
and there are no objections to confirmation outstanding.
8. The Committees have each approved the Plan and recommended its
acceptance by creditors and equity security holders.
9. The Plan has been accepted in writing by those creditors and equity
security holders whose acceptance is required under Bankruptcy Code
section 1129(a)(8). In particular:
a. The Plan has been accepted by 100% of the holders of claims
classified under the Plan as Class 1 Other Priority Claims who timely voted to
accept or reject the Plan.
b. The Plan has been accepted by the holders of claims classified
under the Plan as Class 4 General Unsecured Claims totalling approximately 99.3%
in dollar amount and 95.7% in number of such claims held by creditors that have
timely voted to accept or reject the Plan.
c. The Plan has been accepted by the holders of equity security
interests classified under the Plan as Class 5 Old Common Stock totalling
approximately 97.7% in amount of shares held by equity security holders that
have timely voted to accept or reject the Plan.
E-5
<PAGE>
10. The Plan complies with the applicable provisions of the Bankruptcy
Code.
11. The Plan has been proposed in good faith and not by any means
forbidden by law.
12. Lamonts and its officers, directors, employees, agents, and
professionals have acted in "good faith" within the meaning of Bankruptcy Code
section 1125(e), and Lamonts, as the plan proponent, has complied with all
applicable provisions of the Bankruptcy Code.
13. With respect to each impaired class of claims or interests, each
holder of a claim or interest either has accepted the Plan or will receive or
retain under the Plan property of a value, as of the Effective Date of the Plan,
that is not less than the amount that such holder would receive or retain if
Lamonts were to be liquidated under chapter 7 of the Bankruptcy Code on such
date.
14. All payments made or promised by Lamonts for services or for costs and
expenses in connection with the case, or in connection with the Plan and
incident to the case, have been fully disclosed to the Court and are reasonable
or, if to be fixed after confirmation of the Plan, will be subject to the
approval of the Court as reasonable.
E-6
<PAGE>
15. In accordance with the requirements of Bankruptcy Code
section 1129(a)(5)(B), the identities of the insiders that will be employed or
retained by Lamonts and the nature of the compensation of such insiders have
been fully disclosed.
16. All fees due and payable prior to the Effective Date of the Plan under
28 U.S.C. 1930 have been paid or shall be paid pursuant to the Plan on the
Effective Date of the Plan.
17. The Plan provides for the treatment of administrative and priority
claims in the manner required by Bankruptcy Code section 1129(a)(9).
18. At least one class of claims that is impaired under the Plan has
accepted the Plan, determined without including any acceptance of the Plan by
any insider.
19. The Plan contains adequate means for its implementation, including,
without limitation, the issuance of securities in exchange for specified claims
and interests.
20. Lamonts has not obligated itself to provide retiree benefits, as that
term is defined in Bankruptcy Code section 1114.
21. The compromise of subordination disputes provided in the Plan is
fair and reasonable and is in the best interest of the estate, creditors and
shareholders. The designations of Senior Claims and Senior Indebtedness in
the Plan, as modified by the stipulation filed with the Court, are correct.
E-7
<PAGE>
22. All requirements for approval of the assumptions and rejections of
executory contracts and unexpired leases as specified in the Plan have been
satisfied.
CONCLUSIONS OF LAW
23. Any of the foregoing findings of fact which are deemed to constitute
conclusions of law are hereby incorporated as conclusions of law. Any of the
following conclusions of law which are deemed to constitute findings of fact are
hereby adopted as findings of fact.
24. Pursuant to 28 U.S.C. 1334 of the Bankruptcy Amendments and Federal
Judgeship Act of 1984, jurisdiction of the above captioned chapter 11 case is
vested in the United States District Court for the Western District of
Washington. The United States District Court has referred, pursuant to 28
U.S.C. 157(a), all cases under title 11 and any and all proceedings arising
under title 11 or arising in or related to a case under title 11 to the
bankruptcy judges of the district. Reference to the Bankruptcy Court gives this
Court the jurisdiction to make and enter an appropriate and final order of
confirmation of the Plan, pursuant to 28 U.S.C. 157(b)(1) and (b)(2)(L).
E-8
<PAGE>
25. Such "notice and a hearing" as is required by the Bankruptcy Code and
the Bankruptcy Rules with respect to the Plan has been duly given. Notice of
the Confirmation
Hearing, the date fixed for filing acceptances or rejections of the Plan, and
the date fixed for filing objections to confirmation of the Plan, was
adequate and appropriate as required by Bankruptcy Code section 102(l),
Bankruptcy Rules 2002 and 3017, and other applicable law.
26. The Plan complies with the applicable provisions of the Bankruptcy
Code. The Plan contains all mandatory provisions required by Bankruptcy Code
section 1123, and contains only such other provisions as are permissible under
Bankruptcy Code section 1123 and consistent with the Bankruptcy Code.
27. Lamonts' solicitation with respect to the Plan complied with
Bankruptcy Code section 1125 and all other applicable provisions of the
Bankruptcy Code.
28. As provided in the Plan, the securities law exemptions of Bankruptcy
Code section 1145 apply to the issuance of the New Common Stock, the New
Warrants and the Gordian Warrants (all as defined in the Plan) and to the
issuance of New Common Stock upon the exercise of the New Warrants and Gordian
Warrants.
29. All applicable requirements for confirmation of the Plan have been
duly satisfied in this case, except that the
E-9
<PAGE>
requirements of Bankruptcy Code sections 1129(a)(5)(A) and 1129(a)(11) are to
be considered at a continued confirmation hearing, which shall be held on
April 14, 1997, at 11:00 a.m., pursuant to the "Stipulation re Procedures for
Confirmation of Plan; and Order Thereon" entered by this Court on December
20, 1996.
/s/ THOMAS T. GLOVER
----------------------------------------
HONORABLE THOMAS T. GLOVER
UNITED STATES BANKRUPTCY JUDGE
PRESENTED BY:
/s/ JEFFREY H. DAVIDSON
- -------------------------------------
JEFFREY H. DAVIDSON and
MICHAEL H. GOLDSTEIN, Members of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
Special Reorganization Counsel for
Lamonts Apparel, Inc.,
Debtor and Debtor in Possession
-and-
/s/ RICHARD J. HYATT
- -------------------------------------
RICHARD J. HYATT (WSBA No. 14048)
RYAN SWANSON & CLEVELAND
1201 Third Avenue, Suite 3400
Seattle, WA 98101
Telephone: (206) 464-4224
Counsel for Debtor and
Debtor in Possession
E-10
<PAGE>
Judge: The Honorable Thomas T. Glover
Chapter: 11
Hearing Location: Park Place Building
1200 Sixth Avenue
Seattle, Washington
Room 416
Confirmation Hearing Date: December 18, 1997
Confirmation Hearing Time: 9:30 AM
Objection Date: December 12, 1997
UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
In re ) Case No. 95-00100
)
LAMONTS APPAREL, INC., a Delaware )
corporation, dba LAMONTS, )
LAMONTS FOR KIDS, fka TEXSTYRENE )
CORPORATION, a Delaware corporation, ) PLAN DOCUMENTARY SUPPLEMENT
ARIS CORPORATION, a Delaware ) TO "DEBTOR'S MODIFIED AND RESTATED
corporation, LAMONTS CORPORATION, a ) PLAN OF REORGANIZATION UNDER
Delaware corporation, and LAMONTS ) CHAPTER 11 OF THE BANKRUPTCY CODE"
APPAREL, INC., a Washington )
corporation, )
)
Debtor. )
)
Taxpayer Identification )
No. 75-2076160 )
)
DEBTOR'S FORMER ADDRESS: )
)
3650 131st Avenue S.E. )
Bellevue, WA 98006 )
)
DEBTOR'S CURRENT ADDRESS: )
)
12413 Willows Road N.E. )
Kirkland, WA 98034 )
)
)
)
- ---------------------------------------
<PAGE>
This Plan Documentary Supplement is filed by Lamonts Apparel, Inc., a
Delaware corporation, debtor and debtor in possession, in conjunction with the
"Debtor's Modified and Restated Plan of Reorganization under Chapter 11 of the
Bankruptcy Code" (the "Plan"). Attached hereto are the forms of certain
documents referred to in the Plan. All documents attached to this Plan
Documentary Supplement are incorporated into and made a part of the Plan as
though set forth in full therein.
DATED: October 31, 1997 LAMONTS APPAREL, INC.,
a Delaware corporation
By /s/ LOREN R. ROTHSCHILD
-------------------------------
LOREN R. ROTHSCHILD
Vice-Chairman of the
Board of Directors
SUBMITTED BY:
/s/ JEFFREY H. DAVIDSON
- --------------------------------------
JEFFREY H. DAVIDSON, and
MICHAEL H. GOLDSTEIN, members of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
Special Reorganization Counsel
for Debtor and Debtor in Possession
-and-
/s/ RICHARD J. HYATT
- --------------------------------------
RICHARD J. HYATT (WSBA No. 14048)
RYAN SWANSON & CLEVELAND, PLLC
1201 Third Avenue, Suite 3400
Seattle, WA 98101 (206) 464-4224
Counsel for Debtor and
Debtor in Possession
2
<PAGE>
TABLE OF CONTENTS
DOCUMENT TAB
Amended and Restated Certificate of Incorporation 1
Amended and Restated Bylaws 2
New Class A/Class B Warrant Agreement and
Form of New Class A/Class B Warrant Certificate 3
New Class C Warrant Agreement and
Form of New Class C Warrant Certificate 4
Form of New Common Stock Certificate 5
Form of New Special Voting Common Stock Certificate 6
Grant of Registration Rights 7
Employee Stock Option Plan 8
Amended and Restated Employment Agreements 9
Gordian Warrant Agreement 10
3
<PAGE>
TAB 1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TAB 1
<PAGE>
SECOND RESTATED
CERTIFICATE OF INCORPORATION
OF
LAMONTS APPAREL, INC.
Under Sections 242, 245 and 303 of the General
Corporation Law of the State of Delaware
The undersigned being the [ ] of Lamonts Apparel, Inc. (the
"Corporation"), a corporation organized and existing under the laws of the State
of Delaware, do hereby certify as follows:
FIRST: The name of the corporation is Lamonts Apparel, Inc. The date
of the filing of the Corporation's original Certificate of Incorporation was
December 12, 1985; and the date of the filing of the Corporation's Restated
Certificate of Incorporation was October 30, 1992. The Corporation was
originally incorporated under the name of Texstyrene Corporation.
SECOND: This Restated Certificate of Incorporation, which amends and
restates the Corporation's Certificate of Incorporation, is being filed in
connection with the Corporation's plan of reorganization dated [ ] (as
such plan may be amended from time to time, the "Plan of Reorganization") and
was duly adopted in accordance with the provisions of 242, 245 and 303 of the
General Corporation Law of the State of Delaware ("GLC"). The Plan of
Reorganization was confirmed by order entered on [ ] (the
"Confirmation Order"), by the United States Bankruptcy Court for the Western
District of Washington at Seattle (the "Bankruptcy Court").
THIRD: The Restated Certificate of Incorporation of the Corporation
is hereby amended and restated so as to read in its entirety as follows:
ARTICLE I
The name of the Corporation is Lamonts Apparel, Inc. (hereinafter the
"Corporation").
<PAGE>
ARTICLE II
The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle, 19801. The name of the registered agent at that address is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the GLC.
ARTICLE IV
The total number of shares of stock which the Corporation shall have
authority to issue is 50 million, consisting of 40 million shares of common
stock, each having a par value of $.01 per share (the "Common Stock"), and 10
million shares of preferred stock, each having a par value of $.01 per share
(the "Preferred Stock").
The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more classes
or series, and to fix for each such class or series such voting powers, full
or limited, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issuance of such class or series and as may be
permitted by the GLC, including, without limitation, the authority to provide
that any such class or series may be (i) subject to redemption at such time
or times and at such price or prices; (ii) entitled to receive dividends
(which may be cumulative or non-cumulative) at such rates, on such
conditions, and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes or any other
series; (iii) entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation; or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any
other series of the same or any other class or classes of stock, of the
Corporation at such price or prices or at such rates of exchange and with
such adjustments; all as may be stated in such resolution or resolutions.
2
<PAGE>
The Common Stock shall be comprised of 39,999,990 shares of Class A
Common Stock (the "Class A Common Stock") and ten (10) shares of Class B Common
Stock ("Class B Common Stock"). All shares of Common Stock shall have the
identical powers, preferences and rights, including voting rights, and shall
vote on all matters as a single class, except as provided in the following
paragraphs of this Article IV or as required by law.
During the continuance of any Special Share Event (as that term is
defined in the following paragraph), upon the affirmative vote of the holders of
not less than 3/4 of the then outstanding shares of Class B Common Stock, voting
separately as a class the Corporation shall (i) file a voluntary petition under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), unless
the Corporation is otherwise a debtor under the United States Bankruptcy Code,
and (ii) oppose any motion to dismiss the resulting bankruptcy case. Any such
vote, which vote shall be deemed for purposes of the resulting bankruptcy filing
to be a vote of the Board of Directors, may be rescinded (i) by the affirmative
vote of the holders of 3/4 of the then outstanding shares of Class B Common
Stock or (ii) following the termination of such Special Share Event, upon the
vote of the Board of Directors; provided, however, that a vote to file a
voluntary petition may only be rescinded prior to the filing of such petition.
Such right of the holders of the Class B Common Stock shall be coextensive with
the right of the Board of Directors at any time to cause such a filing to occur
and nothing contained herein shall restrict the ability of the Board of
Directors to cause the Corporation to file a voluntary petition under the
Bankruptcy Code or to oppose any motion to dismiss any bankruptcy case.
A "Special Share Event" shall be deemed to exist (a) during the
continuance of any Event of Default; provided that the Corporation has received
written notice from the Agent (as those terms are defined in the Amended and
Restated Debtor-In-Possession and Exit Financing Loan Agreement by and among
Lamonts Apparel, Inc., BankBoston, N.A., certain lending institutions party
thereto and BankBoston, N.A., as Agent, dated as of September 22, 1997, as
amended from time to time (the "Loan Agreement")) of the Agent's intention to
exercise any of the rights and remedies available to it upon any Event of
Default under the Loan Agreement or any exercise of any such remedies, in each
such case until such Event of Default is cured or such notice or exercise is
rescinded, and/or (b) upon the acceleration of the Term Loan and/or the
Revolving Credit Loans (as those terms are defined in the Loan Agreement), in
each such case until such
3
<PAGE>
acceleration is rescinded or all amounts due under such accelerated loan are
repaid in full.
Upon satisfaction of all of the Corporation's payment obligations
under the Term Loan, each share of Class B Common Stock shall automatically
convert into one share of Class A Common Stock, with no other action on the
part of the Corporation or the holder thereof. Notwithstanding anything to
the contrary in this Second Restated Certificate of Incorporation, including,
but not limited to, in this Article IV or in Article VIII, the right of the
holders of Class B Common Stock to cause the Corporation to file a voluntary
bankruptcy petition and to oppose any motion to dismiss the resulting
bankruptcy case during the continuance of any Special Share Event may not be
modified, altered, conditioned or amended in any way, except upon the vote
and consent of the holders of (i) 3/4 of the then outstanding shares of Class
B Common Stock, voting separately as a class and (ii) a majority of the then
outstanding shares of Common Stock. Immediately following the conversion of
any shares of Class B of Common Stock into shares of Class A Common Stock,
(i) such converted shares of Class B Common Stock shall be deemed no longer
outstanding, (ii) all rights whatsoever with respect to such converted shares
of Class B Common Stock shall terminate, and (iii) the persons entitled to
receive the Class A Common Stock upon the conversion of such converted Class
B Common Stock shall be treated for all purposes as having become the owners
of Class A Common Stock.
No additional shares of Class B Common Stock shall be authorized or
issued. The Class B Common Stock shall not be transferable except in
connection with the sale or transfer of the transferee's entire interest as
assignee of the Term Loan Lender's interest in the Term Loan after the
transferee has purchased all right, title and interest of the Term Loan
Lender in the Term Loan or as the party subrogated to such Term Loan Lender's
interest after payment on its guaranty of certain of the Borrower's
obligations to the Term Loan Lender (all capitalized terms being used in this
sentence as defined in the Loan Agreement). Upon any purported transfer in
violation of the foregoing restriction, each share of Class B Common Stock so
transferred shall no longer have the ability to vote to cause the Corporation
to file a voluntary petition or oppose a motion to dismiss the resulting
bankruptcy case unless and until such shares are properly tranferred to the
transferee or continue to be held by the transferor.
ARTICLE V
4
<PAGE>
The Corporation shall not issue nonvoting equity securities to the
extent prohibited by Section 1123 of the United States Bankruptcy Code as in
effect on the effective date of the Plan of Reorganization; PROVIDED, that this
Article V: (i) will have no further force and effect beyond that required under
Section 1123 of the Bankruptcy Code; (ii) will have such force and effect, if
any, only for so long as such section of the Bankruptcy Code is in effect and
applicable to the Corporation; and (iii) in all events may be amended or
eliminated in accordance with applicable law as from time to time in effect.
ARTICLE VI
The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the
By-Laws of the Corporation.
(3) The number of directors of the Corporation shall be as from
time to time fixed by, or in the manner provided in, the By-Laws of
the Corporation. Election of directors need not be by written ballot
unless the By-Laws so provide.
(4) No director of the Corporation serving on or after
January 6, 1995 shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant
to Section 174 of the GCL or (iv) for any transaction from which the
director derived an improper personal benefit. Any repeal or
modification of this Article VI by the stockholders of the Corporation
shall not
5
<PAGE>
adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification
with respect to acts or omissions occurring prior to such repeal or
modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the GCL, this Certificate of Incorporation, and
any By-Laws adopted by the stockholders; PROVIDED, HOWEVER, that no
By-Laws hereafter adopted by the stockholders shall invalidate any
prior act of the directors which would have been valid if such By-Laws
had not been adopted.
ARTICLE VII
Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the GCL) outside the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors or in the By-Laws of the Corporation.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be executed in its corporate name this
____________ day of ___________, 1997.
-------------------------------------------
[Name]
6
<PAGE>
[Title]
7
<PAGE>
TAB 2
AMENDED AND RESTATED BYLAWS
TAB 2
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
LAMONTS APPAREL, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State
of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders
for the election of directors shall be held on such date and at such time as
shall be designated from time to time by the Board of Directors. Any other
proper business may be transacted at the Annual Meeting of Stockholders.
SECTION 3. SPECIAL MEETINGS. Unless otherwise required by law or
by the certificate of incorporation of the Corporation, as amended and
restated from
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time to time (the "Certificate of Incorporation"), Special Meetings of
Stockholders, for any purpose or purposes, may be called by either (i) the
Chairman of the Board of Directors, if there be one, or the Vice Chairman of
the Board of Directors, if there be one, or (ii) the President, any Vice
President, if there be one, the Secretary or any Assistant Secretary, if
there be one, at the request in writing of (i) the Board of Directors, (ii) a
committee of the Board of Directors that has been duly designated by the
Board of Directors and whose powers and authority include the power to call
such meetings, (iii) stockholders owning a majority of the capital stock of
the Corporation issued and outstanding and entitled to vote or (iv) with
respect to Special Meetings of the holders of the Corporation's Class B
Common Stock only, during the continuance of any Special Share Event (as
defined in the Certificate of Incorporation), holders owning 100% of the
issued and outstanding Class B Common Stock. Such request shall state the
purpose or purposes of the proposed meeting. At a Special Meeting of
Stockholders, only such business shall be conducted as shall be specified in
the notice of meeting (or any supplement thereto).
SECTION 4. NOTICE. Whenever stockholders are required or permitted
to take any action at a meeting, a written notice of the meeting shall be
given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise required by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of
the meeting to each stockholder entitled to vote at such meeting.
SECTION 5. ADJOURNMENTS. Any meeting of the stockholders may be
adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the Corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for
the adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 6. QUORUM. Unless otherwise required by law or the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established,
shall not be broken by the withdrawal of
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enough votes to leave less than a quorum. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, in the
manner provided in Section 5, until a quorum shall be present or represented.
SECTION 7. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these By-laws, any question brought before
any meeting of stockholders, other than the election of directors, shall be
decided by the vote of the holders of a majority of the total number of votes
of the capital stock represented and entitled to vote thereat, voting as a
single class. Unless otherwise provided in the Certificate of Incorporation,
and subject to Section 5 of Article V hereof, each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share
of the capital stock entitled to vote thereat held by such stockholder. Such
votes may be cast in person or by proxy but no proxy shall be voted on or
after three years from its date, unless such proxy provides for a longer
period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in such officer's
discretion, may require that any votes cast at such meeting shall be cast by
written ballot.
SECTION 8. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required
or permitted to be taken at any Annual or Special Meeting of Stockholders of
any class of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation
by delivery to its registered office in the State of Delaware, its principal
place of business, or an officer or agent of the corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. Every written
consent shall bear the date of signature of each stockholder who signs the
consent and no written consent shall be effective to take the corporate
action referred to therein unless, within sixty days of the earliest dated
consent delivered in the manner required by this Section 8 to the
Corporation, written consents signed by a sufficient number of holders to
take action are delivered to the Corporation by delivery to its registered
office in the state of Delaware, its principal place of business, or an
officer or agent
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of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing and
who, if the action had been taken at a meeting, would have been entitled to
notice of the meeting if the record date for such meeting had been the date
that written consents signed by a sufficient number of holders to take the
action were delivered to the Corporation as provided above in this section.
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of
the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder of the
Corporation who is present.
SECTION 10. STOCK LEDGER. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 9 of this Article II or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 11. CONDUCT OF MEETINGS. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the
conduct of the meeting of the stockholders as it shall deem appropriate.
Except to the extent inconsistent with such rules and regulations as adopted
by the Board of Directors, the chairman of any meeting of the stockholders
shall have the right and authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such chairman, are
appropriate for the proper conduct of the meeting. Such rules, regulations
or procedures, whether adopted by the Board of Directors or prescribed by the
chairman of the meeting, may include, without limitation, the following: (i)
the establishment of an agenda or order of business for the meeting; (ii) the
determination of when the polls shall open and close for any given matter to
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be voted on at the meeting; (iii) rules and procedures for maintaining order
at the meeting and the safety of those present; (iv) limitations on
attendance at or participation in the meeting to stockholders of record of
the corporation, their duly authorized and constituted proxies or such other
persons as the chairman of the meeting shall determine; (v) restrictions on
entry to the meeting after the time fixed for the commencement thereof; and
(vi) limitations on the time allotted to questions or comments by
participants.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of
Directors shall consist of not less than one nor more than fifteen members,
the exact number of which shall initially be fixed from time to time by the
Board of Directors. Except as provided in Section 2 of this Article III,
directors shall be elected by a plurality of the votes cast at the Annual
Meetings of Stockholders and each director so elected shall hold office until
the next Annual Meeting of Stockholders and until such director's successor
is duly elected and qualified, or until such director's earlier death,
resignation or removal. Any director may resign at any time upon written
notice to the Corporation. Directors need not be stockholders.
SECTION 2. VACANCIES. Unless otherwise required by law or the
Certificate of Incorporation, vacancies arising through death, resignation,
removal, an increase in the number of directors or otherwise may be filled
only by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall
hold office until the next annual election and until their successors are
duly elected and qualified, or until their earlier death, resignation or
removal.
SECTION 3. DUTIES AND POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws required to be exercised or done by the
stockholders.
SECTION 4. MEETINGS. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware. Regular
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meetings of the Board of Directors may be held without notice at such time
and at such place as may from time to time be determined by the Board of
Directors. Special meetings of the Board of Directors may be called by the
Chairman, if there be one, the President, or by any director. Notice thereof
stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date
of the meeting, by telephone or telegram on twenty-four (24) hours' notice,
or on such shorter notice as the person or persons calling such meeting may
deem necessary or appropriate in the circumstances.
SECTION 5. QUORUM. Except as otherwise required by law or the
Certificate of Incorporation, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
SECTION 6. ACTIONS BY WRITTEN CONSENT. Unless otherwise provided
in the Certificate of Incorporation, or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided in the Certificate of Incorporation, members of the Board
of Directors of the Corporation, or any committee thereof, may participate in
a meeting of the Board of Directors or such committee by means of a
conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified
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member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any absent or
disqualified member. Any committee, to the extent permitted by law and
provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
Each committee shall keep regular minutes and report to the Board of
Directors when required.
SECTION 9. COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director, payable in cash or securities. No
such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
SECTION 10. INTERESTED DIRECTORS. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association,
or other organization in which one or more of its directors or officers are
directors or officers or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present
at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because the
director or officer's vote is counted for such purpose if (i) the material
facts as to the director or officer's relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority
of the disinterested directors, even though the disinterested directors be
less than a quorum; or (ii) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is
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authorized, approved or ratified by the Board of Directors, a committee
thereof or the stockholders. Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, also may choose a
Chairman of the Board of Directors and a Vice Chairman of the Board of
Directors (each of whom must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number
of offices may be held by the same person, unless otherwise prohibited by law
or the Certificate of Incorporation. The officers of the Corporation need
not be stockholders of the Corporation nor, except in the case of the
Chairman of the Board of Directors and the Vice Chairman of the Board of
Directors, need such officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors, at its first meeting
held after each Annual Meeting of Stockholders (or action by written consent
of stockholders in lieu of the Annual Meeting of Stockholders), shall elect
the officers of the Corporation who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors; and all officers of the
Corporation shall hold office until their successors are chosen and
qualified, or until their earlier death, resignation or removal. Any officer
elected by the Board of Directors may be removed at any time by the
affirmative vote of the Board of Directors. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of Directors. The
salaries of all officers of the Corporation shall be fixed by the Board of
Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed
in the name of and on behalf of the Corporation by the President or any Vice
President or any other officer authorized to do so by the Board of Directors
and any such officer may, in the name of and on behalf of the Corporation,
take all such action as any such officer may
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deem advisable to vote in person or by proxy at any meeting of security
holders of any corporation in which the Corporation may own securities and at
any such meeting shall possess and may exercise any and all rights and power
incident to the ownership of such securities and which, as the owner thereof,
the Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation, unless the
Board of Directors designates the President as the Chief Executive Officer,
and, except where by law the signature of the President is required, the
Chairman of the Board of Directors shall possess the same power as the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. During the
absence or disability of the President, the Chairman of the Board of
Directors shall exercise all the powers and discharge all the duties of the
President. The Chairman of the Board of Directors shall also perform such
other duties and may exercise such other powers as may from time to time be
assigned by these By-Laws or by the Board of Directors.
SECTION 5. VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The Vice
Chairman of the Board of Directors, if there be one, shall be an agent of the
Corporation and, subject to the direction of the Board of Directors, shall
perform such functions and duties as from time to time may be assigned to him
or her by the Board of Directors. The Vice Chairman of the Board of
Directors, if present, shall preside with the Chairman of the Board of
Directors at all meetings of the stockholders and all meetings of the Board
of Directors.
SECTION 6. PRESIDENT. The President shall, subject to the control
of the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall execute all bonds, mortgages,
contracts and other instruments of the Corporation requiring a seal, under
the seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these
By-Laws, the Board of Directors or the President. In the absence or
disability of the Chairman of the Board of Directors, or if there be none,
the Presi-
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dent shall preside at all meetings of the stockholders and the Board of
Directors. If there be no Chairman of the Board of Directors, or if the
Board of Directors shall otherwise designate, the President shall be the
Chief Executive Officer of the Corporation. The President shall also perform
such other duties and may exercise such other powers as may from time to time
be assigned to such officer by these By-Laws or by the Board of Directors.
SECTION 7. VICE PRESIDENTS. At the request of the President or in
the President's absence or in the event of the President's inability or
refusal to act (and if there be no Chairman of the Board of Directors), the
Vice President, or the Vice Presidents if there is more than one (in the
order designated by the Board of Directors), shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice President shall perform
such other duties and have such other powers as the Board of Directors from
time to time may prescribe. If there be no Chairman of the Board of
Directors and no Vice President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the President or in the
event of the inability or refusal of the President to act, shall perform the
duties of the President, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the President.
SECTION 8. SECRETARY. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board
of Directors, and shall perform such other duties as may be prescribed by the
Board of Directors, the Chairman of the Board of Directors or the President,
under whose supervision the Secretary shall be. If the Secretary shall be
unable or shall refuse to cause to be given notice of all meetings of the
stockholders and special meetings of the Board of Directors, and if there be
no Assistant Secretary, then either the Board of Directors or the President
may choose another officer to cause such notice to be given. The Secretary
shall have custody of the seal of the Corporation and the Secretary or any
Assistant Secretary, if there be one, shall have authority to affix the same
to any instrument requiring it and when so affixed, it may be attested by the
signature of the Secretary or by the signature of any such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest to the affixing by
such officer's signature. The Secretary shall see that all books, reports,
statements,
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certificates and other documents and records required by law to be kept or
filed are properly kept or filed, as the case may be.
SECTION 9. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit
of the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors,
at its regular meetings, or when the Board of Directors so requires, an
account of all transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance
of the duties of the office of the Treasurer and for the restoration to the
Corporation, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property
of whatever kind in the Treasurer's possession or under the Treasurer's
control belonging to the Corporation.
SECTION 10. ASSISTANT SECRETARIES. Assistant Secretaries, if there
be any, shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of the Secretary's disability or refusal to act,
shall perform the duties of the Secretary, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Secretary.
SECTION 11. ASSISTANT TREASURERS. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of the Treasurer's disability or refusal to act, shall perform the duties
of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the office of Assistant
Treasurer and for the restoration to the Corporation, in case of the Assistant
Treasurer's death, resignation, retirement or removal from of-
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fice, of all books, papers, vouchers, money and other property of whatever
kind in the Assistant Treasurer's possession or under the Assistant
Treasurer's control belonging to the Corporation.
SECTION 12. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and
powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of
the Corporation (i) by the Chairman of the Board of Directors, the President
or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by such stockholder in the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with
the same effect as if such person were such officer, transfer agent or
registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore issued
by the Corporation alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or the owner's legal representative, to advertise the
same in such manner as the Board of Directors shall require and/or to give
the Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation with respect
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to the certificate alleged to have been lost, stolen or destroyed or the
issuance of such new certificate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers
of stock shall be made on the books of the Corporation only by the person
named in the certificate or by such person's attorney lawfully constituted in
writing and upon the surrender of the certificate therefor, which shall be
cancelled before a new certificate shall be issued. No transfer of stock
shall be valid as against the Corporation for any purpose until it shall have
been entered in the stock records of the Corporation by an entry showing from
and to whom transferred.
SECTION 5. RECORD DATE.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; providing, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than ten days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in this
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State, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by law, the record date
for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolutions taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or
allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted, and which record date shall be not more than
sixty days prior to such action. If no record date is fixed, the record date
for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 6. RECORD OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise required by
law.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law,
the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at
such person's address as it appears on the records of the Corporation, with
postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in
14
<PAGE>
the United States mail. Written notice may also be given personally or by
telegram, telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting, present in person or represented by
proxy, shall constitute a waiver of notice of such meeting, except where the
person attends the meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the requirements of the DGCL and the provisions of
the Certificate of Incorporation, if any, may be declared by the Board of
Directors at any regular or special meeting of the Board of Directors (or any
action by written consent in lieu thereof in accordance with Section 6 of
Article III hereof), and may be paid in cash, in property, or in shares of
the Corporation's capital stock. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for any proper purpose, and the Board of Directors may modify
or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall
be fixed by resolution of the Board of Directors.
15
<PAGE>
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the
words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3
of this Article VIII, the Corporation shall indemnify any Eligible Indemnity
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Corporation) by reason of the fact that such person is or was a director
or officer of the Corporation, or is or was a director or officer of the
Corporation serving at the request of the Corporation as a director or
officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith and
in a manner which such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that such person's
conduct was unlawful.
"Eligible Indemnitee" means any person who is or was a director or
officer of the Corporation on or after January 31, 1998.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY
OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any Eligible Indemnitee who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit
16
<PAGE>
by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation; except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the Eligible Indemnitee is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a
quorum, or (ii) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion or (iii) by the
stockholders. To the extent, however, that an Eligible Indemnitee has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in
connection therewith, without the necessity of authorization in the specific
case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe
such person's conduct was unlawful, if such person's action is based on the
records or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of
17
<PAGE>
legal counsel for the Corporation or another enterprise or on information or
records given or reports made to the Corporation or another enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Corporation or another enterprise. The
term "another enterprise" as used in this Section 4 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan
or other enterprise of which such person is or was serving at the request of
the Corporation as a director, officer, employee or agent. The provisions of
this Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Section 1 or 2 of this Article VIII, as the
case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
Eligible Indemnitee may apply to the Court of Chancery in the State of
Delaware for indemnification to the extent otherwise permissible under
Sections 1 and 2 of this Article VIII. The basis of such indemnification by
a court shall be a determination by such court that indemnification of the
Eligible Indemnitee is proper in the circumstances because such person has
met the applicable standards of conduct set forth in Section 1 or 2 of this
Article VIII, as the case may be. Neither a contrary determination in the
specific case under Section 3 of this Article VIII nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director or officer seeking indemnification has not met
any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application. If successful, in whole or in
part, the director or officer seeking indemnification shall also be entitled
to be paid the expense of prosecuting such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by an
Eligible Indemnitee in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount
if it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or
18
<PAGE>
granted pursuant to this Article VIII shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of
expenses may be entitled under the Certificate of Incorporation, any By-Law,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in such person's official capacity and as to action in another
capacity while holding such office, it being the policy of the Corporation
that indemnification of the persons specified in Sections 1 and 2 of this
Article VIII shall be made to the fullest extent permitted by law. The
provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Section 1 or 2 of this
Article VIII but whom the Corporation has the power or obligation to
indemnify under the provisions of the General Corporation Law of the State of
Delaware, or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not the Corporation would have the power or the
obligation to indemnify such person against such liability under the
provisions of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer
of such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
shall stand in the same position under the provisions of this Article VIII
with respect to the resulting or surviving corporation as such person would
have with respect to such constituent corporation if its separate existence
had continued. For purposes of this Article VIII, references to "fines"
shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by,
such director or officer with respect to an employee benefit plan, its
participants or
19
<PAGE>
beneficiaries; and a person who acted in good faith and in a manner such
person reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to
in this Article VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding
anything contained in this Article VIII to the contrary, except for
proceedings to enforce rights to indemnification (which shall be governed by
Section 5 hereof), the Corporation shall not be obligated to indemnify any
director or officer in connection with a proceeding (or part thereof)
initiated by such person unless such proceeding (or part thereof) was
authorized or consented to by the Board of Directors of the Corporation.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation similar to those
conferred in this Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS. These By-Laws may be altered, amended or
repealed, in whole or in part, or new By-Laws may be adopted by the
stockholders or by the Board of Directors, provided, however, that notice of
such alteration, amendment, repeal or adoption of new By-Laws be contained in
the notice of such meeting of stockholders or Board of Directors as the case
may be. All such amendments must be approved by either the holders of a
majority of the outstanding capital stock entitled to vote thereon or by a
majority of the entire Board of Directors then in office.
20
<PAGE>
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX
and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were
no vacancies.
21
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TAB 3
NEW CLASS A/CLASS B WARRANT AGREEMENT AND
FORM OF NEW CLASS A/CLASS B WARRANT CERTIFICATE
TAB 3
<PAGE>
- -------------------------------------------------------------------------------
WARRANT AGREEMENT
BETWEEN
LAMONTS APPAREL, INC.
AND
_________________________,
as Warrant Agent
Dated as of ____________, 199_
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
ISSUANCE, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES . . . . . . . . . . . . . .4
Section 2.1 Form of Warrant Certificates. . . . . . . . . . . . . . . . . . . .4
Section 2.2 Execution of Warrant Certificates . . . . . . . . . . . . . . . . .4
Section 2.3 Issuance of Warrant Certificates. . . . . . . . . . . . . . . . . .5
Section 2.4 Transfer and Exchange of Warrant Certificates . . . . . . . . . . .5
Section 2.5 Lost, Stolen, Mutilated or Destroyed Warrant Certificates . . . . .6
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
EXERCISE PRICE AND EXERCISE OF WARRANTS. . . . . . . . . . . . . . . . . . . . . . .6
Section 3.1 Exercise Price. . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 3.2 Registration of Warrant Shares. . . . . . . . . . . . . . . . . . .6
Section 3.3 Exercise of Warrants. . . . . . . . . . . . . . . . . . . . . . . .7
Section 3.4 Issuance of Warrant Shares. . . . . . . . . . . . . . . . . . . . .8
Section 3.5 Certificates for Unexercised Warrants . . . . . . . . . . . . . . .8
Section 3.6 Reservation of Warrant Shares . . . . . . . . . . . . . . . . . . .9
Section 3.7 No Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 3.8 Disposition of Proceeds . . . . . . . . . . . . . . . . . . . . . .9
Section 3.9 Payment of Taxes and Charges. . . . . . . . . . . . . . . . . . . .9
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
ADJUSTMENTS, NOTICE PROVISIONS AND ISSUANCE OF ADDITIONAL SECURITIES . . . . . . . 10
Section 4.1 Adjustment of Exercise Price. . . . . . . . . . . . . . . . . . . 10
Section 4.2 Sales of Certain Securities . . . . . . . . . . . . . . . . . . . 11
Section 4.3 No Adjustments to Exercise Price. . . . . . . . . . . . . . . . . 13
Section 4.4 Adjustment of Number of Shares. . . . . . . . . . . . . . . . . . 13
Section 4.5 Reorganizations . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.6 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.7 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.8 Notice of Certain Actions . . . . . . . . . . . . . . . . . . . . 14
Section 4.9 Certificate of Adjustments. . . . . . . . . . . . . . . . . . . . 14
(ii)
<PAGE>
Section 4.10 Warrant Certificate Amendments . . . . . . . . . . . . . . . . . 15
Section 4.11 Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SPLIT UP, COMBINATION, EXCHANGE, TRANSFER AND CANCELLATION OF WARRANT CERTIFICATES 15
Section 5.1 Split Up, Combination, Exchange and Transfer of Warrant
Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.2 Cancellation of Warrant Certificates. . . . . . . . . . . . . . . . . 16
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PROVISIONS CONCERNING THE WARRANT AGENT. . . . . . . . . . . . . . . . . . . . . . 16
Section 6.1 Resignation or Removal of Warrant Agent . . . . . . . . . . . . . 16
Section 6.2 Notice of Appointment . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.3 Merger of Warrant Agent . . . . . . . . . . . . . . . . . . . . . 17
Section 6.4 Company Responsibilities. . . . . . . . . . . . . . . . . . . . . 17
Section 6.5 Certification for the Benefit of Warrant Agent. . . . . . . . . . 17
Section 6.6 Liability of Warrant Agent. . . . . . . . . . . . . . . . . . . . 18
Section 6.7 Use of Attorneys, Agents and Employees. . . . . . . . . . . . . . 18
Section 6.8 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.9 Acceptance of Agency. . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.10 Conflict of Interest. . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.1 Changes to Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.2 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.3 Successor to Company. . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.5 Defects in Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.7 Standing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.8 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.10 Availability of the Agreement . . . . . . . . . . . . . . . . . . . . 21
Section 7.11 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.12 Rights of Warrant Holders . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
(iii)
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement") is made as of ________________,
199_ between LAMONTS APPAREL, INC., a Delaware corporation (as reorganized
pursuant to Chapter 11, Title 11 of the United States Code) (the "Company"),
and the Warrant Agent (as defined herein).
WITNESSETH THAT:
WHEREAS, pursuant to a Plan of Reorganization of the Company (the
"Plan"), and a confirmation order confirming the Plan issued by the United
States Bankruptcy Court for the Western District of Washington, the Company
proposes to issue and deliver Warrant Certificates evidencing Warrants (each,
as defined herein) to acquire up to an aggregate of 3,003,557 shares, subject
to adjustment, of Common Stock (as defined herein);
WHEREAS, the Company desires the Warrant Agent to act, and the Warrant
Agent is willing to act, on behalf of the Company in connection with the
issuance, exchange, transfer, substitution and exercise of Warrants; and
WHEREAS, the Company desires to enter into this Agreement to set forth
the terms and conditions of the Warrants and the rights of the holders
thereof.
NOW THEREFORE in consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings (all terms defined herein
in the singular are to have the correlative meanings when used in the plural
and vice versa):
"AFFILIATE" means, with respect to any corporation, any Person that,
directly or indirectly, owns or controls 10% or more of the outstanding
voting securities of such corporation or is a Person in which such
corporation has a 10% or greater direct or indirect equity interest. In
addition, the term "Affiliate," when used with reference to any Person, shall
also mean any other Person that, directly or indirectly, controls or is
controlled by or is under common control with such Person. As used in the
preceding sentence, (A) the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of the entity referred to, whether through ownership of voting
securities, by contract or otherwise and (B) the terms "controlling" and
"controls" shall have meanings correlative to the foregoing.
<PAGE>
"AGGREGATE EQUITY TRADING VALUE" means, as of any date, the product of
(a) either (i) if the Common Stock is listed on any national securities
exchange or quoted on a national quotation system, the average of the daily
Closing Prices of the Common Stock for the five (5) Trading Days immediately
preceding such date, or (ii) if the Common Stock is not so listed or quoted,
the fair market value per share of the Common Stock determined in good faith
by the Company's Board of Directors as of a date within 30 days of such date,
multiplied by (b) the total number of issued and outstanding shares of Common
Stock as of such date (assuming for purposes of determining such number of
shares the exercise in full of all in-the-money options outstanding on such
date to purchase shares of Common Stock and, for purposes of determining
whether the Class B Initial Exercise Date has occurred, the exercise of all
Class B Warrants which are exercisable as of such date).
"CLASS A INITIAL EXERCISE DATE" means the first date on which the
Aggregate Equity Trading Value equals or exceeds Twenty Million Dollars
($20,000,000.00).
"CLASS B INITIAL EXERCISE DATE" means the first date on which the
Aggregate Equity Trading Value equals or exceeds Twenty-Five Million Dollars
($25,000,000.00).
"CLASS A WARRANTS" means the Class A Warrants exercisable for shares of
Common Stock issued pursuant to this Agreement and the Plan.
"CLASS B WARRANTS" means the Class B Warrants exercisable for shares of
Common Stock issued pursuant to this Agreement and the Plan.
"CLOSING PRICE" means, for any date, the last sale price reported in the
WALL STREET JOURNAL or other trade publication regular way or, in case no
such reported sale takes place on such date, the average of the last reported
bid and asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is listed if that is the
principal market for the Common Stock or, if not listed on any national
securities exchange or if such national securities exchange is not the
principal market for the Common Stock, the average of the closing high bid
and low asked prices as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or its successor, if any, or if the
Common Stock is not so reported, as furnished by the National Quotation
Bureau, Inc., or if such firm is not then engaged in the business of
reporting such prices, as furnished by any similar firm then engaged in such
business and selected by the Company or, if there is no such firm, as
furnished by any NASD member selected by the Company.
"COMMON STOCK" means the Class A Common Stock of the Company, par value
$.01 per share.
"COMPANY ORDER" means a written order from the Company executed by an
officer of the Company regarding the issuance and delivery of Warrant
Certificates.
2
<PAGE>
"DATE OF EXERCISE" means, with respect to any Warrant, the date on which
such Warrant is exercised.
"EXPIRATION DATE" means __________, 200_ [10 years following the Effective
Date].
"OFFICERS' CERTIFICATE" means a certificate signed by any two of the
Chairman of the Board, the President, any Vice President, the Chief Financial
Officer, the Treasurer, the Secretary, an Assistant Secretary or the
Controller of the Company.
"PERSON" means any natural person, corporation, partnership, trust, joint
venture, limited liability company, or any other entity or organization.
"RESTRICTED SECURITIES" means the Warrants issued to any Affiliate of the
Company on the date hereof and any Warrant Shares which have been issued or
are issuable upon the exercise of such Warrants until such time as any such
Restricted Securities (i) have been sold pursuant to an effective
registration statement under the Securities Act or, (ii) are distributed
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act and if it has so requested, the Company has received an
opinion of counsel (either its own counsel or, if the Company so requests,
counsel to the holders of such Restricted Securities) reasonably acceptable
to the Company that such Restricted Securities may be so transferred without
registration or pursuant to an exemption under the Securities Act, and in
each such instance the Warrant Agent has delivered new Warrant Certificates
not bearing the legend prescribed by Section 2.4 hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time, or any successor statute, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
"TRADING DAYS" means, with respect to the Common Stock (i) if the Common
Stock is quoted on the National Market System of the National Association of
Securities Dealers, Inc. or any similar system of automated dissemination of
quotations of securities prices, days on which trades may be made on such
system or (ii) if the Common Stock is listed or admitted for trading on any
national securities exchange, days on which such national securities exchange
is open for business.
"WARRANT AGENT" means ____________________ or any successor Warrant Agent
appointed pursuant to Section 6.2 hereof.
"WARRANT AGENT'S OFFICE" means, for so long as ______________ shall be
the Warrant Agent, the principal business address of __________________________
as specified in Section 7.4 and, thereafter, the office or agency maintained by
the successor Warrant Agent in the Borough of Manhattan, New York, New York or
the principal office of the successor Warrant Agent.
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"WARRANT CERTIFICATES" means the certificates representing the Warrants.
"WARRANT SHARES" means the shares of Common Stock issuable upon the
exercise of any Warrant.
"WARRANTS" means, collectively, the Class A Warrants and Class B Warrants.
ARTICLE II
ISSUANCE, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES
Section 2.1 FORM OF WARRANT CERTIFICATES. The Warrant Certificates
shall be issued in registered form only and shall be substantially in the
form of EXHIBIT A attached hereto. In addition, the Warrant Certificates may
have such letters, numbers or other marks of identification or designation
and such legends, summaries, or endorsements stamped, printed, lithographed
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as, in any particular
case, may be required to comply with any law or with any rule or regulation
of any regulatory authority or agency, or to conform to customary usage,
provided, however, that no such change shall be made which affects the duties
or obligations of the Warrant Agent without the consent of the Warrant Agent
or the Company without the consent of the Company. Each Warrant shall
evidence the right, subject to the provisions of this Agreement and of the
Warrant Certificate, to purchase one share of Common Stock at the Exercise
Price (as defined in Section 3.1), subject to adjustment pursuant to the
provisions of Article IV hereof.
Section 2.2 EXECUTION OF WARRANT CERTIFICATES. The Warrant Certificates
shall be executed on behalf of the Company by its Chairman or President or
any Vice President and attested to by its Secretary or Assistant Secretary,
either manually or by facsimile signature printed thereon. The Warrant
Certificates shall be manually countersigned and dated the date of
countersignature by the Warrant Agent and shall not be valid for any purpose
unless so countersigned and dated. In case any authorized officer of the
Company who shall have signed any of the Warrant Certificates shall cease to
be such officer of the Company either before or after delivery thereof by the
Company to the Warrant Agent, the signature of such person on such Warrant
Certificates shall be valid nevertheless and such Warrant Certificate may be
countersigned by the Warrant Agent, and issued and delivered to the person
entitled to receive the Warrant represented thereby with the same force and
effect as though the person who signed such Warrant Certificates had not
ceased to be such officer of the Company.
Section 2.3 ISSUANCE OF WARRANT CERTIFICATES. Upon receipt of a written
Company Order, the Warrant Agent shall within five (5) business days complete
and countersign Warrant Certificates representing the total number of
Warrants to be issued and shall thereafter deliver such Warrant Certificates
in accordance with such Company Order. The Warrant
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Agent shall maintain books (the "Warrant Register") for the registration of
Warrant Certificates and the registration of transfers of Warrant
Certificates.
Section 2.4 TRANSFER AND EXCHANGE OF WARRANT CERTIFICATES.
(a) Warrant Certificates evidencing Restricted Securities and only
such Warrant Certificates will bear a legend in substantially the following
form:
NEITHER THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE ISSUANCE OF ANY SECURITIES ISSUABLE UPON EXERCISE HEREOF HAS
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i)
A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES
UNDER THE SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER OR
(ii) AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(b) Following the transfer or exchange of a Restricted Security or
Securities (other than pursuant to an effective registration statement under
the Securities Act) the transferor of such Restricted Security or Securities
shall, upon request of the Company, deliver to the Company an opinion of
counsel, in substance reasonably satisfactory to the Company, to the effect
that such Restricted Security to be issued upon such transfer or exchange may
be so issued without the foregoing legend.
(c) Subject to paragraph (a) above, the Warrant Agent shall
register the transfer of all or any whole number of Warrants covered by any
outstanding Warrant Certificate in the Warrant Register upon surrender at the
Warrant Agent's Office of Warrant Certificates accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Company
and the Warrant Agent, duly executed by the registered Warrant holder or his
attorney duly authorized in writing. Upon any such registration of transfer
a new Warrant Certificate shall be countersigned by the Warrant Agent and
issued to the transferee and the surrendered Warrant Certificate shall
promptly be canceled by the Warrant Agent. Warrant Certificates may be
exchanged at the option of the holder thereof, upon surrender, properly
endorsed by the registered holders, at the Warrant Agent's Office, with
written instructions, for other Warrant Certificates countersigned by the
Warrant Agent representing in the aggregate a like number of Warrants. The
Company or the Warrant Agent may require the payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with
any such exchange or transfer.
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Section 2.5 LOST, STOLEN, MUTILATED OR DESTROYED WARRANT CERTIFICATES.
If any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company in its discretion may direct the Warrant Agent to execute and
deliver, in exchange and substitution for and upon cancellation of a
mutilated Warrant Certificate, or in lieu of or in substitution for a lost,
stolen or destroyed Warrant Certificate, a substitute Warrant Certificate,
but only upon receipt of evidence of such loss, theft or destruction of such
Warrant Certificate, and of the ownership thereof, and indemnity, if
requested by either the Company or the Warrant Agent, all satisfactory to the
Company and the Warrant Agent. Applicants for such substitute Warrant
Certificates shall also comply with such other reasonable regulations and pay
such other reasonable charges incidental thereto as the Company or Warrant
Agent may prescribe. Any such new Warrant Certificate shall constitute an
original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time
enforceable by anyone.
ARTICLE III
EXERCISE PRICE AND EXERCISE OF WARRANTS
Section 3.1 EXERCISE PRICE. Each Warrant Certificate shall, when signed
by the Chairman or President or any Vice President and attested to by the
Secretary or Assistant Secretary of the Company and countersigned by the
Warrant Agent, entitle the registered holder thereof subject to the
provisions thereof and of this Agreement, to purchase from the Company at any
time after (a) in the case of the Class A Warrants, the opening of business
on the Class A Initial Exercise Date and (b) in the case of the Class B
Warrants, the opening of business on the Class B Initial Exercise Date, and
in each case before 5:00 p.m., New York time, on the Expiration Date, one
share of Common Stock for each of the Warrants specified therein, at a
purchase price of $0.01 per share (the "Exercise Price") or such adjusted
number of shares at such adjusted exercise price as may be established from
time to time pursuant to the provisions of Article IV hereof, payable in full
in accordance with Section 3.3 hereof, at the time of exercise of the
Warrant. Except as the context otherwise requires, the term "Exercise Price"
as used in this Agreement shall mean the purchase price of one Warrant Share
pursuant to the Warrant Certificates reflecting all appropriate adjustments
made in accordance with the provisions of Article IV hereof.
Section 3.2 REGISTRATION OF WARRANT SHARES. The Company shall secure
the effective registration of the Warrants and the Warrant Shares under the
Securities Act and applicable state laws and maintain such registration or
qualification in effect, all in accordance with and to the extent required by
the Registration Rights Grant adopted pursuant to the Plan. Promptly after a
registration statement under the Securities Act covering the Warrants has
become effective, the Company shall cause notice thereof together with a copy
of the prospectus covering the Warrants to be mailed to the Warrant Agent.
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Section 3.3 EXERCISE OF WARRANTS.
(a) Commencing (i) in the case of the Class A Warrants, at the
opening of business on the Class A Initial Exercise Date and (ii) in the case
of the Class B Warrants, at the opening of business on the Class B Initial
Exercise Date, Warrants may be exercised by surrendering the Warrant
Certificate evidencing such Warrants at the Warrant Agent's Office with the
Election to Purchase form set forth on the reverse of the Warrant Certificate
duly completed and executed by the registered holder thereof or his attorney
duly authorized in writing, accompanied by payment in full, as set forth
below, to the Warrant Agent for the account of the Company the Exercise Price
for each share of Common Stock as to which Warrants are exercised and any
taxes that the registered holder is required to pay as set forth in Section
3.9. Such Exercise Price shall be paid in full by (i) cash or a certified
check or a wire transfer in same day funds in an amount equal to the then
applicable Exercise Price multiplied by the number of Warrant Shares then
being purchased, (ii) delivery to the Company of that number of shares of
Common Stock, duly endorsed, having an aggregate Fair Market Value (as
defined in Section 4.1(d)) equal to the then applicable Exercise Price
multiplied by the number of Warrant Shares then being purchased or (iii) by
any combination of (i) and (ii). In the alternative, the holder of a Warrant
Certificate may exercise its right to purchase some or all of the Warrant
Shares subject to such Warrant Certificate, on a net basis, such that,
without the exchange of any funds, such holder receives that number of
Warrant Shares subscribed to pursuant to such Warrant Certificate less that
number of shares of Common Stock having an aggregate Fair Market Value at the
Date of Exercise equal to the aggregate Exercise Price that would otherwise
have been paid by such holder for the number of Warrant Shares subscribed to
pursuant to such Warrant Certificate. A registered Warrant holder may
exercise all or any number of whole Warrants represented by a Warrant
Certificate.
(b) Upon receiving notice that any Warrants are to be exercised,
the Warrant Agent will promptly provide a notice of exercise to the Company
(the "Exercise Notice"). The Exercise Notice shall set forth the name of the
registered holder, the number of Warrants to be exercised, the number of
shares to be issued, the Date of Exercise, the method of payment and the
Warrant Certificate number. Promptly following the receipt by the Company of
an Exercise Notice, the Company shall provide to the Warrant Agent, in the
event that shares of Common Stock are surrendered in payment of the Exercise
Price, with the aggregate Fair Market Value with respect to such shares of
Common Stock. If, upon exercise of any Warrants, shares of Common Stock are
surrendered to the Warrant Agent, the Warrant Agent shall promptly deliver
such shares of Common Stock to the Company. If, upon exercise of any
Warrants, shares of Common Stock are surrendered in an amount in excess of
the amount to be applied to the Exercise Price of Warrants exercised, then
the Warrant Agent shall so notify the Company and the Company shall deliver
the amount of such excess in the form of shares of Common Stock to the
holder.
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(c) A Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of the due surrender for exercise
of the Warrant Certificate and payment to the Warrant Agent for the account
of the Company of the Exercise Price and any applicable taxes that the
registered holder is required to pay as set forth in Section 3.9. Each
Person in whose name any such certificate for shares of Common Stock is
issued shall for all purposes be deemed to have become the holder of record
of such shares at the close of business on the date on which the Warrant
Certificate was duly surrendered to the Warrant Agent and payment of the
Exercise Price and any such applicable taxes was made to the Warrant Agent
for the account of the Company, irrespective of the date of delivery of such
share certificate, except that, if the date of such surrender and payment is
a date when the stock transfer books of the Company are closed, such person
shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are
open (whether before or after the Expiration Date).
(d) The Warrant Agent may deem and treat the person named as the
registered holder on the face of any Warrant as the true and lawful owner
thereof for all purposes. If the Warrant Agent is instructed to deliver
shares upon the exercise of Warrants or to deliver a Warrant Certificate
representing unexercised Warrants, in either case registered in a name or
names other than the name or names in which a Warrant Certificate tendered in
connection with such exercise is registered, the Warrant Agent may require
such documents, and such evidence of payment of applicable transfer taxes, as
it may deem necessary to enable it to carry out the instructions of the
bearer.
Section 3.4 ISSUANCE OF WARRANT SHARES. As soon as practicable and no
later than ten (10) business days after the Date of Exercise of any Warrants,
the Company shall issue, or cause its transfer agent to issue a certificate
or certificates for the number of full Warrant Shares to which the holder is
entitled, registered in accordance with the instructions set forth in the
Election to Purchase, together with cash, as provided in Section 4.11 hereof,
in respect of any fractional share. All Warrant Shares issued upon the
exercise of any Warrants shall be validly authorized and issued, fully paid
and non-assessable, free of preemptive rights and free from all taxes, liens,
security interests and charges created by the Company in respect of the
issuance thereof.
Section 3.5 CERTIFICATES FOR UNEXERCISED WARRANTS. In the event that
fewer than all of the Warrants represented by a Warrant Certificate are
exercised, the Warrant Agent shall execute and mail, by first-class mail,
within ten (10) Business days of the Date of Exercise, to the registered
holder of such Warrant Certificate, or such other Person as shall be
designated in the Election to Purchase, a new Warrant Certificate
representing the number of Warrants not exercised.
Section 3.6 RESERVATION OF WARRANT SHARES. The Company shall at all
times reserve and keep available for issuance upon the exercise of Warrants a
number of its authorized but
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unissued shares or treasury shares, or both, of Common Stock that will be
sufficient to permit the exercise in full of all outstanding Warrants.
Section 3.7 NO IMPAIRMENT. The Company shall not by any action,
including, without limitation, amending its certificate of incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, stock split, stock dividend or any
other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of the Warrants, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
actions as may be reasonably necessary or appropriate to protect the rights
of the Warrant holders against impairment in accordance herewith. Without
limiting the generality of the foregoing, the Company will (a) not increase
the par value of any Warrant Shares receivable upon the exercise of the
Warrants above the amount payable therefor upon such exercise immediately
prior to such increase in par value, (b) from time to time take all such
action as may be reasonably necessary to assure that the par value of the
Common Stock is at all times equal to or less than the Exercise Price
(including without limitation approving and submitting to the stockholders of
the Company for approval an amendment to the Company's Restated Certificate
of Incorporation to reduce such par value), (c) take all such action as may
be necessary in order that the Company may validly and legally issue fully
paid and non-assessable Warrant Shares upon the exercise of any Warrant, and
(d) use its reasonable best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under the Warrants.
Section 3.8 DISPOSITION OF PROCEEDS. The Warrant Agent shall account
promptly to the Company with respect to Warrants exercised and shall
concurrently deliver to the Company all funds (after payment of the Warrant
Agent's fees and expenses as provided herein) and deliver to the Company for
cancellation all shares of Common Stock applied to the purchase of Warrant
Shares upon exercise of Warrants.
Section 3.9 PAYMENT OF TAXES AND CHARGES. The Company will from time to
time promptly pay to the Warrant Agent, or make provisions satisfactory to
the Warrant Agent for the payment of, all taxes and charges that may be
imposed by the United States or any state upon the Company or the Warrant
Agent in connection with the issuance or delivery of Warrant Shares upon the
exercise of any Warrants, provided, however, any additional transfer taxes in
connection with the issuance of Warrant Certificates or Certificates for
Warrant Shares in any name other than that of the registered holder of the
Warrant Certificate surrendered shall be paid by such registered holder; and,
in such case, the Company shall not issue or deliver any Warrant Certificate
or Certificates for Warrant Shares and the Warrant Agent shall not be
required to deliver any Warrant Certificates or Warrant Shares until such
taxes shall have been paid or it has been established to the Company's and
the Warrant Agent's satisfaction that no tax is due. The Warrant Agent shall
have no duty to determine if any tax is due.
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ARTICLE IV
ADJUSTMENTS, NOTICE PROVISIONS AND ISSUANCE
OF ADDITIONAL SECURITIES
Section 4.1 ADJUSTMENT OF EXERCISE PRICE. Subject to the provisions of
this Article IV, the Exercise Price in effect from time to time shall be
subject to adjustment, as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of Common Stock in shares of Common
Stock or any class thereof, (ii) subdivide or reclassify the outstanding
shares of Common Stock or any class thereof into a greater number of shares,
or (iii) combine or reclassify the outstanding shares of its Common Stock
into a smaller number of shares, the Exercise Price in effect immediately
after the record date for such dividend or distribution or the effective date
of such subdivision, combination or reclassification shall be adjusted so
that it shall equal the price determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, of which the numerator shall
be the number of shares of Common Stock outstanding immediately before such
dividend, distribution, subdivision, combination or reclassification, and of
which the denominator shall be the number of shares of Common Stock
outstanding immediately after such dividend, distribution, subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event specified above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights, options, warrants or convertible or exchangeable securities to all
holders of its Common Stock entitling them (for a period expiring within
forty-five (45) days after such record date) to subscribe for or purchase
shares of its Common Stock at a price per share less than the Fair Market
Value on such record date the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding on
such record date plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered would purchase at the Fair Market Value per share, and of which the
denominator shall be the number of shares of Common Stock outstanding on such
record date plus the number of additional shares of Common Stock offered for
subscription or purchase. Such adjustment shall be made successively
whenever such a record date is fixed. To the extent that any such rights,
options, warrants or convertible or exchangeable securities are not so issued
or expire unexercised, the Exercise Price then in effect shall be readjusted
to the Exercise Price which would then be in effect if such unissued or
unexercised rights, options, warrants or convertible or exchangeable
securities had not been issuable.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of shares of Common Stock (i) of shares of any
class other than Common Stock or (ii) of evidences of its indebtedness or
(iii) of assets (excluding cash
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dividends or distributions (other than extraordinary cash dividends or
distributions), and dividends or distributions referred to in Subsection
4.1(a) hereof) or (iv) of rights, options, warrants or convertible or
exchangeable securities (excluding those rights, options, warrants or
convertible or exchangeable securities referred to in Subsection 4.1(b)
hereof), then in each such case the Exercise Price in effect immediately
thereafter shall be determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
total number of shares of Common Stock outstanding on such record date
multiplied by the Fair Market Value per share on such record date, less the
aggregate fair market value as determined in good faith by the Board of
Directors of the Company of said shares or evidences of indebtedness or
assets or rights, options, warrants or convertible or exchangeable securities
so distributed, and of which the denominator shall be the total number of
shares of Common Stock outstanding on such record date multiplied by such
Fair Market Value per share. Such adjustment shall be made successively
whenever such a record date is fixed. In the event that such distribution is
not so made, the Exercise Price then in effect shall be readjusted to the
Exercise Price which would then be in effect if such record date had not been
fixed.
(d) For the purpose of any computation under Section 4.1(b) or
4.1(c) hereof, the "Fair Market Value" per share at any date (the
"Computation Date") shall be as follows: (i) if the Common Stock is listed on
a national securities exchange or quoted on a national quotation system, the
Current Market Price, which shall be deemed to be the average of the Closing
Prices of the Common Stock for the five (5) Trading Days immediately
preceding the Computation Date; PROVIDED, HOWEVER, that if there shall have
occurred prior to the Computation Date any event described in Section 4.1(a),
4.1(b) or 4.1(c) which shall have become effective with respect to market
transactions at any time (the "Market-Effect Date") on or after the beginning
of such 5-day period, the Closing Price for each Trading Day preceding the
Market-Effect Date shall be adjusted, for purposes of calculating such
average, by multiplying such Closing Price by a fraction the numerator of
which is the Exercise Price as in effect immediately prior to the Computation
Date and the denominator of which is the Exercise Price as in effect
immediately prior to the Market-Effect Date, it being understood that the
purpose of this proviso is to ensure that the effect of such event on the
market price of the Common Stock shall, as nearly as possible, be eliminated
in order that the distortion in the calculation of the Fair Market Value may
be minimized or (ii) if there is no public market for Common Stock, the fair
market value per share of Common Stock as determined in good faith by the
Company's Board of Directors.
Section 4.2 SALES OF CERTAIN SECURITIES.
(a) In case the Company shall on or after the date hereof issue
Common Stock or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock (excluding Excluded Securities, as defined in Subsection 4.2(b) below)
to any Affiliate, officer, director or employee of the Company at a price per
share less than the Closing Price of a share of Common Stock on the
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date of such issuance, then the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of additional shares of
Common Stock the Aggregate Consideration Receivable (as defined in Subsection
4.2(d) below) would purchase at the Closing Price per share on such date, and
of which the denominator shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of additional
shares of Common Stock sold or offered for subscription or purchase. Such
adjustment shall be made successively whenever such issuance shall occur. To
the extent that any such rights, options, warrants or convertible or
exchangeable securities are not so issued or expire unexercised, the Exercise
Price then in effect shall be readjusted to the Exercise Price which would
then be in effect if such unissued or unexercised rights, options, warrants
or convertible or exchangeable securities had not been issuable.
(b) "Excluded Securities" means (i) rights, options, warrants, or
convertible or exchangeable securities issued in any of the transactions
described in Section 4.1(b), 4.1(c) and 4.5 hereof, (ii) shares of Common
Stock issuable upon exercise of the Warrants; (iii) shares of Common Stock
issuable upon exercise of rights, options or warrants or conversion or
exchange of convertible or exchangeable securities issued or sold under
circumstances causing an adjustment pursuant to this Section 4.2, (iv)
options to purchase up to 1,333,729 shares of Common Stock that are issued to
employees and directors of the Company and its subsidiaries pursuant to the
Lamonts Apparel, Inc. [1997]Stock Option Plan and any shares of Common Stock
issuable or issued upon the exercise thereof (including, following any
adjustments required under the terms of such stock option plan, any
additional options or shares of Common Stock issuable or issued upon the
exercise thereof), (v) the New Class C Warrants (as defined in the Plan) and
any shares of Common Stock issuable or issued upon the exercise thereof
(including, following any adjustments required under the terms of such
warrants, any additional New Class C Warrants or shares of Common Stock
issuable or issued upon the exercise thereof) and (vi) the Gordian Warrants
(as defined in the Plan) and any shares of Common Stock issuable or issued
upon the exercise thereof (including, following any adjustments required
under the terms of such warrants, any additional Gordian Warrants or shares
of Common Stock issuable or issued upon the exercise thereof).
(c) The price per share of Common Stock referred to in Subsection
4.2(a) above shall be determined by dividing (i) the Aggregate Consideration
Receivable in respect of the Common Stock, rights, options, warrants or
convertible or exchangeable securities issued, by (ii) the total number of
shares of Common Stock issued or covered by such rights, options, warrants or
convertible or exchangeable securities.
(d) "Aggregate Consideration Receivable" means the aggregate amount
paid to the Company for the Common Stock, rights, options, warrants or
convertible or exchangeable securities, plus the aggregate consideration or
premiums stated in such rights,
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options, warrants or convertible or exchangeable securities to be payable for
the shares of Common Stock covered thereby.
(e) In case the Company shall sell and issue Common Stock or
rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock, for
a consideration consisting, in whole or in part, of property (other than
cash) or services or its equivalent, then in determining the "price per share
of Common Stock" referred to in Sections 4.2(a) and 4.2(c) above and the
"Aggregate Consideration Receivable" referred to in Sections 4.2(a), 4.2(b),
4.2(c) and 4.2(d) above, the Board of Directors of the Company shall
determine, in good faith and on a reasonable basis, the fair value of said
property.
Section 4.3 NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in the
Exercise Price in accordance with the provisions of Section 4.1(a), 4.1(b) or
4.1(c) or Section 4.2(a) hereof need be made unless such adjustment would
amount to a change of at least .5% in such Exercise Price of the Warrant
Certificates; PROVIDED, HOWEVER, that the amount by which any adjustment is
not made by reason of the provisions of this Section 4.3 shall be carried
forward and taken into account at the time of any subsequent adjustment in
the Exercise Price.
Section 4.4 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to Subsection 4.1(a), (b) or (c) or Subsection 4.2(a)
hereof, each Warrant shall thereupon evidence the right to purchase that
number of Warrant Shares (calculated to the nearest hundredth of a share)
obtained by multiplying the number of Warrant Shares purchasable immediately
prior to such adjustment upon exercise of the Warrant by the Exercise Price
in effect immediately prior to such adjustment and dividing the product so
obtained by the Exercise Price in effect immediately after such adjustment.
Section 4.5 REORGANIZATIONS. In case of any capital reorganization,
other than in the cases referred to in Section 4.1 hereof, or the
consolidation or merger of the Company with or into another corporation
(other than a merger or consolidation in which the Company is the continuing
corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion of such outstanding
shares of Common Stock into shares of other stock or other securities or
property), or the sale or conveyance of the property of the Company as an
entirety or substantially as an entirety (collectively such actions being
hereinafter referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of any Warrant (in lieu of the number of Warrant
Shares theretofore deliverable) the number of shares of stock or other
securities or property to which a holder of the number of Warrant Shares
which would otherwise have been deliverable upon the exercise of such Warrant
would have been entitled upon such Reorganization if such Warrant was fully
exercisable and had been exercised in full immediately prior to such
Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, shall be
made in the application of the provisions herein set forth with respect to
the rights and interests of Warrant holders so that the provisions set forth
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<PAGE>
herein shall thereafter be applicable, as nearly as possible, in relation to
any shares or other property thereafter deliverable upon exercise of
Warrants. Any such adjustment shall be made by and set forth in a
supplemental agreement prepared by the Company or any successor thereto,
between the Company, or any successor thereto, and the Warrant Agent and
shall for all purposes hereof conclusively be deemed to be an appropriate
adjustment. The Company shall not effect any such Reorganization, unless
upon or prior to the consummation thereof the successor corporation, or if
the Company shall be the surviving corporation in any such Reorganization and
is not the issuer of the shares of stock or other securities or property to
be delivered to holders of shares of the Common Stock outstanding at the
effective time thereof, then such issuer, shall assume by written instrument
the obligation to deliver to the registered holder of any Warrant Certificate
such shares of stock, securities, cash or other property as such holder shall
be entitled to purchase in accordance with the foregoing provisions.
Section 4.6 INTENTIONALLY OMITTED.
Section 4.7 INTENTIONALLY OMITTED.
Section 4.8 NOTICE OF CERTAIN ACTIONS. In the event the Company shall:
(a) declare any dividend payable in stock to the holders of the
Common Stock or make any other distribution in property other than cash to
the holders of the Common Stock;
(b) offer to the holders of the Common Stock rights to subscribe
for or purchase any shares of any class of stock or any other rights or
options; or
(c) effect any reclassification of the Common Stock (other than a
reclassification involving merely the subdivision or combination of
outstanding shares of Common Stock) or any capital reorganization or any
consolidation or merger (other than a merger in which no distribution of
securities or other property is made to holders of Common Stock), or any
sale, transfer or other disposition of its property, assets and business
substantially as an entirety, or the liquidation, dissolution or winding up
of the Company;
then, in each such case, the Company shall mail notice of such proposed
action to the Warrant Agent at least thirty (30) days prior to such action
and shall cause the Warrant Agent to mail such notice to each registered
holder of a Warrant Certificate. Such notice shall specify the date on which
the books of the Company shall close, or a record be taken, for determining
holders of Common Stock entitled to receive such stock dividend or other
distribution or such rights or options, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer,
other disposition, liquidation, dissolution, winding up or exchange shall
take place or commence, as the case may be, and the date as of which it is
expected that holders of record of Common Stock shall be entitled to receive
securities or other property
14
<PAGE>
deliverable upon such action, if any such date has been fixed. Such notice
to the Warrant Agent shall be mailed in the case of any action covered by
paragraph (a) or (b) of this Section 4.8, at least fifteen (15) days prior to
the record date for determining holders of the Common Stock for purposes of
receiving such payment or offer, and in the case of any action covered by
paragraph (c) of this Section 4.8, at least fifteen (15) days prior to the
earlier of the date upon which such action is to take place or any record
date to determine holders of Common Stock entitled to receive such securities
or other property.
Section 4.9 CERTIFICATE OF ADJUSTMENTS. Whenever any adjustment is to
be made pursuant to this Article IV, the Company shall prepare an Officers'
Certificate setting forth such adjustment to be mailed to the Warrant Agent,
to each other transfer agent for the Common Stock and to each registered
holder of a Warrant Certificate at least fifteen (15) days prior thereto,
such notice to include in reasonable detail (i) the events precipitating the
adjustment, (ii) the computation of any adjustments, and (iii) the Exercise
Price and the number of Warrant Shares or the securities or other property
purchasable upon exercise of each Warrant after giving effect to such
adjustment. With respect to adjustments made pursuant to Section 4.2(a)
hereof, such notice shall be made as soon as practicable thereafter. The
Warrant Agent shall be fully protected in relying on any such Officers'
Certificate and on any adjustment therein contained, and shall not be deemed
to have knowledge of any such adjustment unless and until it shall have
received such an Officers' Certificate.
Section 4.10 WARRANT CERTIFICATE AMENDMENTS. Irrespective of any
adjustments pursuant to this Article IV, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates
thereafter issued shall bear an appropriate legend or other notice of any
adjustments; provided the Company may, at its option, issue new Warrant
Certificates evidencing Warrants in such form as may be approved by its Board
of Directors to reflect any adjustment in the Exercise Price and number of
Warrant Shares purchasable under the Warrant Certificates and deliver the
same to the Warrant Agent in substitution for existing Warrant Certificates.
Section 4.11 FRACTIONAL SHARES. The Company shall not be required upon
the exercise of any Warrant to issue fractional Warrant Shares which may
result from adjustments in accordance with this Article IV to the Exercise
Price or number of Warrant Shares purchasable under each Warrant or
otherwise. If more than one Warrant is exercised at one time by the same
registered holder, the number of full Warrant Shares which shall be
deliverable shall be computed based on the number of shares deliverable in
exchange for the aggregate number of Warrants exercised. With respect to any
final fraction of a Warrant Share called for upon the exercise of any Warrant
or Warrants, the Company shall pay a cash adjustment to the registered
holders of the Warrants in respect of such final fraction in an amount equal
to the same fraction of the Closing Price of a Warrant Share, as determined
by the Company on the basis of the Closing Price per share of Common Stock on
the business day next preceding the date of such exercise. The registered
holder of each Warrant Certificate, by his acceptance of the Warrant
Certificate, shall expressly waive any right to receive any fractional
Warrant
15
<PAGE>
Share upon exercise of the Warrants. All calculations under this Section
4.11 shall be made to the nearest hundredth of a share.
ARTICLE V
SPLIT UP, COMBINATION, EXCHANGE, TRANSFER AND
CANCELLATION OF WARRANT CERTIFICATES
Section 5.1 SPLIT UP, COMBINATION, EXCHANGE AND TRANSFER OF WARRANT
CERTIFICATES. Warrant Certificates, subject to the provisions of Section
5.2, may be split up, combined or exchanged for other Warrant Certificates of
the same type representing a like aggregate number of Warrants or may be
transferred in whole or in part. Any holder desiring to split up, combine or
exchange a Warrant Certificate or Warrant Certificates shall make such
request in writing delivered to the Warrant Agent at the Warrant Agent's
Office and shall surrender the Warrant Certificate or Warrant Certificates so
to be split up, combined or exchanged at said office. Subject to any
applicable laws, rules or regulations restricting transferability, any
restriction on transferability that may appear on a Warrant Certificate in
accordance with the terms hereof, or any "stop-transfer" instructions the
Company may give to the Warrant Agent to implement any such restrictions
(which instructions the Company is expressly authorized to give), transfers
of outstanding Warrant Certificates may be effected by the Warrant Agent from
time to time upon the books of the Company to be maintained by the Warrant
Agent for that purpose, upon a surrender of the Warrant Certificate to the
Warrant Agent at the Warrant Agent's Office with the form of Assignment
thereon duly executed. Upon any such surrender for split up, combination,
exchange or transfer, the Warrant Agent shall execute and deliver to the
person entitled thereto a Warrant Certificate or Certificates, as the case
may be, as so requested. The Warrant Agent may require the holder to pay a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any split up, combination, exchange or transfer of Warrant
Certificates prior to the issuance of any new Warrant Certificate.
Section 5.2 CANCELLATION OF WARRANT CERTIFICATES. Any Warrant
Certificate surrendered upon the exercise of Warrants or for split up,
combination, exchange or transfer, or purchased or otherwise acquired by the
Company, shall be canceled and shall not be reissued by the Company; and,
except as provided in Section 3.5 hereof in case of the exercise of less than
all of the Warrants evidenced by a Warrant Certificate or in Section 5.1 in
case of a split up, combination, exchange or transfer, no Warrant Certificate
shall be issued hereunder in lieu of such cancelled Warrant Certificate. Any
Warrant Certificate so cancelled shall be destroyed by the Warrant Agent
unless otherwise directed by the Company.
ARTICLE VI
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PROVISIONS CONCERNING THE WARRANT AGENT
Section 6.1 RESIGNATION OR REMOVAL OF WARRANT AGENT. The Warrant Agent
may resign its duties and be discharged from all further duties and
liabilities hereunder after giving at least thirty (30) days prior notice in
writing to the Company, except that such shorter notice may be given as the
Company shall, in writing, accept as sufficient. Upon comparable notice to
the Warrant Agent, the Company may remove the Warrant Agent. If the office
of Warrant Agent becomes vacant by resignation or incapacity to act or
otherwise, the Company shall appoint in writing a new Warrant Agent. If the
Company shall fail to make such appointment within a period of thirty (30)
days after it has been notified in writing of such resignation or incapacity
by the resigning or incapacitated Warrant Agent or by the registered holder
of any Warrant Certificate, then the registered holder of any Warrant
Certificate may apply to any court of competent jurisdiction for the
appointment of a new Warrant Agent. Any new Warrant Agent appointed
hereunder shall execute, acknowledge and deliver to the Company, an
instrument accepting such appointment under substantially the same terms and
conditions as are contained herein. If for any reason it becomes necessary
or expedient to have the former Warrant Agent execute and deliver any further
assurance, conveyance, act or deed, the same shall be done at the expense of
the Company and shall be legally and validly executed and delivered by the
former Warrant Agent.
Section 6.2 NOTICE OF APPOINTMENT. Not later than five (5) business
days prior to the effective date of the appointment of a new Warrant Agent,
the Company shall cause notice thereof to be mailed to the former Warrant
Agent and the transfer agent for the Common Stock, and shall forthwith cause
a copy of such notice to be mailed to each registered holder of a Warrant
Certificate. Failure to mail such notice, or any defect contained therein,
shall not affect the legality or validity of the appointment of the successor
Warrant Agent.
Section 6.3 MERGER OF WARRANT AGENT. Any company into which the Warrant
Agent may be merged or with which it may be consolidated or any company
resulting from any merger or consolidation to which the Warrant Agent shall
be a party, shall be the successor Warrant Agent under this Agreement without
further act. Any such successor Warrant Agent may adopt the prior
countersignature of any predecessor Warrant Agent and distribute Warrant
Certificates countersigned but not distributed by such predecessor Warrant
Agent, or may countersign the Warrant Certificate in its own name.
Section 6.4 COMPANY RESPONSIBILITIES. The Company agrees that it shall
(i) pay the Warrant Agent reasonable remuneration for its services as Warrant
Agent hereunder and will reimburse the Warrant Agent upon demand for all
reasonable expenses, advances, and expenditures that the Warrant Agent may
reasonably incur in the execution of its duties hereunder (including
reasonable fees and expenses of its counsel); (ii) provide the Warrant Agent,
upon request, with sufficient funds to pay any cash or taxes due pursuant to
this Agreement; and (iii) perform, execute, acknowledge and deliver or cause
to be performed,
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<PAGE>
executed, acknowledged and delivered all further and other acts, instruments
and assurances as may reasonably be required by the Warrant Agent for the
carrying out or performing by the Warrant Agent of the provisions of this
Agreement. In no case shall the Warrant Agent be required to advance its own
funds for any purpose under this Agreement.
Section 6.5 CERTIFICATION FOR THE BENEFIT OF WARRANT AGENT. Whenever in
the performance of its duties under this Agreement the Warrant Agent shall
deem it necessary or desirable that any matter be proved or established or
that any instructions with respect to the performance of its duties hereunder
be given by the Company prior to taking or suffering any action hereunder,
such matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established, or such
instructions may be given, by a certificate or instrument signed by the
Chairman, the President, a Vice President, the Secretary, Assistant Secretary
or the Treasurer of the Company and delivered to the Warrant Agent. Such
certificate or instrument may be conclusively relied upon by the Warrant
Agent for any action or refusal to act taken or suffered in good faith by it
under the provisions of this Agreement, without further investigation; but in
its discretion the Warrant Agent may in lieu thereof accept other evidence of
such matter or may require such further or additional evidence as it may deem
reasonable including, without limitation, an opinion of counsel to the
Company. In addition, the Warrant Agent may consult with counsel of its
choice, and any opinion of such counsel shall be full and complete
authorization to the Warrant Agent in respect of any action taken or omitted
to be taken in good faith, in reliance on such opinion.
Section 6.6 LIABILITY OF WARRANT AGENT. The Warrant Agent shall be
liable hereunder solely for direct damages resulting from its own gross
negligence, bad faith or wilful misconduct provided, further, that the
Warrant Agent shall not be liable for any special or consequential damages in
connection with any liability hereunder. The Warrant Agent shall act
hereunder solely as an agent for the Company and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not be
liable for or by reason of any of the statements of fact or recitals
contained in this Agreement or in the Warrant Certificates (except its
countersignature thereof) or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by the
Company only. The Warrant Agent will not incur any liability or
responsibility to the Company or to any holder of any Warrant Certificate for
any action taken, or any failure to take action, in reliance on any notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument reasonably believed by the Warrant Agent to be genuine and to have
been signed, sent or presented by the proper party or parties. The Warrant
Agent shall not be under any responsibility in respect of the validity of
this Agreement or the execution and delivery thereof by the Company or in
respect of the validity or execution of any Warrant Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Warrant Certificate; nor shall it be responsible for the making of any
adjustment required under the provisions of Article IV hereof or responsible
for the manner, method or amount of any such adjustment or the facts
18
<PAGE>
that would require any such adjustment; nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Warrant Shares or other securities to be issued pursuant
to this Agreement or any Warrant Certificate or as to whether any Warrant
Shares or other securities will when issued be validly authorized and issued
and fully paid and non-assessable.
Section 6.7 USE OF ATTORNEYS, AGENTS AND EMPLOYEES. The Warrant Agent
may execute and exercise any of the rights or powers hereby vested in it or
perform any duty hereunder either itself or by or through its attorneys,
agents or employees.
Section 6.8 INDEMNIFICATION. Each party hereto hereby irrevocably
indemnifies the other and saves it harmless against any and all reasonable
out of pocket losses, expenses or liabilities, including judgments, costs and
reasonable counsel fees and expenses arising out of or in connection with
this Agreement, except as a direct result of the gross negligence, bad faith
or willful misconduct of such party.
Section 6.9 ACCEPTANCE OF AGENCY. The Warrant Agent hereby accepts the
agency established by this Agreement and agrees to perform the same upon the
terms and conditions herein set forth.
Section 6.10 CONFLICT OF INTEREST. The Warrant Agent and any
stockholder, director, officer or employee of the Warrant Agent may buy, sell
or deal in any of the Warrant Certificates or other securities of the Company
or have a pecuniary interest in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though the Warrant Agent were not Warrant Agent under
this Agreement. Nothing herein shall preclude the Warrant Agent from acting
in any other capacity for the Company.
ARTICLE VII
MISCELLANEOUS
Section 7.1 CHANGES TO AGREEMENT. The Company, when authorized by its
Board of Directors, and the Warrant Agent, together, with the written consent
of the registered holder or holders of at least 50% of the outstanding
Warrants may amend or supplement this Agreement. The Warrant Agent may,
without the consent or concurrence of any registered holder of a Warrant
Certificate, by supplemental agreement or otherwise, join with the Company in
making any changes or corrections in this Agreement that the Company shall
have been advised by counsel (i) are required to cure any ambiguity or to
correct any defective or inconsistent provision or clerical omission or
mistake or manifest error herein contained, (ii) add to the covenants and
agreements of the Company or the Warrant Agent in this Agreement such further
covenants and agreements thereafter to be observed, or (iii) result in
19
<PAGE>
the surrender of any right or power reserved to or conferred upon the Company
or the Warrant Agent in this Agreement, but which changes or corrections do
not or will not adversely affect, alter or change the rights, privileges or
immunities of the registered holders of Warrant Certificates. The Warrant
Agent may conclusively rely on a certificate of the Company regarding any
such changes.
Section 7.2 ASSIGNMENT. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall
bind and inure to the benefit of their respective successors and assigns.
Section 7.3 SUCCESSOR TO COMPANY. The Company will not merge or
consolidate with or into any other corporation or sell or otherwise transfer
its property, assets and business substantially as an entirety to a successor
corporation, unless the corporation resulting from such merger,
consolidation, sale or transfer (if not the Company) shall expressly assume,
by supplemental agreement satisfactory in form and substance to the Warrant
Agent and delivered to the Warrant Agent, the due and punctual performance
and observance of each and every covenant and condition of this Agreement to
be performed and observed by the Company.
Section 7.4 NOTICES. Any notice or demand required by this Agreement to
be given or made by the Warrant Agent or by the registered holder of any
Warrant Certificate to or on the Company shall be sufficiently given or made
if sent by first-class or registered mail, postage prepaid, addressed (until
another address is filed in writing by the Company with the Warrant Agent) as
follows:
Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, WA 98034
Attention: Ms. Debbie Brownfeld
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Los Angeles, CA 90071
Attention: Michael A. Woronoff, Esq.
Any notice or demand required by this Agreement to be given or made by the
registered holder of any Warrant Certificate or by the Company to or on the
Warrant Agent shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed (until another address is filed
in writing with the Company by the Warrant Agent), as follows:
------------------
20
<PAGE>
------------------
------------------
With a copy to:
------------------
------------------
------------------
Any notice or demand required by this Agreement to be given or made by the
Company or the Warrant Agent to or on the registered holder of any Warrant
Certificate shall be sufficiently given or made, whether or not such holder
receives the notice, three (3) days after mailing if sent by first-class or
registered mail, postage prepaid, addressed to such registered holder at his
last address as shown on the books of the Company maintained by the Warrant
Agent. Otherwise, such notice or demand shall be deemed given when received
by the party entitled thereto.
Section 7.5 DEFECTS IN NOTICE. Failure to file any certificate or
notice or to mail any notice, or any defect in any certificate or notice
pursuant to this Agreement shall not affect in any way the rights of any
registered holder of a Warrant Certificate or the legality or validity of any
adjustment made pursuant to Section 4.1 or Section 4.2 hereof, or any
transaction giving rise to any such adjustment, or the legality or validity
of any action taken or to be taken by the Company.
Section 7.6 GOVERNING LAW. This Agreement and each Warrant Certificate
issued hereunder shall be governed by the laws of the State of New York
without regard to principles of conflicts of laws thereof.
Section 7.7 STANDING. Nothing in this Agreement expressed and nothing
that may be implied from any of the provisions hereof is intended, or shall
be construed, to confer upon, or give to, any person or corporation other
than the Company, the Warrant Agent, and the registered holders of the
Warrant Certificates any right, remedy or claim under or by reason of this
Agreement or of any covenant, condition, stipulation, promise or agreement
contained herein; and all covenants, conditions, stipulations, promises and
agreements contained in this Agreement shall be for the sole and exclusive
benefit of the Company and the Warrant Agent and their successors, and the
registered holders of the Warrant Certificates.
Section 7.8 HEADINGS. The descriptive headings of the articles and
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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<PAGE>
Section 7.9 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original;
but such counterparts shall together constitute but one and the same
instrument.
Section 7.10 AVAILABILITY OF THE AGREEMENT. The Company shall keep
copies of this Agreement available for inspection by holders of Warrants
during normal business hours. Copies of this Agreement may be obtained upon
written request addressed to the Company at the address set forth in Section
7.4 hereof.
Section 7.11 ENTIRE AGREEMENT. This Agreement, including the Exhibits
referred to herein and the other writings specifically identified herein or
contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous
written or oral negotiations, commitments and writings.
Section 7.12 RIGHTS OF WARRANT HOLDERS. No Warrant Certificate shall
entitle the registered holder thereof to any of the rights of a stockholder
of the Company, including, without limitation, the right to vote, to receive
dividends and other distributions, to receive any notice of, or to attend,
meetings of stockholders or any other proceedings of the Company.
[Remainder of page intentionally left blank]
22
<PAGE>
WARRANT AGREEMENT COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto under their respective corporate seals as of the day and year first
above written.
LAMONTS APPAREL, INC.
By:
--------------------------------
Name:
Title:
--------------------------------- ,
as Warrant Agent
By: -------------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
FORM OF
CLASS [A] [B] WARRANT CERTIFICATE
NEITHER THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE ISSUANCE OF ANY SECURITIES ISSUABLE UPON EXERCISE HEREOF HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES MAY
NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE
SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER OR (ii) AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
NO. W [A][B]-_____
CERTIFICATE FOR____________CLASS [A][B] WARRANTS
NOT EXERCISABLE AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON ______, 200_ [10 YEARS FOLLOWING EFFECTIVE DATE]
LAMONTS APPAREL, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES that ________________ or its registered assigns is the
registered holder (the "Registered Holder") of ___________ Class [A][B]
Warrants, each of which represents the right to purchase one fully paid and
non-assessable share of Common Stock, par value $.01 per share (the "Common
Stock"), of Lamonts Apparel, Inc., a Delaware corporation (the "Company"), at
an initial exercise price (the "Exercise Price") equal to $.01 per share, at
the times provided in the Warrant Agreement (as hereinafter defined), by
surrendering this Warrant Certificate, with the ELECTION TO PURCHASE on the
reverse hereof duly executed, at the principal office of _____________ or its
successor as warrant agent (any such warrant agent being herein called the
"Warrant Agent"), at ______________________, and by paying in full the
Exercise Price, plus transfer taxes, if any. Payment of the Exercise Price
may be made at the option of the holder hereof by (i) cash, certified check
or a wire transfer in same day funds in an amount equal to the then
applicable Exercise Price multiplied by the number of Warrant Shares then
being purchased, (ii) delivery to the Company of that number of shares of
Common Stock having an aggregate Fair Market Value equal to the then
applicable Exercise Price multiplied by the number of Warrant Shares then
being purchased or (iii) by any combination of (i) and (ii). In the
alternative, the Registered Holder may exercise its right to purchase some or
all of the Warrant Shares subject to Warrant Certificate, on a net basis,
such that, without the exchange of any funds, the Registered Holder receives
that number of Warrant Shares subscribed to pursuant to this Warrant
Certificate less that number of shares of Common Stock having an aggregate
Fair Market Value at the time of exercise equal to the aggregate Exercise
Price that would otherwise have been paid by such holder for the number of
Warrant Shares subscribed to pursuant to this Warrant Certificate.
No Warrant may be exercised after 5:00 P.M., New York City time, on
_________, 200_ (the "Expiration Date"). All Warrants evidenced hereby shall
thereafter become void, subject to the terms of the Warrant Agreement.
Prior to the Expiration Date, subject to any applicable laws, rules or
regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate and in accordance
with the
<PAGE>
terms of the Warrant Agreement, the Registered Holder shall be entitled
to transfer this Warrant Certificate, in whole or in part, upon surrender of
this Warrant Certificate at the Warrant Agent's Office with the ASSIGNMENT on
the reverse hereof. Upon any such transfer, a new Warrant Certificate or
Warrant Certificates representing the same aggregate number of Warrants will be
issued in accordance with instructions in the form of assignment.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled to
exchange this Warrant Certificate, with or without other Warrant Certificates,
for another Warrant Certificate or Warrant Certificates for the same aggregate
number of Warrants, upon surrender of this Warrant Certificate at the Warrant
Agent's Office as set forth in the Warrant Agreement. Upon certain events
provided for in the Warrant Agreement, the Exercise Price and the number of
shares of Common Stock issuable upon the exercise of each Warrant are required
to be adjusted. No fractional shares will be issued upon the exercise of
Warrants. As to any final fraction of a share which the Registered Holder of
one or more Warrant Certificates, the rights under which are exercised in the
same transaction, would otherwise be entitled to purchase upon such exercise,
the Company shall pay the cash value thereof determined as provided in the
Warrant Agreement.
This Warrant Certificate is issued under and in accordance with the Warrant
Agreement dated as of ______, 199_ between the Company and the Warrant Agent
(the "Warrant Agreement") and is subject to the terms and provisions contained
in said Warrant Agreement, to all of which terms and provisions the Registered
Holder consents by acceptance hereof. All capitalized terms not defined herein
shall have the meaning set forth in the Warrant Agreement.
This Warrant Certificate shall not entitle the Registered Holder to any of
the rights of a stockholder of the Company, including, without limitation, the
right to vote, to receive dividends and other distributions, or to attend or
receive any notice of meetings of stockholders or any other proceedings of the
Company.
This Warrant Certificate shall not be valid for any purpose until it shall
have been countersigned by the Warrant Agent.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its facsimile Corporate Seal.
LAMONTS APPAREL, INC.
By:
----------------------------
Name:
Title:
Seal Attest:
-------------------------------
Assistant Secretary
Countersigned: -------------------------------,
as Warrant Agent
Dated: By:
----------------------------
Authorized Signature
3
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise ________________
of the Warrants represented by this Warrant Certificate and to purchase the
shares of Common Stock issuable upon the exercise of said Warrants, and requests
that Certificates for such shares be issued and delivered as follows:
ISSUE TO:_________________________________________________________________
(NAME)
__________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
__________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:_______________________________________________________________
(NAME)
at________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby exercised is less than all the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the number of full Warrants not exercised be
issued and delivered as set forth above.
In full payment of the exercise price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$ by (i) $______ in cash, certified check or wire transfer in same day
funds, (ii) surrender to the Warrant Agent of certificate no(s) ____________
representing ______ shares of Common Stock duly endorsed to the Warrant Agent,
(iii) a combination of (i) an (ii) or (iv) exercising the Warrants exercised on
a net basis such that the number of shares of Common Stock otherwise receivable
by the Registered Holder pursuant to the Warrants exercised shall be reduced by
the number of shares of Common Stock having an aggregate Fair Market Value equal
to the exercise price with respect to the Warrants exercised.
Date: ______________, 19__ _____________________________________
Signature
(Signature must conform in all
respects to name of holder
as specified on the face of
the Warrant Certificate.)
4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant Certificate, with respect to the number of
Warrants set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF WARRANTS
- ---------------- ------- ---------------
and does hereby irrevocably constitute and appoint_____________________________,
Attorney, to make such transfer on the books of Lamonts Apparel, Inc. maintained
for that purpose, with full power of substitution in the premises.
Date: ______________, 19__ ___________________________________________
Signature
(Signature must conform in all
respects to name of holder
as specified on the face of
the Warrant Certificate.)
5
<PAGE>
TAB 4
NEW CLASS C WARRANT AGREEMENT AND
FORM OF NEW CLASS C WARRANT CERTIFICATE
TAB 4
<PAGE>
FORM OF
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of _________, 1997 between LAMONTS APPAREL,
INC., a corporation duly organized and validly existing under the laws of
Delaware (as reorganized pursuant to Chapter 11, title 11 of the United States
Code) (the "Company") and ______________________________ ("Holder").
The Company, as debtor in possession [has entered into an Amended and
Restated Debtor in Possession and Exit Financing Loan Agreement dated as of
September __, 1997 with BankBoston, N.A. and certain other financial
institutions identified thereunder and with BankBoston, N.A., as agent (the
"Amended Loan Agreement"). The Holder has provided certain payment guarantees
with respect to the Term Loan (as defined in the Amended Loan Agreement)
pursuant to that certain Purchase and Guaranty Agreement also dated as of
September __, 1997 (the "Guaranty"). Pursuant to the Amended Loan Agreement,
and to induce Holder to provide the Guaranty and in partial exchange for
Holder's administrative claim against the Company's Chapter 11 estate, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company]* has agreed that upon the effective date of
its plan of reorganization it will issue Warrants (as hereinafter defined) to
Holder [as nominee of the Term Loan Lender (as defined in the Amended Loan
Agreement)]* providing for the purchase of shares of Stock (as hereinafter
defined) of the Company, in the manner hereinafter provided. Accordingly, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS ACCOUNTING TERMS AND DETERMINATIONS.
(a) Except as expressly provided herein, terms defined in the Amended Loan
Agreement are used herein as defined therein.
- -------------------------
* Bracketed language does not go in Warrant Agreement executed by management.
* Bracketed language does not go in Warrant Agreement executed by management.
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<PAGE>
(b) As used herein:
"AFFILIATE" shall mean, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person and, if such Person is an individual, any member of the immediate
family (including parents, spouse and children) of such individual and any trust
whose principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or trust.
As used in this definition, "CONTROL" (including, with its correlative meanings,
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean possession, directly
or indirectly, of the power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), PROVIDED that, in any event, any
Person which owns directly or indirectly 20% or more of the securities having
ordinary voting power for the election of directors or other governing body of a
corporation or 20% or more of the partnership or other ownership interests of
any other Person will be deemed to control such corporation or other Person.
Notwithstanding the foregoing, (a) no individual shall be deemed to be an
Affiliate of a corporation, solely by reason of his or her being an officer or
director of such corporation, and (b) neither Holder nor any of its Affiliates
shall be deemed to be an Affiliate of the Company.
"BANKRUPTCY COURT" shall mean the United States Bankruptcy Court for the
Western District of Washington at Seattle.
"BOARD" shall mean the Board of Directors of the Company.
"BUSINESS DAY" shall mean any day on which commercial banks are not
authorized or required to close in New York City.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other similar or successor agency of the Federal government administering the
Securities Act and/or the Securities Exchange Act of 1934, as amended from
time to time.
"COMPANY" shall have the meaning set forth at the head of this Agreement.
"CONTROL" shall mean, with respect to any Person, the power to exercise,
directly or indirectly, a controlling influence over the management or
policies of such Person.
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<PAGE>
"DATE OF ISSUANCE" shall have the meaning assigned to such term in the
form of Warrant attached as Annex 1 hereto.
"EXPIRATION DATE" shall have the meaning assigned to such term in the
form of Warrant attached as Annex 1 hereto.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled (whether through ownership of securities or other ownership
interests, by contract or otherwise) by any of the foregoing.
"HOLDER" shall have the meaning set forth at the head of this Agreement
and each other Person who acquires the original Warrant (or any Warrant
issued pursuant to the terms of the original Warrant) or Warrant Shares
pursuant to the provisions of this Agreement.
"INCLUDE" and "INCLUDING" shall be construed as if followed by the phrase
"without being limited to".
"LIEN" shall mean, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset. For purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"PERSON" shall mean a corporation, an association, a partnership, a joint
venture, an organization, a business, an individual or a Governmental
Authority.
"PLAN" shall mean the Company's Chapter 11 Plan of Reorganization.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Grant of Registration
Rights of even date herewith between the Company and the other parties
signatory thereto relating to the registration of the Registrable Securities
(as defined therein) under and pursuant to the Securities Act, substantially
in the form attached as Annex 3 hereto, as said Registration Rights Agreement
shall be modified and supplemented and in effect from time to time.
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<PAGE>
"RESTRICTED SECURITIES" shall mean the Warrants and any Warrant Shares or
other securities which have been issued or are issuable upon the exercise of
such Warrants until such time as any such Restricted Securities (i) have been
sold pursuant to an effective registration statement under the Securities Act
or (ii) are distributed pursuant to Rule 144 (or any similar provision then
in force) under the Securities Act and if it has so requested, the Company
has received an opinion of counsel (either its own counsel or, if the Company
so requests, counsel to the holders of such Restricted Securities) reasonably
acceptable to the Company that such Restricted Securities may be so
transferred without registration or pursuant to an exemption under the
Securities Act, and in each such instance the Company has delivered new
Warrant certificates not bearing the legend prescribed by SECTION 2.03 hereof.
"RULE 144" shall mean Rule 144 promulgated by the Commission under the
Securities Act (or any successor or similar rule then in force).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"STOCK" shall mean the Company's Class A Common Stock, $.01 par value,
and/or any security of any class or preference of the Company which has
either (a) the right to vote with the holders of the common stock of the
Company generally in the election of the board of directors of the Company or
(b) the right to any amounts payable (i) with respect to profits of the
Company or (ii) in the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company in each of clauses (i) or (ii) other
than the repayment of the consideration originally paid for such security
together with a fixed or formula-based return on such consideration
consistent with the security's priority of payment.
"STOCK UNIT" shall have the meaning assigned to such term in the form of
Warrant attached as Annex 1 hereto.
"STOCKHOLDER" shall mean any Person (excluding any Holder) who owns any
shares of common or preferred Stock of the Company (or any successor thereto).
"SUBSIDIARY" of any Person shall mean any corporation of which at least a
majority of the outstanding shares of stock having by the terms thereof
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of
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<PAGE>
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned or controlled
by such Person or one or more of the Subsidiaries of such Person or by such
Person and one or more of the Subsidiaries of such Person.
"TRANSFER" shall mean, unless the context otherwise requires, any
disposition of any Restricted Securities, or of any interest in any thereof,
which would constitute an offer or sale thereof within the meaning of the
Securities Act.
"WARRANTS" shall have the meaning assigned to such term in SECTION 2.01.
"WARRANT SHARES" shall mean (i) the shares of Stock purchased or
purchasable by the Holders of the Warrants upon the exercise thereof,
including any Stock into which such Stock may thereafter be changed or
converted, and (ii) if required hereunder, any additional shares of Stock
issued or distributed by way of a dividend, stock split or other distribution
in respect of the Stock referred to in clause (i) above, or acquired by way
of any rights offering or similar offering made in respect of the Stock
referred to in clause (i) above.
(c) References herein and in the Warrants to the Stock outstanding "on a
fully diluted basis" at any time shall mean the number of shares of Stock
then issued and outstanding, assuming full conversion, exercise and exchange
of all outstanding warrants, options and rights to purchase Stock, and all
securities of any type that shall be (or may become) exchangeable for, or
exercisable or convertible into Stock, including the Warrants.
(d) Except as otherwise may be expressly provided herein, all accounting
terms used herein shall be interpreted in accordance with generally accepted
accounting principles consistently applied. All calculations made for the
purposes of determining compliance with the terms of this Agreement and the
Warrants shall (except as otherwise may be expressly provided herein) be made
by application of generally accepted accounting principles consistently
applied.
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<PAGE>
SECTION 2. ISSUANCE AND EXECUTION OF WARRANTS.
2.01 AUTHORIZATION AND ISSUANCE OF SHARES AND WARRANTS. The Company has
authorized in accordance with the Plan: (a) the issuance of a warrant
certificate covering the purchase of Stock Units representing shares of Stock
substantially in the form of ANNEX 1 to this Agreement (such certificate,
together with the rights to purchase Stock provided thereby and all warrant
certificates covering such stock issued upon transfer, division or combination
of, or in substitution for, any thereof, sometimes called the "WARRANTS"); and
(b) the issuance of such number of shares of Stock as shall permit the
compliance by the Company with its obligations to issue Stock pursuant to the
Warrants. In addition, the Warrant certificates may have such letters, numbers
or other marks of identification or designation and such legends, summaries, or
endorsements stamped, printed, lithographed or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as, in any particular case, may be required to comply with any law
or with any rule or regulation of any regulatory authority or agency, or to
conform to customary usage, provided, however, that no such change shall be made
which affects the duties or obligations of the Company without the consent of
the Company.
2.02 EXECUTION AND DELIVERY OF WARRANT CERTIFICATES. The Warrant
certificates shall be executed on behalf of the Company by its Chairman or
President or any Vice President and attested to by its Secretary or Assistant
Secretary, either manually or by facsimile signature printed thereon. In case
any authorized officer of the Company who shall have signed any of the Warrant
certificates shall cease to be such officer of the Company either before or
after delivery thereof by the Company to the Holder, the signature of such
person on such Warrant certificates shall be valid nevertheless and such Warrant
certificate may be issued and delivered to the person entitled to receive the
Warrant represented thereby with the same force and effect as though the person
who signed such Warrant certificates had not ceased to be such officer of the
Company. The Warrants originally issued to Holder shall be delivered on the
effective date of the Plan. The Company shall maintain books (the "Warrant
Register") for the registration of Warrants and the registration of transfers of
Warrants.
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<PAGE>
2.03 TRANSFER AND EXCHANGE OF WARRANTS.
(a) Warrants evidencing Restricted Securities and only such Warrants
will bear a legend in substantially the following form:
NEITHER THIS WARRANT NOR SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH TRANSFER IS
PURSUANT TO (i) A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO
SUCH SECURITIES UNDER THE SECURITIES ACT AND THE RULES AND REGULATIONS
THEREUNDER OR (ii) AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND IF IT
HAS SO REQUESTED, THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
(EITHER ITS OWN COUNSEL OR, IF THE COMPANY SO REQUESTS, COUNSEL TO THE
HOLDERS OF SUCH SECURITIES) REASONABLY ACCEPTABLE TO THE COMPANY THAT
SUCH SECURITIES MAY BE SO TRANSFERRED.
(b) Following the transfer or exchange of a Restricted Security or
Securities (other than pursuant to an effective registration statement under the
Securities Act) the transferor of such Restricted Security or Securities shall,
upon request of the Company, deliver to the Company an opinion of counsel, in
substance reasonably satisfactory to the Company, to the effect that such
Restricted Security to be issued upon such transfer or exchange may be so issued
without the foregoing legend.
(c) Subject to paragraph (a) above, the Company shall register the
transfer of all or any whole number of Warrants covered by any outstanding
Warrant certificate in the Warrant Register upon surrender at the Company of
Warrant certificates accompanied by a written instrument or instruments of
transfer, in form reasonably satisfactory to the Company, duly executed by
the registered Holder or his attorney duly authorized in writing. Upon any
such registration of transfer a new Warrant certificate shall be issued to
the transferee and the surrendered Warrant certificate shall promptly be
canceled by the Company. Warrant certificates may be exchanged at the option
of the
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<PAGE>
Holder thereof, upon surrender, properly endorsed by the registered Holders,
at the Company, with written instructions, for other Warrant certificates
representing in the aggregate a like number of Warrants. The Company may
require the payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any such exchange or transfer.
2.04 TRANSFER AND EXCHANGE OF WARRANTS. All the restrictions imposed by
this SECTION 2 upon the transferability of the Restricted Securities shall cease
and terminate as to any particular Restricted Security when such Restricted
Security shall have been effectively registered under the Securities Act and
applicable state securities laws and sold by the Holder thereof in accordance
with such registration or sold under and pursuant to Rule 144. Whenever the
restrictions imposed by this SECTION 2 shall terminate as to any Restricted
Security as herein above provided, the Holder thereof shall be entitled to
receive from the Company, without expense (other than any tax or governmental
charge that may be imposed), a new certificate evidencing such Restricted
Security not bearing the restrictive legend otherwise required to be borne by a
certificate evidencing such Restricted Security.
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Holders as follows:
3.01 EXISTENCE, QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
3.02 NO BREACH. Subject to confirmation by the Bankruptcy Court of the
Plan contemplating and approving the issuance of the Warrants which are the
subject of this Agreement, the execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company,
the issuance of the Warrants and the consummation of the transactions
contemplated hereby and thereby will not (a) violate the certificate of
incorporation or by-laws of the Company, (b) violate any loan or credit
agreement to which the Company is a party or is bound, or constitute a breach of
or default under any other instrument or agreement to which the Company is a
party or is bound which is material to the business or properties of the Company
taken as a whole, (c) violate any judgment, order, injunction, decree or award
against or binding upon the Company, (d) result in the creation of any Lien upon
any of the properties or assets of the Company, or (e) violate any law, rule or
regulation relating to the Company except, in each such case as would not have a
material adverse effect on the Company.
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<PAGE>
3.03 CORPORATE ACTION. Subject to confirmation by the Bankruptcy Court of
the Plan contemplating and approving the issuance of the Warrants which are the
subject of this Agreement, the Company has all necessary corporate power and
authority to execute, deliver and perform its obligations under this Agreement,
the Warrants and the Registration Rights Agreement; the execution, delivery and
performance by the Company of this Agreement, the Warrants and the Registration
Rights Agreement have been duly authorized by all necessary corporate action
(including all necessary stockholder action) on the part of the Company; this
Agreement has been duly executed and delivered by the Company and constitutes,
and the Registration Rights Agreement when executed and delivered by the Company
will constitute, the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except to the extent that enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally, or (b) general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law); the Warrants, when executed, issued and
delivered pursuant to this Agreement will constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except to the extent that enforcement thereof may
be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to or affecting creditors'
rights generally, or (b) general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law); the Warrant
Shares initially covered by the Warrants will be duly and validly authorized and
reserved for issuance and shall, when paid for, issued and delivered in
accordance with the Warrants, be duly and validly issued, fully paid and
nonassessable and free and clear of any Liens; and none of the Warrant Shares
issued pursuant to the terms hereof or the Warrants shall be in violation of any
preemptive rights of any Stockholder.
3.04 APPROVALS. Subject to confirmation by the Bankruptcy Court of the
Company's Plan contemplating and approving the issuance of the Warrants which
are the subject of this Agreement, except as contemplated by the Registration
Rights Agreement, no authorizations, approvals or consents of, and no filings or
registrations with, any Governmental Authority or any other Person which shall
not have been obtained on or prior to the Date of Issuance are necessary for the
execution, delivery or performance by the Company of this Agreement, the
Warrants or the Registration Rights Agreement or for the validity or
enforceability thereof.
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<PAGE>
3.05 PUBLIC UTILITY HOLDING COMPANY ACT. The Company is not a "holding
company", or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
3.06 CAPITALIZATION. As of the date of issuance of the original Warrants
to Holder, the capitalization of the Company consists solely of common Stock and
options and warrants to acquire common Stock.
SECTION 4. CERTAIN DISPOSITIONS OF SECURITIES. Notwithstanding
anything in this Agreement (including SECTION 2) or the Warrants to the
contrary, but subject to compliance with the Securities Act and the requirement
as to legending of the certificates for Restricted Securities specified in
SECTION 2.03, any Holder shall have the right to transfer any or all of its
Restricted Securities:
(a) to any Person who at the time owns (directly or indirectly) at
least a majority of the shares of such Holder;
(b) to any Person at least a majority of whose shares shall at the
time be owned (directly or indirectly) by such Holder or by any Person who
owns (directly or indirectly) at least a majority of the shares of such
Holder; or
(c) to another Holder.
The party to which Restricted Securities are transferred pursuant to the
immediately preceding sentence shall be deemed to be a Holder of such Restricted
Securities and subject to the provisions of this Agreement, and each such
transferee shall execute a Joinder Agreement confirming that such transferee
agrees to be bound by all the provisions of this Agreement applicable to Holders
so long as he, she or it continues to own any of the Restricted Securities so
transferred to such transferee.
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<PAGE>
SECTION 5. HOLDERS, RIGHTS.
5.01 DELIVERY EXPENSES. If any Holder surrenders any certificate for
Warrants or Warrant Shares to the Company or a transfer agent of the Company for
exchange for instruments of other denominations or registered in another name or
names, the Company shall cause such new instruments to be issued and shall
deliver, in each case at the cost of the Holder, from the office of such Holder
from or to the Company or its transfer agent, the surrendered instrument and any
new instruments issued in substitution or replacement for the surrendered
instrument.
5.02 TAXES. The Company shall pay all taxes (other than federal, state or
local income taxes) which may be payable in connection with the execution and
delivery of this Agreement or the Registration Rights Agreement or the issuance
of the Warrants and Warrant Shares hereunder or in connection with any
modification of this Agreement, the Registration Rights Agreement or the
Warrants and shall hold each Holder harmless without limitation as to time
against any and all liabilities with respect to all such taxes. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of shares of Stock in a name
other than that in which this Warrant is registered, and no such issue or
delivery shall be made unless and until the Person requesting such issue has
paid to the Company the amount of any such tax, or has established, to the
satisfaction of the Company, that such tax has been paid. The obligations of
the Company under this SECTION 5.02 shall survive any termination of this
Agreement or the Registration Rights Agreement, and any cancellation or
termination of the Warrants.
5.03 REPLACEMENT OF INSTRUMENTS. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any certificate or instrument evidencing any
Warrants or Warrant Shares, and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it, or
(b) in the case of mutilation, upon surrender or cancellation,
thereof,
the Company, at the Holder's expense, shall execute, register and deliver, in
lieu thereof, a new certificate or instrument for (or covering the purchase of)
an equal number of Warrants or Warrant Shares.
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<PAGE>
5.04 CERTAIN RESTRICTIONS. The Company shall not at any time enter into an
agreement or other instrument, and has not entered into an agreement currently
in effect, making performance hereunder or the issuance of shares of Stock upon
the exercise of any Warrant a default under any such agreement or instrument.
5.05 INDEMNIFICATION. Each party hereto hereby irrevocably indemnifies the
other and saves it harmless against any and all reasonable out of pocket losses,
expenses or liabilities, including judgments, costs and reasonable counsel fees
and expenses arising out of or in connection with a breach of this Agreement,
except as a direct result of the gross negligence, bad faith or willful
misconduct of such other party.
SECTION 6. MISCELLANEOUS.
6.01 WAIVER. No failure on the part of any Holder to exercise and no delay
in exercising, and no course of dealing with respect to, any right, power or
privilege under this Agreement, the Warrants or the Registration Rights
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under this Agreement, the Warrants or
the Registration Rights Agreement preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
6.02 NOTICES.
(a) All notices, requests and other communications provided for herein and
in the Warrants (including any waivers or consents under, this Agreement and the
Warrants) shall be given or made in writing,
(i) if to the Company:
Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, WA 98034
Attention: Ms. Debbie Brownfeld
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<PAGE>
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Los Angeles, CA 90071
Attention: Michael A. Woronoff, Esq.
(ii) if to Holder:
Attention:
with a copy to:
[Goulston & Storrs, P.C.
400 Atlantic Avenue
Boston, MA 02110-3333
Attention: Kitt Sawitsky, Esq.]*
(iii) if to any other person who is the registered Holder of any
Warrants or Warrant Shares, to the address for such Holder as it appears in the
stock or warrant ledger of the Company;
or, in the case of any Holder, at such other address as shall be designated by
such party in a notice to the Company; or, in the case of the Company, at such
other address as the Company may designate in a notice to the Holders.
(b) All such notices, requests and other communications shall be:
(i) personally delivered, sent by courier guaranteeing overnight delivery or
sent by registered or certified mail, return receipt requested, postage prepaid,
in each case given or addressed as aforesaid; and (ii) effective upon receipt.
6.03 EXPENSES, ETC. The Company agrees to pay or reimburse the Holders for
all reasonable out-of-pocket costs and expenses of the Holders (including the
reasonable fees and expenses of Goulston & Storrs, special Boston counsel to
Holder, and other
- --------------------------
* Management holders to provide alternate copy address.
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<PAGE>
reasonable legal fees and expenses), in connection with this Agreement but
only to the extent provided in the Amended Loan Agreement.
6.04 AMENDMENTS, ETC. Any provision of this Agreement may be amended or
modified only by an instrument in writing signed by (a) the Company and (b) the
Holders of at least a majority of the Warrant Shares issued or issuable upon
exercise of the Warrants; PROVIDED, HOWEVER, that no such amendment or waiver
shall, without the written consent of all holders of such shares and Warrants at
the time outstanding, amend this SECTION 6.04.
6.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
6.06 SURVIVAL.
(a) All representations and warranties made by the Company herein or in
any certificate or other instrument delivered by it or on its behalf under this
Agreement or the Registration Rights Agreement shall be considered to have been
relied upon by each Holder and shall survive the issuance of the Warrants or the
Warrant Shares regardless of any investigation made by or on behalf of any
Holder. All statements in any such certificate or other instrument so delivered
shall constitute representations and warranties by the Company hereunder.
(b) All representations and warranties made by the Holders herein shall be
considered to have been relied upon by the Company and shall survive the
issuance to the Holders of the Warrants or the Warrant Shares regardless of any
investigation made by the Company or on its behalf.
6.07 CAPTIONS. The captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
6.08 COUNTERPARTS. This Agreement may be executed on counterpart signature
pages or in any number of counterparts, all of which taken together shall
constitute one and the same instrument and any of the parties hereto may execute
this Agreement by signing any such counterpart signature page or counterpart.
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<PAGE>
6.09 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York applicable to contracts
executed in and to be fully performed in such State.
6.10 SEVERABILITY. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
6.11 DEFECTS IN NOTICE. Failure to file any certificate or notice or to
mail any notice, or any defect in any certificate or notice pursuant to this
Agreement shall not affect in any way the rights of any registered holder of a
Warrant certificate or the legality or validity of any adjustment made pursuant
to the provisions of the Warrant, or any transaction giving rise to any such
adjustment, or the legality or validity of any action taken or to be taken by
the Company.
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<PAGE>
SECTION 7. OPTION FOR BINDING ARBITRATION.
At the sole and exclusive option of the Holders (from time to time) of a
majority of the Warrant Shares issued or issuable upon exercise of the Warrants,
exercised by written notice to the Company, any dispute arising out of or
relating to this Agreement shall be finally settled by arbitration pursuant to
the JAMS/ENDISPUTE Comprehensive Arbitrators Rules and Procedures then in effect
(the "Rules"), as modified by this SECTION 7. Within fifteen (15) Business Days
following such written request by such majority Holders to submit a dispute to
arbitration, the parties shall select a retired judge or other neutral third
party mutually acceptable to the parties to serve as the sole arbitrator of the
dispute. In the event the parties are unable to select a mutually acceptable
arbitrator within such fifteen day period, the JAMS/ENDISPUTE administrator (the
"Administrator") shall select the arbitrator. Each arbitrator selected
hereunder will disclose to each party any conflict of interest or potential
conflict of interest and, if any such conflict or potential conflict exists, the
Administrator shall, unless otherwise agreed to by the parties, select a
different arbitrator. The parties (including without limitation all Holders who
are parties to such arbitration) will be bound by the arbitrator's
determination(s), which will constitute a final, binding and non-appealable
adjudication on the merits. The arbitration shall be conducted in the
Commonwealth of Massachusetts at a location to be determined by the arbitrator.
The prevailing party(ies) in any arbitration hereunder will be entitled to
recover all costs, including reasonable attorneys' fees, charges and
disbursements from the opposing party(ies). Judgment on any arbitration award
may be entered in any court having jurisdiction. It is the intent of the
parties that the arbitration be conducted and the dispute resolved in as
expeditious a manner as reasonably possible consistent with the Rules.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Warrant
Agreement as of the date first above written.
LAMONTS APPAREL, INC.
By
------------------------------------
Name:
Title:
[HOLDER]
By
------------------------------------
Name:
Title:
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<PAGE>
FORM OF EXERCISE
(To be executed by the registered holder hereof)
The undersigned hereby exercises this Warrant to subscribe for and purchase
_________ Stock Units of LAMONTS APPAREL, INC. covered by the within certificate
and herewith makes payment therefor in full. Kindly issue certificates and/or
other instruments covering Stock Units in accordance with the instructions given
below. A new Warrant for the unexercised balance of the Stock Units covered by
the within certificate, if any, will be registered in the name of the
undersigned.
Dated:
------------
---------------------------------------
Instructions for registration
of Stock Units
- ----------------------------
Name (please print)
Social Security or Other Identifying
Number:
---------------------
Address:
- ----------------------------
Street
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<PAGE>
- ----------------------------
City, State and Zip Code
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<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder hereof)
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers all
the rights of the undersigned under the within certificate with respect to the
number of Stock Units covered thereby set forth hereinbelow unto:
Name of Assignee Address Number of Stock Units
- ---------------- ------- ---------------------
Dated:
---------------
-----------------------------------------
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<PAGE>
Annex 2
to
Warrant Agreement
JOINDER AGREEMENT
JOINDER AGREEMENT, dated the date set forth below, between LAMONTS APPAREL,
INC., a Delaware corporation ("the Company") and the undersigned stockholder or
warrant holder of the Company.
A. Reference is made to that certain Warrant Agreement dated as of
___________, 1997 (as modified and supplemented and in effect from time to time,
the "WARRANT AGREEMENT"), between the Company and [Holder] and to the
Registration Rights Agreement. Each capitalized term used but not defined
herein shall have the meaning assigned to such term in the Warrant Agreement.
B. The Warrant Agreement requires that certain transferees of shares of
Stock or Warrants execute and deliver to the Company and each Holder this
Joinder Agreement.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
undersigned hereby acknowledges receipt of copies of the Warrant Agreement and
the Registration Rights Agreement and agrees: (a) to be bound by the terms and
provisions of the Warrant Agreement and the Registration Rights Agreement as
though [he/she/it] were an original party thereto; and (b) to be treated as a
[Stockholder/Holder] [Existing Stockholder] for all purposes thereof.
IN WITNESS WHEREOF, the undersigned has signed this Joinder Agreement on
the date set forth below.
Date:
---------------- ----------------------------------------------
Description of transferred securities, name of
transferor, and date of transfer:
----------------------------------------------
----------------------------------------------
Acknowledged and Agreed to as
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<PAGE>
of the date written above:
LAMONTS APPAREL, INC.
By
-----------------------
Name:
Title:
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<PAGE>
Annex 1
to
Warrant Agreement
[Form of Warrant]
WARRANT
NEITHER THIS WARRANT NOR SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH TRANSFER IS PURSUANT TO (i) A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE
SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER OR (ii) AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS AND IF IT HAS SO REQUESTED, THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL (EITHER ITS OWN COUNSEL OR, IF THE COMPANY SO REQUESTS,
COUNSEL TO THE HOLDERS OF SUCH SECURITIES) REASONABLY ACCEPTABLE TO THE
COMPANY THAT SUCH SECURITIES MAY BE SO TRANSFERRED.
No. of Stock Units: Warrant No. 1
WARRANT
to Purchase Stock of
LAMONTS APPAREL, INC.
Expiring as set forth in the first paragraph hereof
THIS IS TO CERTIFY THAT__________________________, or its assigns, is
entitled to purchase in whole or in part from time to time from LAMONTS
APPAREL, INC., a Delaware corporation (the "Company"), (i) at any time on or
after the Date of Issuance, but not later than 5:00 p.m., New York time, on
____________, 2001 (the
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<PAGE>
"Stock Unit Expiration Date"), _________ Stock Units (as hereinafter defined
and subject to adjustment as provided herein) at a purchase price of $1.25
per Stock Unit (the "Stock Unit Exercise Price") and (ii) at any time on or
after the first date on which the Aggregate Equity Trading Value equals or
exceeds $25 million, but not later than 5:00 p.m., New York time, on
____________, 2007 (the "Adjustment Unit Expiration Date"), _________(*)
Stock Units at a price of $.01 per Stock Unit (the "Adjustment Unit Exercise
Price"); provided that the Warrants described in this clause (ii) shall not
be exerciseable unless and until the Warrants described in clause (i) above
shall have been exercised in full, in each case subject to the terms and
conditions hereinbelow provided.
SECTION 1. CERTAIN DEFINITIONS. (a) Each capitalized term used herein
without definition shall have the meaning assigned thereto (or incorporated by
reference) in the Warrant Agreement (as hereinafter defined).
(b) As used in this Warrant, unless the context otherwise required:
"ADDITIONAL STOCK" shall mean all shares of Stock issued by the Company on
or after the Date of Issuance and all shares of Stock issuable by the Company
after the Date of Issuance on conversion or exercise of other rights under
Convertible Securities, other than, in each case, Excluded Securities. For
purposes hereof Excluded Securities means:
(i) the original Warrant Shares and any additional Warrant Shares or
Convertible Securities (including shares issuable upon exercise thereof)
issuable or issued upon exercise of the Warrants;
(ii) the Class A Warrants and the Class B Warrants and any shares of Stock
issuable or issued upon the exercise thereof (including, following any
adjustments required under the terms of such warrants, any additional Class A
Warrants or Class B Warrants or shares of Stock issuable or issued upon the
exercise thereof);
(iii) the Gordion Warrants and any shares of Stock issuable or issued
upon the exercise thereof (including, following any adjustments required under
the terms of such warrants, any additional Gordion Warrants or shares of Stock
issuable or issued upon the exercise thereof);
- ----------------
(*) a number of Stock Units equal to the number of Stock Units in (i) above
multiplied by .07142856.
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<PAGE>
(iv) up to 1,708,729 shares of Stock issuable pursuant to the Company's
1997 Stock Option Plan (as such number may be adjusted by reason of transactions
of the type described in SECTION 4.01);
(v) up to 9,000,000 shares of Stock issued and outstanding on the Date of
Issuance;
(vi) Stock or Convertible Securities (including shares issuable upon
exercise or conversion of Convertible Securities) issued in any transaction
for which an adjustment is otherwise made (or not required to be made)
pursuant to the terms hereof; and/or
(vii) shares of Stock issued in a bona fide registered public offering.
"AGGREGATE EQUITY TRADING VALUE" means, as of any date, the product of
(a) the Fair Market Value per share of Stock, and (b) the total number of
issued and outstanding shares of Stock as of such date (assuming for purposes
of determining such number of shares the exercise in full of all in the money
options outstanding on such date to purchase shares of Stock and the exercise
of all Class B Warrants which are exercisable as of such date).
"CLASS A WARRANTS" means the Class A Warrants issued by the Company
pursuant to the Company's Plan of Reorganization.
"CLASS B WARRANTS" means the Class B Warrants issued by the Company
pursuant to the Company's Plan of Reorganization.
"CLOSING PRICE" means, for any date, the last sale price reported in the
WALL STREET JOURNAL or other trade publication regular way or, in case no
such reported sale takes place on such date, the average of the last reported
bid and asked prices regular way, in either case on the principal national
securities exchange on which the Stock is listed if that is the principal
market for the Stock or, if not listed on any national securities exchange or
if such national securities exchange is not the principal market for the
Stock, the average of the closing high bid and low asked prices as reported
by the National Association of Securities Dealers, Inc. Automated Quotation
System or its successor, if any, or if the Stock is not so reported, as
furnished by the National Quotation Bureau, Inc., or if such firm is not then
engaged in the business of reporting such prices, as furnished by any
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<PAGE>
similar firm then engaged in such business and selected by the Company or, if
there is no such firm, as furnished by any NASD member selected by the
Company.
"COMPANY" shall have the meaning set forth at the head of this Warrant.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, shares of
Stock or other securities which are convertible or exercisable into or
exchangeable for shares of Additional Stock, either immediately or upon the
arrival of a specified date or the happening of a specified event.
"DATE OF ISSUANCE" shall mean _________, 1997.
"EXERCISE PRICE" shall mean the Stock Unit Exercise Price or the Adjustment
Unit Exercise Price, as the case may be.
"EXPIRATION DATE" shall mean the Stock Unit Expiration Date or the
Adjustment Unit Expiration Date, as the case may be.
"FAIR MARKET VALUE" of shares of Stock shall mean (a) if the Stock is
listed on a national securities exchange or quoted on a national quotation
system, the average of the daily Closing Prices of the Stock for the five (5)
trading days immediately preceding the date of exercise or the sale date
under SECTION 4, as applicable, or (b) if the Stock is not so listed or
quoted, the fair market value thereof as determined in good faith by the
Company's Board of Directors.
"GORDION WARRANTS" means those certain warrants exercisable for Stock
having a value not to exceed $200,000 (based on the Normalized Share Price as
set forth in such warrants), issued by the Company to Gordion Group, L.P.
pursuant to the Company's Plan of Reorganization.
"INCLUDE" and "INCLUDING" shall be construed as if followed by the phrase
"without being limited to,".
"STOCK UNIT" shall mean one share of Stock, as such Stock was constituted
on the Date of Issuance, and thereafter shall mean such number of shares
(excluding fractional shares) of Stock and other securities, cash or other
property as shall result from the adjustments specified in SECTION 4 and
SECTION 5.
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<PAGE>
"WARRANT AGREEMENT" shall mean the Warrant Agreement dated as of
_____________, 1997, between the Company and _________________, as such Warrant
Agreement shall be modified and supplemented and in effect from time to time.
"WARRANTS" shall mean: (i) this Warrant dated as of the Date of Issuance
originally issued by the Company pursuant to the Warrant Agreement,
evidencing rights to purchase up to an aggregate of 3,429,588 Stock Units,
(ii) the additional Warrants to purchase up to 381,065 shares of Stock issued
by the Company to certain officers, directors and employees of the Company in
accordance with the Plan, and (iii) all Warrants issued upon transfer,
division or combination of, or in substitution for, any Warrants described in
clause (i) or (ii).
(c) References in this Warrant to the Stock outstanding "on a fully
diluted basis" at any time shall mean the number of shares of Stock then
issued and outstanding, assuming full conversion, exercise and exchange of
all warrants, options and rights to purchase such Stock and all securities of
any type that shall be (or may become) exchangeable for, or exercisable or
convertible into, such Stock, including the Warrant.
SECTION 2. EXERCISE AND ISSUANCE.
2.01 EXERCISE OF WARRANT. In order to exercise this Warrant, in whole
or in part, the Holder hereof shall deliver to the Company, at its office
maintained for such purpose pursuant to SECTION 11.01, (a) a written notice
of such Holder's election to exercise this Warrant, which notice shall
specify the number of Stock Units to be purchased, (b) a certified or bank
check or checks payable to the Company in an aggregate amount equal to the
aggregate applicable Exercise Price for the number of Stock Units as to which
this Warrant is being exercised or otherwise in accordance with SECTION 2.02,
and (c) this Warrant. Such notice may be in substantially the form of
exercise set out at the end of this Warrant. Upon receipt thereof, the
Company shall, as promptly as practicable and in any event within 10 Business
Days thereafter, cause to be executed and delivered to such Holder a stock
certificate or certificates representing the aggregate number of duly and
validly issued, fully paid and nonassessable Warrant Shares issuable upon
such exercise, free and clear of any Liens.
2.02 OPTIONAL EXERCISE. In addition to and without limiting the rights of
the Holder hereof under the terms of this Warrant and the Warrant Agreement, the
Holder may exercise this Warrant in whole or in part at any time or from time to
time prior to its expiration for some or all of a number of shares of Stock of
the Company having an
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<PAGE>
aggregate Fair Market Value on the date of such exercise equal to the amount
by which (a) the Fair Market Value of the number of shares of such Stock
designated for exercise by the Holder hereof on the date of the exercise
exceeds (b) the aggregate applicable Exercise Price for such shares in effect
at such time. The following equations illustrate how many shares of Stock
would then be issued upon exercise pursuant to this SECTION 2.02 with respect
to Stock as to which the Holder has elected the option under this SECTION
2.02:
Let FMV = Fair Market Value per share of Stock at date of exercise.
PSP = Per share applicable Exercise Price at date of exercise.
N = Number of shares of Stock desired to be exercised.
X = Number of shares of Stock issued upon exercise.
X = (FMV)(N)-(PSP)(N)
-----------------
FMV
No payment of any cash or other consideration to the Company shall be
required from the Holder of this Warrant in connection with any optional
exercise of this Warrant pursuant to this SECTION 2.02. Such exercise shall
be effective upon the date of receipt by the Company of the original Warrant
surrendered for cancellation and a written request from the Holder hereof
that the exercise pursuant to this section be made, or at such later date as
may be specified in such request.
2.03 ISSUANCE. The stock certificate or certificates for Warrant Shares
so delivered shall be in such denominations as may be specified in such
notice and shall be registered in the name of such Holder or such other name
or names as shall be designated in such notice. Such stock certificate or
certificates shall be deemed to have been issued and such Holder or any other
Person so designated to be named therein shall be deemed to have become a
holder of record of such shares, including to the extent permitted by law the
right to vote such shares or to consent or to receive notice as a
stockholder, as of the time such notice and payment is received by the
Company as aforesaid. If this Warrant shall have been exercised only in
part, the Company shall, at the time of delivery of said stock certificate or
certificates, execute and deliver to such Holder a new Warrant, dated the
Date of Issuance, evidencing the rights of such Holder to purchase the
remaining Stock Units called for by this Warrant, which new Warrant shall in
all other respects be identical with this Warrant, or, at the request of such
Holder, appropriate notation may be made on this Warrant and the same
returned to such Holder.
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<PAGE>
All shares of Stock issuable upon the exercise of this Warrant shall,
upon payment therefor in accordance herewith, be duly and validly issued,
fully paid and nonassessable and free and clear of any Liens.
The Company shall not issue fractional shares of Stock upon any exercise
of this Warrant
Notwithstanding anything herein to the contrary, the Company shall not be
obligated to issue any shares of Stock to the extent such issuance is
otherwise prohibited by law, including federal or state securities law, but
the Company shall use all best efforts to effect such issuance.
SECTION 3. TRANSFER, DIVISION AND COMBINATION. Subject to SECTION 11.04,
this Warrant and all rights hereunder are transferable, in whole or in part, on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the office of the Company maintained for such purpose pursuant
to SECTION 11.01, together with a written assignment of this Warrant (in
substantially the form annexed hereto) duly executed by the Holder hereof or its
agent or attorney and payment of funds sufficient to pay any stock transfer
taxes payable hereunder by the Holder hereof upon the making of such transfer.
Upon such surrender and payment the Company shall, subject to SECTION 11.04 and
the immediately following sentence, execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denominations
specified in such instrument of assignment, and this Warrant shall promptly be
canceled. If and when this Warrant is assigned in blank (in case the
restrictions on transferability referred to in SECTION 11.04 shall have been
terminated), the Company may (but shall not be obliged to) treat the bearer
hereof as the absolute owner of this Warrant for all purposes and the Company
shall not be affected by any notice to the contrary. This Warrant, if properly
assigned in compliance with this SECTION 3 and SECTION 11.04, may be exercised
by an assignee for the purchase of shares of Stock without having a new Warrant
or Warrants issued. Each assignee, by accepting a new Warrant or Warrants
issued to such assignee or this Warrant assigned in blank, agrees to be bound by
the restrictions on the transferability of such Warrant or Warrants set forth in
this Warrant and the Warrant Agreement, and each such assignee shall execute a
Joinder Agreement in the form attached hereto confirming that such assignee
agrees to be bound by all the provisions of this Warrant and the Warrant
Agreement applicable to Holders so long as he, she or it continues to own any of
the Warrants or Warrant Shares, as the case may be, so transferred to such
assignee.
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<PAGE>
This Warrant may, subject to SECTION 11.04, be divided or combined with
other Warrants upon presentation at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder hereof or its
authorized agent or attorney. Subject to compliance with the next preceding
paragraph and with SECTION 11.04, as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.
The Company shall maintain at its aforesaid office books for the
registration and transfer of the Warrants.
SECTION 4. ADJUSTMENTS.
4.01 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case at any
time or from time to time the Company shall
(1) take a record of the holders of its Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Stock, or
(2) subdivide its outstanding shares of Stock into a larger number
of shares of Stock, or
(3) combine its outstanding shares of Stock into a smaller number of
shares of Stock,
then the number of shares of Stock comprising a Stock Unit or otherwise
issuable upon an exercise of this Warrant for which this Warrant is
exercisable immediately after the happening of any such event shall be
adjusted so as to consist of the number of shares of Stock which a record
holder of the number of shares of Stock for which this Warrant is exercisable
immediately prior to the happening of such event would own or be entitled to
receive after the happening of such event.
4.02 ISSUANCE OF ADDITIONAL COMMON STOCK. In case at any time or from time
to time the Company shall (except as hereinafter provided) issue to any Person
any Additional Stock which is common Stock (or Convertible Securities
convertible into common Stock) for a consideration per share of such common
Stock (or which would produce consideration per share of such common Stock on
conversion of, or exercise of
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<PAGE>
rights under, such Convertible Securities) which is less than (a) with
respect to any issuance incident to the consolidation or merger of the
Company with, or the sale, lease or transfer of all or substantially all the
Company's assets to the party identified in that certain letter dated
September __, 1997, between the Company and Specialty Investment I LLC (or
in connection with a financing related to any such transaction), the Fair
Market Value of a share of common Stock, and (b) with respect to any other
such issuance, (i) on or prior to the first date on which the Aggregate
Equity Trading Value equals or exceeds $20 million, the greater of the
Exercise Price or the Fair Market Value of a share of common Stock or (ii)
after the first date on which the Aggregate Equity Trading Value equals or
exceeds $20 million, the Fair Market Value of a share of common Stock, then
the number of shares of common Stock comprising a Stock Unit shall be
increased to that number determined by multiplying the number of shares of
common Stock comprising a Stock Unit immediately prior to such adjustment by
a fraction (a) the numerator of which shall be the total number of shares of
common Stock outstanding (on a fully-diluted basis) immediately prior to the
issuance of such Additional Stock plus the number of such shares of such
common Additional Stock (assuming conversion or exercise of such Additional
Stock if such Additional Stock is Convertible Securities), and (b) the
denominator of which shall be the number of shares of such common Stock
outstanding (on a fully-diluted basis) immediately prior to the issuance of
such Additional Stock PLUS the number of shares of common Stock which could
be purchased with the aggregate consideration paid for such common Additional
Stock at an assumed price per share equal to (i) on or prior to the first
date on which the Aggregate Equity Trading Value equals or exceeds $20
million, the greater of the Exercise Price or the Fair Market Value of a
share of common Stock or (ii) after the first date on which the Aggregate
Equity Trading Value equals or exceeds $20 million, the Fair Market Value of
a share of common Stock. For purposes of this SECTION 4.02, such calculation
shall be made on the date of actual issuance of such Additional Stock. No
adjustment of the number of shares of common Stock comprising a Stock Unit
shall be made under this SECTION 4.02 upon the issuance of any Additional
Stock which is issued pursuant to the exercise of any options, warrants or
other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any Convertible Securities, if any such
adjustment shall previously have been made upon the issuance of such options,
warrants or other rights or upon the issuance of such Convertible Securities
(or upon the issuance of any option, warrant or other rights therefor).
4.03. ISSUANCE OF ADDITIONAL STOCK OTHER THAN COMMON STOCK. In case at
any time or from time to time the Company shall (except as hereinafter
provided) issue to any Person any Additional Stock which is not subject to
adjustment under SECTION 4.02 (and
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<PAGE>
other than in connection with an adjustment under Section 4.01) for a
consideration per share which is less than the Fair Market Value of such
Stock, then the number of shares of common Stock comprising a Stock Unit
shall be increased to that number determined by multiplying the number of
shares of common Stock comprising a Stock Unit immediately prior to such
adjustment by a fraction (a) the numerator of which shall be the total number
of shares of common Stock outstanding (on a fully-diluted basis) immediately
prior to the issuance of such Additional Stock MULTIPLIED BY the Fair Market
Value per share of common Stock immediately prior to the issuance of such
Additional Stock and (b) the denominator of which shall be (i) the total
number of shares of such common Stock outstanding (on a fully-diluted basis)
immediately prior to the issuance of such common Additional Stock MULTIPLIED
BY such Fair Market Value per share LESS (ii) the aggregate Fair Market Value
of the Additional Stock so issued LESS the aggregate consideration received
by the Company for such Additional Stock. For purposes of this SECTION 4.03,
such calculation shall be made on the date of actual issuance of such
Additional Stock. No adjustment of the number of shares of common Stock
comprising a Stock Unit shall be made under this SECTION 4.03 upon the
issuance of any Additional Stock which is issued pursuant to the exercise of
any options, warrants or other subscription or purchase rights or pursuant to
the exercise of any conversion or exchange rights in any Convertible
Securities, if any such adjustment shall previously have been made upon the
issuance of such options, warrants or other rights or upon the issuance of
such Convertible Securities (or upon the issuance of any option, warrant or
other rights therefor).
4.04 SUPERSEDING ADJUSTMENT OF STOCK UNIT. If, at any time after any
adjustment of the number of shares of Stock comprising a Stock Unit shall
have been made hereunder on the basis of the issuance of options, warrants or
other rights or the issuance of other Convertible Securities, or after any
new adjustment of the number of shares comprising a Stock Unit shall have
been made pursuant to this SECTION 4.04;
(1) such options, warrants or rights or the right of conversion or
exchange in such other Convertible Securities shall expire, and a portion of
such options, warrants or rights, or the right of conversion, exercise or
exchange in respect of a portion of such other Convertible Securities, as the
case may be, shall not have been exercised, or
(2) the consideration per share, for which shares of Additional Stock
are issuable pursuant to such options, warrants or rights or the terms of
such other Convertible Securities, shall be increased,
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<PAGE>
such previous adjustment shall be rescinded and annulled and the shares of
Additional Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made on the basis of
(3) treating the number of shares of Additional Stock, if any,
theretofore actually issued or issuable pursuant to the previous exercise
of such options, warrants or rights or such right of conversion or exchange,
as having been issued on the date or dates of such issuance as determined
for purposes of such previous adjustment and for the consideration actually
received and receivable therefor, and
(4) treating any such options, warrants or rights or any such other
Convertible Securities which then remain outstanding as having been granted
or issued immediately after the time of such increase of the consideration
per share for such shares of Stock as are issuable under such options,
warrants or rights or other Convertible Securities,
and, if and to the extent called for by the foregoing provisions of this
SECTION 4 on the basis aforesaid, a new adjustment of the number of shares
comprising a Stock Unit shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
4.05 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION 4. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Stock comprising a Stock Unit hereinbefore provided for in
this SECTION 4:
(1) TREASURY STOCK. The sale or other disposition of any issued shares of
Stock owned or held by or for the account of the Company shall be deemed an
issuance thereof for purposes of this SECTION 4.
(2) COMPUTATION OF CONSIDERATION. To the extent that any shares of
Additional Stock or any options, warrants or other rights to subscribe for or
purchase any shares of Additional Stock or any Convertible Securities shall be
issued for a cash consideration, the consideration received by the Company
therefor shall be deemed to be the amount of cash received by the Company
therefor, or, if such shares of Additional Stock or
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<PAGE>
Convertible Securities are offered by the Company for subscription, the
subscription price, or, if such shares of Additional Stock or Convertible
Securities are sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price, in any such case
excluding any amounts paid or receivable for accrued interest or accrued
dividends and without deduction of any compensation, discounts or expenses
paid or incurred by the Company for and in the underwriting of, or otherwise
in connection with, the issue thereof. To the extent that such issuance
shall be for a consideration other than cash, then, except as herein
otherwise expressly provided, the amount of such consideration shall be
deemed to be the fair value of such consideration at the time of such
issuance as determined in good faith by the Board of Directors of the
Company. The consideration for any shares of Additional Stock issuable
pursuant to any options, warrants or other rights to subscribe for or
purchase the same shall be the consideration received or receivable by the
Company for issuing such options, warrants or other rights, plus the
additional consideration payable to the Company upon the exercise of such
options, warrants or other rights. The consideration for any shares of
Additional Stock issuable pursuant to the terms of any Convertible Securities
shall be the consideration received or receivable by the Company for issuing
any options, warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to the Company
in respect of the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable to the Company
upon the exercise of the right of conversion, exercise or exchange in such
Convertible Securities. In case of the issuance at any time of any shares of
Additional Stock or Convertible Securities in payment or satisfaction of any
dividend upon any class of stock other than common stock, the Company shall
be deemed to have received for such shares of Additional Stock or Convertible
Securities a consideration equal to the amount of such dividend so paid or
satisfied.
(3) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by the
foregoing provisions of this SECTION 4 shall be made whenever and as often as
any specified event requiring an adjustment shall occur. For the purpose of
any adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(4) FRACTIONAL INTERESTS. In computing adjustments under this SECTION
4, the Company shall not be required upon the exercise of this Warrant to
issue fractional Warrant Shares (it being agreed that the number of Warrant
Shares issuable upon exercise of this Warrant shall be rounded to the nearest
whole number).
-34-
<PAGE>
(5) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record of
the holders of its Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution thereof to stockholders, legally
abandon its plan to pay or deliver such dividend, distribution, subscription
or purchase rights, then thereafter no adjustment shall be required by reason
of the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
-35-
<PAGE>
SECTION 5. CONSOLIDATION, MERGER, ETC.
5.01 CONSOLIDATION, MERGER, ETC. In case a consolidation or merger of
the Company shall be effected with another Person on or after the Date of
Issuance, or the sale, lease or transfer of all or substantially all its
assets to another Person shall be effected on or after the Date of Issuance,
then, as condition of such consolidation, merger, sale, lease or transfer,
lawful and adequate provision shall be made whereby the registered holder of
this Warrant shall thereafter have the right to purchase and receive upon the
basis and upon the terms and conditions specified herein (including the
payment of any applicable Exercise Price) and in lieu of each Stock Unit
immediately theretofore purchasable and receivable upon the exercise of each
of the Warrants, such shares of stock, securities, cash or other property
which would have been receivable upon such consolidation, merger, sale, lease
or transfer by the holder of the number of shares of Stock comprising a Stock
Unit immediately prior to such event if such Warrant was fully exercisable
and had been exercised in full immediately prior to such consolidation,
merger, sale, lease or transfer. In any such case, appropriate and equitable
provision also shall be made with respect to the rights and interests of the
registered holder of this Warrant to the end that the provisions hereof
(including SECTION 4) and of the Warrant Agreement and the Registration
Rights Agreement shall thereafter be applicable, as nearly as may be, in
relation of any shares of stock, securities, cash or other property
thereafter deliverable upon the exercise of any Warrants. The Company shall
not effect any such consolidation, merger, sale, lease or transfer unless
prior to or simultaneously with the consummation thereof the successor Person
(if other than the Company) resulting from such consolidation or merger or
the Person purchasing, leasing or otherwise acquiring such assets shall
assume the obligation to deliver to such holder such shares of stock,
securities, cash or other property as, in accordance with the foregoing
provisions, such holder may be entitled to purchase. The above provisions of
this SECTION 5.01 shall similarly apply to successive consolidations,
mergers, sales, leases or transfers. Notwithstanding the foregoing, in the
event the Company consummates a consolidation or merger with, or the sale,
lease or transfer of all or substantially all its assets to, the party
identified in that certain letter dated September __, 1997, between the
Company and SPECIALTY INVESTMENT I LLC within one year from the Date of
Issuance, the Stock Unit Exercise Price for a Stock Unit in effect
immediately prior thereto shall be increased by 25% and the Stock Unit
Expiration Date shall be extended by one year. No other adjustment shall be
made to the Stock Unit Exercise Price or the Stock Unit Expiration Date as a
result of such consolidation, merger, sale, lease or transfer.
-36-
<PAGE>
SECTION 6. NOTICE TO WARRANT HOLDERS.
6.01 NOTICE OF ADJUSTMENT OF STOCK UNIT OR EXERCISE PRICE. Whenever the
number of shares of Stock comprising a Stock Unit shall be adjusted pursuant
to SECTION 4, the Company shall forthwith obtain a certificate signed by
independent accountants of recognized national standing, selected by the
Company and reasonably acceptable to the holders of Warrants entitled to
purchase a majority of the Stock Units covered by all the Warrants, setting
forth, in reasonable detail, the event requiring the adjustment and the
method by which such adjustment was calculated (including a statement of the
fair value of any evidences of indebtedness, shares of stock, other
securities or property or warrants or other subscription or purchase rights
referred to in SECTION 4.05(2) or SECTION 5) and specifying the number of
shares of Stock comprising a Stock Unit and (if such adjustment was made
pursuant to SECTION 4.01 or SECTION 5) describing the number and kind of any
other securities comprising a Stock Unit, and any change in the purchase
price or prices thereof, after giving effect to such adjustment or change.
The Company shall promptly, and in any case within 45 days after the making
of such adjustment, cause a signed copy of such certificate to be delivered
to each Holder of a Warrant in accordance with SECTION 11.02. The Company
shall keep at its office or agency, maintained for the purpose pursuant to
SECTION 11.01, copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by any
Holder of a Warrant or any prospective permitted purchaser of a Warrant
designated by a Holder thereof.
6.02 NOTICE OF CERTAIN CORPORATE ACTION. In case the Company shall propose
(a) to pay any dividend to the holders of its Stock or to make any other
distribution to the holders of its Stock, or (b) to offer to the holders of its
Stock rights to subscribe for or to purchase any Additional Stock or shares of
stock of any class or any other securities, rights or options, or (c) to effect
any reclassification of its Stock (other than a reclassification involving only
the subdivision, or combination, of outstanding shares of Stock), or (d) to
effect any capital reorganization, or (e) to effect any consolidation, merger or
sale, lease, transfer or other disposition of all or substantially all of its
property, assets or business, or (f) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall give to
each Holder of a Warrant, in accordance with SECTION 11.02, a notice of such
proposed action, which shall specify the date on which a record is to be taken
for the purposes of such stock dividend, distribution or rights, or the date on
which such reclassification, reorganization, consolidation, merger, sale, lease,
transfer, disposition, liquidation, dissolution or winding up is to take place,
if any such date is to be fixed, and shall also set forth such
-37-
<PAGE>
facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action on the Stock and the number and kind of any other
shares of stock which a Holder is entitled in accordance herewith, and the
purchase price or prices thereof, after giving effect to any adjustment which
will be required as a result of such action. Such notice shall be so given
in the case of any action covered by CLAUSE (A) or (B) above at least 10
Business Days prior to the record date for determining holders of the Stock
for purposes of such action, and in the case of any other such action, at
least 10 Business Days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of Stock,
whichever shall be the earlier.
SECTION 7. RESERVATION AND AUTHORIZATION OF STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY. The Company shall at all times
reserve and keep available for issue upon the exercise or conversion of
Warrants such number of its authorized but unissued shares of Stock as shall
be sufficient to permit the exercise or conversion in full of all outstanding
Warrants. All shares of Stock which shall be so issuable, when issued upon
exercise of any Warrant and payment of the Exercise Price therefor, or upon
such conversion, as the case may be, shall be duly and validly issued, fully
paid and nonassessable and free and clear of any Liens.
Before taking any action which would result in an adjustment in the
number of shares of Stock issuable under this Warrant or which would cause an
adjustment reducing the price per share of common Stock below the then par
value, if any, of the shares of common Stock issuable upon exercise of this
Warrant, the Company shall take any corporate action which is necessary in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Stock free and clear of any Liens upon the exercise
of this Warrant immediately after the taking of such action.
Before taking any action which would result in an adjustment in the
number of shares of Stock issuable pursuant to this Warrant or in the
Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
If any shares of Stock required to be reserved for issue upon exercise or
conversion of this Warrant require registration with any Governmental
Authority under any federal or state law (otherwise than in connection with a
registration under the Securities Act or applicable state securities laws)
before such shares may be so issued, the Company shall in good faith and as
expeditiously as possible and at its expense endeavor to cause such shares to
be duly registered.
-38-
<PAGE>
SECTION 8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. (a) In
the case of all dividends or other distributions by the Company to the
holders of Stock, the Company shall in each such case take such a record of
such holders as of the close of business on a Business Day.
(b) The Company shall not at any time, except upon complete dissolution,
liquidation or winding up, close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise, conversion or
transfer of any Warrant, unless otherwise required by any applicable federal,
state or local law.
SECTION 9. EXPENSES, TRANSFER TAXES AND OTHER CHARGES. The Company
shall pay any and all expenses, transfer taxes (other than income taxes) and
other charges, including all costs associated with the preparation, issue and
delivery of stock or warrant certificates, that are incurred in respect of
the issuance or delivery of shares of Stock upon exercise or conversion of
this Warrant pursuant to SECTION 2. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of shares of Stock in a name other than
that in which this Warrant is registered, and no such issue or delivery shall
be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or has established, to the satisfaction
of the Company, that such tax has been paid.
SECTION 10. NO VOTING RIGHTS. Except as expressly provided herein or in
the Warrant Agreement, this Warrant shall not entitle the Holder hereof to
any voting rights or other rights as a stockholder of the Company.
SECTION 11. MISCELLANEOUS.
11.01 OFFICE OF THE COMPANY. So long as any of the Warrants remains
outstanding, the Company shall maintain an office in the continental United
States of America where the Warrants may be presented for exercise, transfer,
division or combination as in this Warrant provided. Such office shall be at
the Company's principal executive office, unless and until the Company shall
designate and maintain some other office for such purposes and give notice
thereof to the Holders of all outstanding Warrants.
-39-
<PAGE>
11.02 NOTICES GENERALLY. Any notices and other communications
pursuant to the provisions hereof shall be sent in accordance with SECTION
6.02 of the Warrant Agreement.
11.03 AMENDMENTS. The terms of the Warrants may be amended, and the
observance of any term therein may be waived, but only with the written
consent of the holders of Warrants evidencing a majority of the total number
of Stock Units at the time purchasable upon the exercise of all then
outstanding Warrants. For the purposes of determining whether the holders of
outstanding Warrants entitled to purchase a requisite number of Stock Units
at any time have taken any action authorized by this Warrant, any Warrants
owned by the Company or any Affiliate of the Company shall be deemed not to
be outstanding.
11.04 RESTRICTIONS ON TRANSFERABILITY. The Warrants and the Warrant
Shares shall be transferable only upon compliance with the conditions
specified in SECTION 2 of the Warrant Agreement and the Registration Rights
Agreement therein referred to, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the
transfer of any Warrant or any Warrant Shares, and any holder of this Warrant
shall be bound by the provisions of (and entitled to the benefits of) said
SECTION 2 and said Registration Rights Agreement.
11.05 GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the law of the State of New York applicable to
contracts executed in and to be fully performed in such State.
11.06 LIMITATION OF LIABILITY. No provision hereof, in the absence
of affirmative action by the Holder hereof to purchase shares of Stock, and
no mere enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such holder for the Exercise Price or as
a stockholder of the Company, whether such liability is asserted by the
Company, any creditor of the Company or any other Person.
SECTION 12. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The Holder
represents and warrants to the Company as follows:
12.01 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Warrant is being
acquired and, if this Warrant is exercised, the Stock issuable upon exercise
hereof will be acquired, for investment for such Holder's own account, not as a
nominee or agent, and not with a
-40-
<PAGE>
view to the resale or distribution of any part thereof in violation of the
federal or state securities laws.
12.02 INVESTMENT EXPERIENCE. The Holder represents that it can bear
the economic risk of its investment and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Warrant and the Stock issuable upon exercise
hereof. The Holder also represents it has not been organized solely for the
purpose of acquiring the Warrant or the Stock issuable upon exercise hereof.
12.03 RESTRICTED SECURITIES. The Holder understands that the Warrant
being issued hereunder and the Stock issuable upon exercise hereof are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and have not been registered under the Securities
Act nor qualified under applicable state securities laws and that under such
laws and applicable regulations such securities may not be resold without
registration under the Securities Act, except in certain limited
circumstances. In this connection, the Holder represents that it is familiar
with Rule 144, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
12.04 ACCREDITED INVESTOR. The Holder is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act.
IN WITNESS WHEREOF, The Company has duly executed this Warrant.
Dated: LAMONTS APPAREL, INC.
--------------------
By:
--------------------------
Name:
Title:
-41-
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder hereof)
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
all the rights of the undersigned under the within certificate with respect
to the number of Stock Units covered thereby set forth hereinbelow unto:
Name of Assignee Address Number of Stock Units
- ---------------- ------- ---------------------
Dated:
------------------------
-----------------------------------
-42-
<PAGE>
FORM OF EXERCISE
(To be executed by the registered holder hereof)
The undersigned hereby exercises this Warrant to subscribe for and
purchase ____________ Stock Units of Lamonts Apparel, Inc. covered by the
within certificate and herewith makes payment therefor in full. Kindly issue
certificates and/or other instruments covering Stock Units in accordance with
the instructions given below. A new Warrant for the unexercised balance of
the Stock Units covered by the within certificate, if any, will be registered
in the name of the undersigned.
In exercising its rights to purchase such Stock, the undersigned hereby
confirms the investment representations made in SECTION 12 of the Warrant.
Dated:
----------------------------
--------------------------------------
Instructions for registration
of Stock Units
- ----------------------------------
Name (please print)
Social Security or Other Identifying
Number:
Address:
- ---------------------------------
Street
- ---------------------------------
City, State and Zip Code
-43-
<PAGE>
-44-
<PAGE>
JOINDER AGREEMENT
JOINDER AGREEMENT, dated the date set forth below, between LAMONTS
APPAREL, INC., a Delaware corporation ("the Company") and the undersigned
stockholder or warrant holder of the Company.
A. Reference is made to that certain Warrant Agreement dated as of
___________, 1997 (as modified and supplemented and in effect from time to
time, the "WARRANT AGREEMENT"), between the Company and Holder and to the
Registration Rights Agreement. Each capitalized term used but not defined
herein shall have the meaning assigned to such term in the Warrant Agreement.
B. The Warrant Agreement requires that certain transferees of shares of
Stock or Warrants execute and deliver to the Company and each Holder this
Joinder Agreement.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the undersigned hereby acknowledges receipt of copies of the Warrant
Agreement and the Registration Rights Agreement and agrees: (a) to be bound
by the terms and provisions of the Warrant Agreement and the Registration
Rights Agreement as though [he/she/it] were an original party thereto; and
(b) to be treated as a [Stockholder/Holder] [Existing Stockholder] for all
purposes thereof.
-45-
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed this Joinder Agreement on
the date set forth below.
Date:
-------------------- ------------------------------------------
Description of transferred securities, name
of transferor, and date of transfer:
------------------------------------------
------------------------------------------
Acknowledged and Agreed to as
of the date written above:
LAMONTS APPAREL, INC.
By
---------------------------
Name:
Title:
-46-
<PAGE>
TAB 5
FORM OF NEW COMMON STOCK CERTIFICATE
TAB 5
<PAGE>
NUMBER SHARES
CLASS A
COMMON STOCK
THIS CERTIFIES THAT _________________________________________________________
is the owner of _______________________________________________________ shares
of the CLASS A COMMON STOCK of LAMONTS APPAREL, INC., fully paid and non-
assessable, transferable only on the books of the Corporation in person
or by Attorney upon surrender of this Certificate properly endorsed.
The corporation will furnish without charge to each stockholder who so
requests, a copy of the certificate of incorporation of Lamonts Apparel,
Inc., as amended and restated from time to time, which sets forth the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ____________ day of ____________________, A.D. 19__.
- -------------------------------- ----------------------------
SECRETARY/TREASURER PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT -.........Custodian...............under
(Cust) (Minor)
Uniform Gifts to Minors Act...........
(State)
Additional abbreviations may also be used though not in the
above list.
FOR VALUE RECEIVED, ________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------
| |
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
SHARES REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT ____________________ ATTORNEY TO TRANSFER THE SAID
SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
DATED _____________, 19__
IN PRESENCE OF
- ---------------------------------
NOTICE THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER
<PAGE>
TAB 6
FORM OF NEW SPECIAL VOTING COMMON STOCK CERTIFICATE
TAB 6
<PAGE>
NUMBER SHARES
CLASS B
COMMON STOCK
THIS CERTIFIES THAT __________________________________________________________
is the owner of _______________________________________________________ shares
of the CLASS B COMMON STOCK of LAMONTS APPAREL, INC., fully paid and non-
assessable, transferable only on the books of the Corporation in person or by
Attorney upon surrender of this Certificate properly endorsed.
The corporation will furnish without charge to each stockholder who so
requests, a copy of the certificate of incorporation of Lamonts Apparel,
Inc., as amended and restated from time to time, which sets forth the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed this ____________ day of ____________________, A.D. 19__.
- ------------------------------- ---------------------------
SECRETARY/TREASURER PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT -.........Custodian...............under
(Cust) (Minor)
Uniform Gifts to Minors Act...........
(State)
Additional abbreviations may also be used though not in the
above list.
FOR VALUE RECEIVED, ________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------
| |
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
SHARES REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT ____________________ ATTORNEY TO TRANSFER THE SAID
SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
DATED _____________, 19__
IN PRESENCE OF
- ---------------------------------
NOTICE THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER
<PAGE>
TAB 7
GRANT OF REGISTRATION RIGHTS
TAB 7
<PAGE>
GRANT OF REGISTRATION RIGHTS
Lamonts Apparel, Inc., a Delaware corporation as reorganized pursuant to
Chapter 11, Title 11 of the United States Code (the "Company"), hereby grants
to each Holder (as hereinafter defined), effective as of the Effective Date
(as defined in the Plan of Reorganization of the Company (the "Plan"), as
confirmed by order of the United States Bankruptcy Court for the Western
District of Washington) the registration rights provided for herein.
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings:
"ADVICE" has the meaning set forth in Section 5.
"AFFILIATE" means, with respect to any specified Person, any other Person
who, directly or indirectly through one or more intermediaries, (a) controls,
is controlled by, or is under common control with such specified Person, (b)
serves as trustee or in a similar fiduciary capacity for such specified
Person or (c) acts as investment manager or adviser for such specified person.
"BUSINESS DAY" means any day other than a day on which banks are
authorized or required to be closed in the State of New York.
"CLASS A/B HOLDER" means each holder of a Class 4 Claim and/or a Class 5
Interest under the Plan which, together with its Affiliates, directly or
indirectly, beneficially owns in excess of ten percent (10%) of the issued
and outstanding shares of Common Stock on the Effective Date, and "CLASS A/B
HOLDERS" shall refer to all such Persons collectively.
"CLASS C HOLDER" means ___________________________.
"CLASS A WARRANTS" means the Class A Warrants to purchase Common Stock
issued to Class A/B Holders in accordance with the Plan.
"CLASS B WARRANTS" means the Class B Warrants to purchase Common Stock
issued to Class A/B Holders in accordance with the Plan.
<PAGE>
"CLASS C WARRANTS" means the Class C Warrants to purchase Common Stock
issued to the Class C Holder in accordance with the Plan.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON SHARES" means the shares of Common Stock held by the Holders.
"COMMON STOCK" means the Class A Common Stock, par value $0.01 per share,
of the Company.
"COMPANY" has the meaning set forth in the first paragraph hereof and
shall include the Company's successors by merger, acquisition, reorganization
or otherwise.
"CONTROLLING PERSONS" has the meaning set forth in Section 8(a).
"EFFECTIVE DATE" has the meaning set forth in the first paragraph.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"HOLDER" means (a) the Class A/B Holders, (b) the Class C Holder and (c)
each Person to whom any such holder transfers Registrable Securities if
either (i) after giving effect to such transfer such Person (together with
its Affiliates and together with any Persons who are members of a "group"
(within the meaning of Section 13 of the Exchange Act and the rules and
regulations promulgated thereunder) with such Person), directly or
indirectly, beneficially owns ten percent (10%) or more of the issued and
outstanding shares of Common Stock as of the date of such transfer, or (ii)
such Person has not met with respect to such Registrable Securities the
holding period requirement of Rule 144(k) promulgated under the Securities
Act (or any successor provision).
"HOLDERS' COUNSEL" means (a) in the case of the Class A/Class B Holders,
Goodwin, Procter & Hoar or any successor counsel selected from time to time
by holders of a majority in interest of Registrable Securities then
outstanding and beneficially owned by the Class A/Class B Holders and (b) in
the case of the Class C Holder, Goulston & Storrs or any successor counsel
selected from time to time by the Class C Holder; PROVIDED that, for any
successor counsel under either clause (a)
2
<PAGE>
or (b) immediately above to be deemed "Holders' Counsel" for purposes of this
Grant of Registration Rights, the Company shall have received written notice
from the relevant Holders specifying the identity and address of any such
successor counsel.
"INSPECTORS" has the meaning set forth in Section 4(m).
"LOCK-UP REQUEST" has the meaning set forth in Section 10.
"NASD" has the meaning set forth in Section 4(q).
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"PIGGY-BACK REGISTRATION" has the meaning set forth in Section 3(a).
"PROSPECTUS" means the prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement,
including a prospectus supplement with respect to the terms of the offering
of any portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to the prospectus,
including post-effective amendments, and in each case including all material
incorporated by reference or deemed to be incorporated by reference in such
prospectus.
"QUALIFIED INVESTOR" means a Person who, pursuant to a transaction
approved by the Company's Board of Directors (including a majority of the
disinterested directors) acquires Common Stock (or securities convertible
into Common Stock) representing at least thirty-five percent (35%) of the
Common Stock issued and outstanding immediately following such transaction.
"RECORDS" has the meaning set forth in Section 4(m).
"REGISTRABLE SECURITIES" means, collectively, the Common Shares, the
Warrants and the Warrant Shares until such time as such Registrable
Securities are held by a Person who (a) (together with its Affiliates and
together with any Persons who are members of a "group" (within the meaning of
Section 13 of the Exchange
3
<PAGE>
Act and the rules and regulations promulgated thereunder) with such Person),
directly or indirectly, beneficially owns less than ten percent (10%) of the
issued and outstanding shares of Common Stock and (b) has met with respect to
such Registrable Securities the holding period requirement of Rule 144(k)
promulgated under the Securities Act or any successor provision.
"REGISTRATION EXPENSES" has the meaning set forth in Section 7.
"REGISTRATION STATEMENT" means any registration statement of the Company
that covers any of the Registrable Securities pursuant to the provisions of
this Grant of Registration Rights (including any Shelf Registration
Statement), and all amendments and supplements to any such registration
statement, including post-effective amendments, in each case including the
Prospectus, all exhibits, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.
"RULE 144A" has the meaning set forth in Section 9(b).
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"SHELF REGISTRATION" has the meaning set forth in Section 2(a).
"SHELF REGISTRATION STATEMENT" has the meaning set forth in Section 2(a).
"SUSPENSION NOTICE" has the meaning set forth in Section 5.
"SUSPENSION PERIOD" has the meaning set forth in Section 5.
"TARGET EFFECTIVE DATE" means the date forty-five (45) days after the
Effective Date.
"TARGET EFFECTIVE PERIOD" has the meaning set forth in Section 2(a).
"WARRANTS" means, collectively, the Class A Warrants, the Class B
Warrants and the Class C Warrants.
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"WARRANT SHARES" means the shares of Common Stock issuable upon the
exercise of the Warrants held by the Holders.
SECTION 2. SHELF REGISTRATION.
(a) FILING; EFFECTIVENESS. If, as of the Target Effective Date, a shelf
registration statement (the "Shelf Registration Statement") on the
appropriate form for an offering to be made on a continuous basis pursuant to
Rule 415 under the Securities Act (or such successor rule or similar
provision then in effect) covering all of the Registrable Securities (a
"Shelf Registration") is not effective or the effectiveness thereof has been
suspended, then the Company shall use its reasonable best efforts to cause
such Shelf Registration Statement to be effective as soon as practicable.
Once the Shelf Registration Statement is effective, the Company shall use its
reasonable best efforts to keep such Shelf Registration Statement
continuously effective for a period (the "Target Effective Period") ending on
the date on which no Registrable Securities are outstanding. The Company
further agrees, if necessary, to supplement or amend the Shelf Registration
Statement, as required by the registration form used by the Company for such
Shelf Registration Statement or by the instructions applicable to such
registration form or by the Securities Act or as reasonably requested (which
request shall result in the filing of a supplement or amendment if required)
by any Holder of Registrable Securities to which such Shelf Registration
Statement relates, but only to the extent such request relates to information
with respect to such Holder, and the Company agrees to furnish to each
Holder, Holders' Counsel and any managing underwriter copies of any such
supplement or amendment. The Holders shall be permitted to withdraw all or
any part of the Registrable Securities from a Shelf Registration Statement no
later than 10 Business Days prior to the expected effective date of such
Shelf Registration Statement.
(b) LIQUIDATED DAMAGES.
(i) If the Shelf Registration Statement has not been filed or is
filed but has not become effective (other than as a result of the action or
inaction of any Holder) on or before the Target Effective Date, the Company
shall pay liquidated damages to each Holder in an amount equal to $.10 per
500 Common Shares of (or in the case of any Warrant, per 500 Warrant Shares)
per week beginning on the Target Effective Date. If the ineffectiveness of
the Shelf Registration Statement shall not have been cured within 90 days
after the Target Effective Date, the weekly liquidated damages shall
increase to $.20 per 500 Common Shares (or in the case of any Warrant, per
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500 Warrant Shares). If the ineffectiveness of the Shelf Registration
Statement shall not have been cured within 180 days after the Target
Effective Date, the weekly liquidated damages shall increase to $.30
per 500 Common Shares (or in the case of any Warrant, per 500 Warrant
Shares).
(ii) If during the Target Effective Period a stop order is imposed,
for any other reason the effectiveness of the Shelf Registration Statement
is suspended or there is a Suspension Period exceeding the length of time
permitted by Section 5 hereof or not otherwise permitted by Section 5
hereof, then the Company shall pay liquidated damages to each Holder in an
amount equal to $.10 per 500 Common Shares (or in the case of any Warrant,
per 500 Warrant Shares) per week beginning on the date of such stop order,
the date of such other suspension of effectiveness or the date on which
such Suspension Period failed to comply with Section 5 hereof, as the case
may be. If the stop order, other suspension of effectiveness of the Shelf
Registration Statement or excessive or impermissible Suspension Period
shall not have been cured within 90 days after such stop order was imposed,
the effectiveness of such Shelf Registration Statement was otherwise
suspended or the Suspension Period failed to comply with Section 5 hereof,
as the case may be, the weekly liquidated damages shall increase to $.20
per 500 Common Shares (or in the case of any Warrant, per 500 Warrant
Shares). If the stop order, other suspension of effectiveness of the Shelf
Registration Statement or excessive or impermissible Suspension Period
shall not have been cured within 180 days after such stop order was
imposed, the effectiveness of such Shelf Registration Statement was
otherwise suspended or the Suspension Period failed to comply with
Section 5 hereof, as the case may be, the weekly liquidated damages shall
increase to per 500 Common Shares (or in the case of any Warrant, $.30 per
500 Warrant Shares).
(iii) The liquidated damages to be paid to Holders pursuant to
this Section 2(b) shall begin to accrue on the date on which such
liquidated damages are triggered as set forth above occurs and shall cease
to accrue on (A) the day after the Shelf Registration Statement is declared
effective, (B) the day after the reinstatement of effectiveness of the
Shelf Registration Statement or (C) the day after any excessive or
impermissible Suspension Period ends, as the case may be.
(iv) The Registrable Securities with respect to which liquidated
damages shall accrue and be payable in accordance with this Section 2(b)
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shall be those Registrable Securities held by the Holders which are
included or proposed to be included in the Shelf Registration Statement and
which have not been sold prior to the occurrence of the event triggering
such liquidated damages. The Company shall pay the liquidated damages due
with respect to any Registrable Securities at the end of each week during
which such damages accrue. Liquidated damages shall be paid to the Holders
of Registrable Securities entitled to receive such liquidated damages by
wire transfer in immediately available funds to the accounts designated in
writing by such Holders or by check, if not so designated.
(v) The parties hereto agree that the liquidated damages provided for
in this Section 2(b) constitute a reasonable estimate of the damages that
will be suffered by Holders of Registrable Securities by reason of the
failure of the Shelf Registration Statement to be declared effective and/or
remain effective, in accordance with this Grant of Registration Rights.
(c) EFFECTIVE REGISTRATION. A registration will not be deemed to have
been effected as a Shelf Registration unless the Shelf Registration Statement
with respect thereto has been declared effective by the Commission and the
Company has complied in all material respects with its obligations under this
Grant of Registration Rights with respect thereto. If a Shelf Registration
is deemed not to have been effected (other than as a result of the action or
inaction of any Holder), then the Company shall continue to be obligated to
effect a Shelf Registration pursuant to this Section 2.
(d) SELECTION OF UNDERWRITER. If the Holders so elect, the offering of
Registrable Securities pursuant to a Shelf Registration Statement shall be in
the form of an underwritten offering. If they so elect, the Holders
participating in such Shelf Registration Statement shall select one or more
nationally recognized firms of investment bankers to act as the book-running
managing underwriter or underwriters in connection with such offering;
provided that such selection shall be subject to the consent of the Company,
which consent shall not be unreasonably withheld.
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SECTION 3. PIGGY-BACK REGISTRATION.
(a) REQUEST FOR REGISTRATION. Each time the Company proposes to file a
registration statement under the Securities Act with respect to an offering
by the Company for its own account or for the account of any of its
securityholders of any class of equity security (other than (i) a
registration statement on Form S-4 or S-8 (or any substitute form that is
adopted by the Commission) or (ii) a registration statement filed in
connection with an exchange offer or offering of securities solely to the
Company's existing securityholders), and the form of registration statement
to be used permits the registration of Registrable Securities, then the
Company shall give written notice of such proposed filing to the Holders of
Registrable Securities as soon as reasonably practicable (but in no event
less than 30 days before the anticipated effective date), and such notice
shall offer such Holders the opportunity to register such Registrable
Securities as each such Holder may request (which request shall specify the
Registrable Securities intended to be disposed of by such Holder and the
intended method of distribution thereof) within 20 days after the date such
notice is received by such Holder from the Company (a "Piggy-Back
Registration"). The Company shall cause the managing underwriter or
underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be
included on substantially the same terms and conditions as any similar
securities of the Company or any other securityholder included therein and to
permit the sale or other disposition of such Registrable Securities in
accordance with the intended method of distribution thereof. Any Holder
shall have the right to withdraw its request for inclusion of its Registrable
Securities in any registration statement pursuant to this Section 3 by giving
written notice to the Company of such withdrawal no later than 10 Business
Days prior to the anticipated effective date. The Company may withdraw a
Piggy-Back Registration at any time prior to the time it becomes effective,
provided that the Company shall give prompt notice of such withdrawal to the
Holders of Registrable Securities requested to be included in such Piggy-Back
Registration.
(b) REDUCTION OF OFFERING. If the managing underwriter or underwriters
of an underwritten offering with respect to which Piggy-Back Registration has
been requested as provided in Section 3(a) hereof shall have informed the
Company, in writing, that in the opinion of such underwriter or underwriters
the total number of shares which the Company, Holders of Registrable
Securities and any other Persons participating in such registration intend to
include in such offering is such as to materially and adversely affect the
success of such offering (including without limitation any material decrease
in the proposed public offering price), then the
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number of shares to be offered for the account of all Persons (other than the
Company and any executive officers of the Company) participating in such
registration shall be reduced or limited (to zero if necessary) PRO RATA in
proportion to the respective number of shares requested to be registered by
such Persons to the extent necessary to reduce the total number of shares
requested to be included in such offering to the number of shares, if any,
recommended by such managing underwriter or underwriters; provided that if
such registration is being effected pursuant to the exercise of demand
registration rights by a Qualified Investor, then the number of shares to be
offered for the account of all Persons (other than the Qualified Investor,
the Company and any executive officers of the Company) participating in such
registration shall be reduced or limited (to zero if necessary) PRO RATA in
proportion to the respective number of shares requested to be registered by
such Persons to the extent necessary to reduce the total number of shares
requested to be included in such offering to the number of shares, if any,
recommended by such managing underwriter or underwriters.
No registration effected under this Section 3, and no failure to effect a
registration under this Section 3 shall relieve the Company of its obligation
to effect a Shelf Registration pursuant to Section 2 hereof. No failure to
effect a registration under this Section 3 and to complete the sale of
Registrable Securities in connection therewith shall relieve the Company of
any other obligation under this Grant of Registration Rights, including
without limitation, the Company's obligations under Sections 7 and 8 hereof.
SECTION 4. REGISTRATION PROCEDURES.
In connection with the obligations of the Company to effect or cause the
registration of any Registrable Securities pursuant to the terms and
conditions of this Grant of Registration Rights, the Company shall use its
best efforts to effect the registration and sale of such Registrable
Securities in accordance with the intended method of distribution thereof as
quickly as reasonably practicable, and in connection therewith:
(a) prior to filing a Registration Statement or Prospectus or any
amendments or supplements thereto, excluding for purposes of this Section
4(a) documents incorporated by reference after the initial filing of the
Registration Statement, the Company will furnish to the Holders of the
Registrable Securities covered by such Registration Statement (the "Selling
Holders"), Holders' Counsel and the underwriters, if any, draft copies of
all such docu-
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ments proposed to be filed at least 10 Business Days prior thereto, which
documents will be subject to the reasonable review of such Holders' Counsel
and the underwriters, if any, and the Company will not, unless required by
law, file any Registration Statement or amendment thereto or any Prospectus
or any supplement thereto to which Selling Holders of at least a majority
in interest of the Registrable Securities (the "Objecting Party") shall
reasonably object pursuant to notice given to the Company prior to the
filing of such amendment or supplement (the "Objection Notice") and no
later than 5 Business Days after receipt of the documents to which the
Objection Notice relates. The Objection Notice shall set forth the
objections and the specific areas in the draft documents where such
objections arise. The Company shall have five Business Days after
receipt of the Objection Notice to correct such deficiencies to the
reasonable satisfaction of the Objecting Party, and will notify each
Selling Holder of any stop order issued or threatened by the
Commission in connection therewith and take all reasonable actions
required to prevent the entry of such stop order or to remove it if
entered.
(b) The Company shall promptly prepare and file with the Commission
such amendments and post-effective amendments to each Registration
Statement as may be necessary to keep such Registration Statement effective
for as long as such registration is required to remain effective pursuant
to the terms hereof; shall cause the Prospectus to be supplemented by any
required Prospectus supplement, and, as so supplemented, to be filed
pursuant to Rule 424 under the Securities Act; and shall comply with the
provisions of the Securities Act applicable to it with respect to the
disposition of all Registrable Securities covered by such Registration
Statement during the applicable period in accordance with the intended
methods of disposition by the Holders set forth in such Registration
Statement or supplement to the Prospectus;
(c) The Company shall promptly furnish to any Holder and the
underwriters, if any, without charge, such reasonable number of conformed
copies of each Registration Statement and any post-effective amendment
thereto and such number of copies of the Prospectus (including each
preliminary Prospectus) and any amendments or supplements thereto, any
documents incorporated by reference therein and such other documents as
such Holder or underwriter may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Securities being
sold by such Holder.
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(d) The Company shall, (i) on or prior to the date on which a
Registration Statement is declared effective, use its reasonable best
efforts to register or qualify the Registrable Securities covered by such
Registration Statement under such other securities or "blue sky" laws of
such states of the United States as any Holder, Holders' Counsel or
underwriter requests; (ii) do any and all other acts and things which may
be reasonably necessary to enable such Holder to consummate the disposition
of such Registrable Securities owned by such Holder; and (iii) use its
reasonable best efforts to keep each such registration or qualification (or
exemption therefrom) effective during the period which the Registration
Statement is required to be kept effective in accordance with the
provisions of this Grant of Registration Rights; PROVIDED, HOWEVER, that
the Company shall not be required (x) to qualify generally to do business
in any jurisdiction where it would not otherwise be required to qualify but
for this Section 4(d) or (y) to file any general consent to service of
process.
(e) The Company shall cause the Registrable Securities covered by a
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be reasonably necessary by
virtue of the business and operations of the Company to enable the Holders
to consummate the disposition of such Registrable Securities.
(f) The Company shall promptly notify each Holder, Holders' Counsel
and any underwriter in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed and, with respect to
a Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the Commission or any state
securities authority for amendments and supplements to a Registration
Statement and Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv) of
the issuance by any state securities commission or other regulatory
authority of any order suspending the qualification or exemption from
qualification of any of the Registrable Securities under state securities
or "blue sky" laws or the initiation of any proceedings for that purpose,
and (v) of the happening of any event which makes any statement made in a
Registration Statement or related Prospectus untrue or which requires the
making of any changes in such Registration Statement or Prospectus so that
they will not contain any untrue statement of
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a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(g) The Company shall make generally available to the Holders an
earnings statement satisfying the provisions of Section 11(a) of the
Securities Act no later than 45 days (90 days in the event it relates to a
fiscal year) after the end of the 12-month period beginning with the first
day of the Company's first fiscal quarter commencing after the effective
date of a Registration Statement, which earnings statement shall cover said
12-month period, and which requirement will be deemed to be satisfied if
the Company timely files complete and accurate information on forms 10-Q,
10-K and 8-K under the Exchange Act and otherwise complies with Rule 158
under the Securities Act.
(h) The Company shall promptly use its reasonable best efforts to
prevent the issuance of any order suspending the effectiveness of a
Registration Statement, and if one is issued use its reasonable best
efforts to obtain the withdrawal of any order suspending the effectiveness
of a Registration Statement at the earliest possible moment.
(i) The Company shall, if requested by the managing underwriter or
underwriters, if any, Holders' Counsel, or any Holder promptly incorporate
in a Prospectus supplement or post-effective amendment such information as
such managing underwriter or underwriters reasonably requests, or Holders'
Counsel reasonably requests, to be included therein, including, without
limitation, with respect to the Registrable Securities being sold by such
Holder to such underwriter or underwriters, the purchase price being paid
therefor by such underwriter or underwriters and with respect to any other
terms of an underwritten offering of the Registrable Securities to be sold
in such offering, and promptly make all required filings of such Prospectus
supplement or post-effective amendment.
(j) The Company shall, as promptly as practicable after filing with
the Commission any document which is incorporated by reference into a
Registration Statement (in the form in which it was incorporated), deliver
a copy of each such document to each of the Holders.
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(k) The Company shall cooperate with the Holders and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates (which shall not bear any restrictive legends
unless required under applicable law) representing securities sold under a
Registration Statement, and enable such securities to be in such
denominations and registered in such names as the managing underwriter or
underwriters, if any, or such Holders may reasonably request and keep
available and make available to the Company's transfer agent prior to the
effectiveness of such Registration Statement a supply of such certificates.
(l) The Company shall enter into such customary agreements
(including, if applicable, an underwriting agreement in customary form) and
take such other actions as the Holders or the underwriters retained by the
Holders participating in an underwritten public offering, if any, may
reasonably request in order to expedite or facilitate the disposition of
Registrable Securities.
(m) The Company shall promptly make available to each Holder, any
underwriter participating in any disposition pursuant to a Registration
Statement, and any attorney, accountant or other agent or representative
retained by any such Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records"), as
shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
Inspector in connection with such Registration Statement; PROVIDED that,
unless the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such Registration Statement or the release of
such Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction, the Company shall not be required to provide any
information under this paragraph if (1) the Company believes, after
consultation with counsel for the Company and Holders' Counsel, that to do
so would cause the Company to forfeit an attorney-client privilege that was
applicable to such information or (2) either (i) the Company has requested
and been granted from the Commission confidential treatment of such
information contained in any filing with the Commission or documents
provided supplementally or otherwise or (ii) the Company reasonably
determines in good faith that such Records are confidential and so notifies
the Inspectors in writing unless prior to furnishing any such informa-
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tion with respect to (i) or (ii) such Holder of Registrable Securities
requesting such information agrees to enter into a confidentiality
agreement in customary form and subject to customary exceptions reasonably
acceptable to the Company; and PROVIDED, FURTHER that each Holder of
Registrable Securities agrees that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction, give notice
to the Company and allow the Company at its expense, to undertake
appropriate action and to prevent disclosure of the Records deemed
confidential.
(n) In the case of any underwritten public offering, the Company
shall furnish to each Holder and to each underwriter a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion or opinions of
counsel to the Company, and (ii) a comfort letter or comfort letters from
the Company's independent public accountants, each in customary form and
covering such matters of the type customarily covered by opinions or
comfort letters, as the case may be, as the managing underwriter therefor
reasonably requests.
(o) The Company shall, on or prior to the effective date of any
Registration Statement, cause the Common Stock to be authorized for
quotation and/or listing, as applicable, on either (i) the New York Stock
Exchange, (ii) the American Stock Exchange, (iii) the National Market
System of the NASDAQ Stock Market or (iv) in the event that the Common
Stock is not, following the exercise of reasonable best efforts by the
Company, eligible for listing on any exchange or quotation system described
in the preceding clauses (i), (ii) and (iii), such other exchange or
quotation system for which the Common Stock is eligible for listing as a
majority in interest of the Holders may approve, which approval shall not
be unreasonably withheld.
(p) The Company shall provide a CUSIP number for all Registrable
Securities covered by a Registration Statement not later than the effective
date of such Registration Statement.
(q) The Company shall cooperate with each Holder and each underwriter
participating in the disposition of Registrable Securities and their
respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. ("NASD").
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(r) The Company shall, during the period when the Prospectus is
required to be delivered under the Securities Act, promptly file all
documents required to be filed with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act.
(s) The Company shall appoint a transfer agent and registrar for all
the shares of Common Stock covered by a Registration Statement not later
than the effective date of such Registration Statement.
(t) In connection with an underwritten offering, the Company will
participate, to the extent reasonably requested by the managing underwriter
for the offering or the Holders, in customary efforts to sell the
securities under the offering, including without limitation, participating
in "road shows."
SECTION 5. SUSPENSION PERIOD.
In the case of a Shelf Registration Statement, each Holder, upon receipt
of any notice (a "Suspension Notice") from the Company of the happening of
any event of the kind described in Section 4(f)(v), shall forthwith
discontinue disposition of the Registrable Securities pursuant to the Shelf
Registration Statement covering such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(f) or until it is advised in writing (the "Advice")
by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are
incorporated by reference in the Prospectus, and, if so directed by the
Company, such Holder will, or will request the managing underwriter or
underwriters, if any, to, deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable Securities current at
the time of receipt of such notice; PROVIDED, HOWEVER, that (w) the Company
shall not give a Suspension Notice until after the Shelf Registration
Statement has been declared effective, (x) the Company shall not give more
than two Suspension Notices during any period of twelve consecutive months,
(y) in no event shall the period from the date on which any Holder receives a
Suspension Notice to the date on which any Holder receives either the Advice
or copies of the supplemented or amended Prospectus contemplated by Section
4(f) (the "Suspension Period") exceed 45 days and (z) in no event shall the
aggregate length of all Suspension Periods during any period of twelve
consecutive months exceed 60 days. In the event that the Company shall give
any Suspension Notice, (i) the Company shall use
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its reasonable best efforts and take such actions as are reasonably necessary
to end the Suspension Period as promptly as practicable and (ii) immediately
following expiration of the Suspension Period, the Company shall, to the
extent necessary, prepare and file with the Commission and furnish a
supplement or amendment to such Prospectus so that, as thereafter deliverable
to the purchasers of such Registrable Securities, such Prospectus will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
SECTION 6. HOLDER INFORMATION.
If any Registration Statement refers to any Holder by name or otherwise
as the holder of any securities of the Company, then such Holder shall have
the right, to the extent permitted by law, to require (i) the insertion
therein of language, in form and substance reasonably satisfactory to such
Holder, to the effect that the holding by such Holder of such securities is
not to be construed as a recommendation by such Holder of the investment
quality of the Company's securities covered thereby and that such holding
does not imply that such Holder will assist in meeting any future financial
requirements of the Company, or (ii) in the event that such reference to such
Holder by name or otherwise is not required by the Securities Act or any
similar Federal or state "blue sky" statute and the rules and regulations
thereunder then in force, the deletion of the reference to such Holder.
SECTION 7. REGISTRATION EXPENSES.
Any and all expenses incident to the Company's performance of or
compliance with this Grant of Registration Rights, including without
limitation all Commission and securities exchange, NASDAQ or NASD
registration and filing fees, all fees and reasonable expenses incurred in
connection with compliance with state securities or "blue sky" laws
(including reasonable fees and disbursements of one counsel for all
underwriters in connection with "blue sky" qualifications of the Registrable
Securities), printing expenses, messenger and delivery expenses, internal
expenses (including, without limitation, all salaries and expenses of the
Company's officers and employees performing legal or accounting duties), all
reasonable expenses for word processing, printing and distributing any
Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements and other
documents relating to the performance of and compliance with this Grant of
Registration Rights, the fees and expenses incurred in connection with the
listing of the Registrable Securities, the fees and
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disbursements of counsel for the Company and of the independent certified
public accountants of the Company (including the expenses of any special
audit or comfort letters) Securities Act liability insurance (if the Company
elects to obtain such insurance), the fees and expenses of any special
experts or other Persons retained by the Company in connection with any
registration, the reasonable fees and disbursements of Holders' Counsel (all
such expenses being herein called "Registration Expenses"), will be borne by
the Company whether or not the Registration Statement to which such expenses
relate becomes effective; PROVIDED, HOWEVER, that Registration Expenses shall
not include underwriting fees, discounts or commissions attributable to the
sale or disposition of Registrable Securities.
SECTION 8. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless, to the fullest extent permitted by law, each Holder, its
partners, officers, directors, trustees, stockholders, employees, agents and
investment advisers, and each Person who controls such Holder within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, or is under common control with, or is controlled by, such
Holder, together with the partners, officers, directors, trustees,
stockholders, employees and agents of such controlling Person (collectively,
the "Controlling Persons"), from and against all losses, claims, damages,
liabilities and expenses (including without limitation any reasonable legal
or other fees and expenses actually incurred in connection with defending or
investigating any action or claim in respect thereof) (collectively, the
"Damages") to which such Holder, its partners, officers, directors, trustees,
stockholders, employees, agents and investment advisers, and any such
Controlling Person may become subject under the Securities Act, insofar as
such Damages (or proceedings in respect thereof) arise out of or are based
upon any untrue or alleged untrue statement of material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which
Registrable Securities were registered under the Securities Act, including
all documents incorporated therein by reference, or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein in light of the circumstances under which they were made
not misleading, or caused by any untrue statement or alleged untrue statement
of a material fact contained in any Prospectus (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
necessary to make the statements therein in light of the circumstances under
which they were made not misleading, except insofar as such Damages arise out
of or are based
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upon any such untrue statement or omission based upon information relating to
such Holder furnished in writing to the Company by such Holder (or by a
Person authorized to provide such information on behalf of such Holder)
expressly for use therein.
(b) INDEMNIFICATION BY THE HOLDERS. Each Holder agrees, severally and
not jointly, to indemnify and hold harmless to the fullest extent permitted
by law the Company, its directors, officers, stockholders, employees, agents,
attorneys, and investment advisers and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, or is under common control with, or is
controlled by, the Company, together with its Controlling Person, from and
against all Damages to which the Company and any Controlling Persons may
become subject under the Securities Act insofar as such Damages (or
proceedings in respect thereof) arise out of or are based upon any untrue or
alleged untrue statement of material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which Registrable Securities
were registered under the Securities Act (including all documents
incorporated therein by reference), or caused by any omission or alleged
omission to state therein a material fact necessary to make the statements
therein in light of the circumstances under which they were made not
misleading, or caused by any untrue statement or alleged untrue statement of
a material fact contained in any Prospectus (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
necessary to make the statements therein in light of the circumstances under
which they were made not misleading, to the extent, but only to the extent
that such Damages arise out of or are based upon any such untrue statement or
alleged untrue statement or omission or alleged omission based upon
information relating to such Holder furnished in writing to the Company by
such Holder (or by a Person authorized to provide such information on behalf
of such Holder) expressly for inclusion therein; PROVIDED, HOWEVER, that such
selling Holder shall not be liable in any such case to the extent that such
Damages result from the failure of the Company to promptly amend or take
action to correct or supplement any such Registration Statement or Prospectus
on the basis of corrected or supplemental information provided in writing by
such selling Holder to the Company expressly for such purpose.
(c) INDEMNIFICATION PROCEDURES. In case any proceeding (including any
governmental investigation) shall be instituted involving any Person in
respect of which indemnity may be sought pursuant to either paragraph (a) or
(b) above, such Person (the "indemnified party") shall promptly notify the
Person against whom such
18
<PAGE>
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceedings and shall pay the
reasonable fees and disbursements of such counsel relating to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention
of such counsel, or (ii) the indemnifying party fails promptly to assume the
defense of such proceeding or fails to employ counsel reasonably satisfactory
to such indemnified party or parties, or (iii) (A) the named parties to any
such proceeding (including any impleaded parties) include both such
indemnified party or parties and any indemnifying party or an Affiliate of
such indemnified party or parties or of any indemnifying party, (B) there
may be one or more legal defenses available to such indemnified party or
parties or such Affiliate of such indemnified party or parties that are
different from or additional to those available to any indemnifying party or
such Affiliate of any indemnifying party and (C) such indemnified party or
parties shall have been advised by such counsel that there may exist a legal
conflict of interest between or among such indemnified party or parties or
such Affiliate of such indemnified party or parties and any indemnifying
party or such Affiliate of any indemnifying party, in which case, if such
indemnified party or parties notifies the indemnifying party or parties in
writing that it elects to employ separate counsel of its choice at the
reasonable expense of the indemnifying parties, the indemnifying parties
shall not have the right to assume the defense thereof and such counsel shall
be at the reasonable expense of the indemnifying parties, it being
understood, however, that unless there exists a conflict among indemnified
parties, the indemnifying parties shall not, in connection with any one such
proceeding or separate but substantially similar or related proceedings in
the same jurisdiction, arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys at any time for such indemnified party or parties. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent (which will not be unreasonably
withheld) but, if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party or parties from and against any loss or liability by reason of such
settlement or judgment. No indemnifying party shall, without the prior
written consent (which will not be unreasonably withheld) of the indemnified
party, effect any settlement of any pending or threatened proceeding in
respect of which such indemnified party is a party, and indemnity could have
been sought hereunder by such indemnified party, unless such settlement
includes an uncondi-
19
<PAGE>
tional release of such indemnified party from all liability on claims that
are the subject matter of such proceeding.
(d) CONTRIBUTION. To the extent that the indemnification provided for
in paragraph (a) or (b) of this Section 8 is unavailable to an indemnified
party or insufficient in respect of any Damages, then each indemnifying party
under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such Damages in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and
the Holders on the other hand in connection with the statements or omissions
that resulted in such Damages, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
Holders on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Holders and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission.
Notwithstanding the provisions of this Section 8(d), no Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Holder were offered to the
public exceeds the amount of any damages which such Holder has otherwise been
required to pay by reason of such untrue statement or omission. Each
Holder's obligation to contribute pursuant to this Section 8(d) is several in
the proportion that the proceeds of the offering received by such Holder
bears to the total proceeds of the offering received by all the Holders and
not joint.
If indemnification is available under paragraph (a) or (b) of this
Section 8, the indemnifying parties shall indemnify each indemnified party to
the full extent provided in such paragraphs without regard to the relative
fault of said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 8(d).
The Company and each Holder agrees that it would not be just or equitable
if contribution pursuant to this Section 8(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to herein. The amount paid or payable
by an indemnified party as a result of the Damages referred to in this
Section 8 shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses incurred
20
<PAGE>
(and not otherwise reimbursed) by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in
this Section 8 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any indemnified party at law or in equity.
SECTION 9.
(a) RULE 144. The Company covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act (or,
if the Company is not required to file such reports, it will, upon the
request of any Holder, make publicly available other information so long as
necessary to permit sales under Rule 144 under the Securities Act), and it
will take such further action as any Holder may reasonably request, all to
the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rules may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the
request of any Holder, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
(b) RULE 144A. Upon the request of any Holder, the Company shall
deliver to such holder within 20 days following receipt by the Company of
such request, the information required by Section (d)(4) of Rule 144A under
the Securities Act, as such rule may be amended from time to time or any
similar rule or regulation hereafter adopted by the Commission ("Rule 144A"),
and will take such further action as any Holder may reasonably request, all
to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Securities Act within
the limitations or the exemptions provided by Rule 144A. All information
shall be "reasonably current" as defined in Rule 144A.
SECTION 10. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Grant of
Registration Rights, including the provisions of this sentence, may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof
21
<PAGE>
may not be given unless the Company has obtained the written consent of the
Holders of a majority in interest of the Registrable Securities then
outstanding.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by registered or certified mail (return
receipt requested), postage prepaid or courier to any Holder, at such
Holder's address as set forth in the Company's books or, if to the Company,
to Lamonts Apparel, Inc., 12413 Willows Road N.E., Kirkland, WA 98034 (or at
such other address for any party as shall be specified by like notice,
provided that notices of a change of address shall be effective only upon
receipt thereof). All such notices and communications shall be deemed to have
been received: at the time delivered by hand, if personally delivered; two
business days after being deposited in the mail, postage prepaid, if mailed;
and on the next business day if timely delivered to a courier guaranteeing
overnight delivery.
(c) SUCCESSORS AND ASSIGNS. This Grant of Registration Rights shall
inure to the benefit of and be binding upon the successors, assigns and
transferees of each of the parties, including, without limitation and without
the need for an express assignment, subsequent Holders of Registrable
Securities. If any Holder shall acquire Registrable Securities in any
manner, whether by operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Grant of Registration
Rights, and by taking and holding such Registrable Securities such person
shall be entitled to receive the benefits hereof.
(d) HEADINGS. The headings in this Grant of Registration Rights are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(e) GOVERNING LAW. This Grant of Registration Rights shall be governed
by and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of law.
(f) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any
way impaired thereby, it being
22
<PAGE>
intended that all of the rights and privileges of the Holders shall be
enforceable to the fullest extent permitted by law.
(g) ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Grant of Registration Rights or where any provision hereof
is validly asserted as a defense, the successful party shall, to the extent
permitted by applicable law, be entitled to recover reasonable attorneys'
fees and expenses in addition to any other available remedy.
(h) FURTHER ASSURANCES. Each party shall cooperate and take such action
as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Grant of Registration Rights and the
transactions contemplated hereby.
(i) REMEDIES. Except as provided in Section 2 hereof with respect to
liquidated damages, in the event of a breach or a threatened breach by the
Company of its obligations under this Grant of Registration Rights, any party
injured or to be injured by such breach will be entitled to specific
performance of its rights under this Grant of Registration Rights or to
injunctive relief, in addition to being entitled to exercise all rights
granted by law. Except as otherwise provided in Section 2 hereof with
respect to liquidated damages, the parties agree that the provisions of this
Grant of Registration Rights shall be specifically enforceable, it being
agreed by the parties that the remedy at law, including monetary damages, is
inadequate and that any objection in any action for specific performance or
injunctive relief that a remedy at law would be adequate is waived.
(j) REGISTRATION RIGHTS TO OTHERS. The Company shall not provide to any
holder of its securities (other than a Qualified Investor) registration
rights with respect to the registration of such securities under the
Securities Act; provided that the Company may grant "piggyback" registration
rights which are not senior in priority to the rights of Holders of
Registrable Securities pursuant to Section 3 hereof.
(m) LIMITATION OF LIABILITY. The Company hereby acknowledges and agrees
that the obligations of this Grant of Registration Rights are not binding
upon any of the partners, trustees, officers, employees, beneficiaries or
shareholders of any Holder individually, but are binding only upon the assets
and property of such Holder. The Company agrees that no beneficiary,
employee, shareholder, trustee or officer of any Holder may be held
personally liable or responsible for any obligations
23
<PAGE>
of such Holder arising out of this Grant of Registration Rights. With
respect to obligations of any such Holder arising out of this Grant of
Registration Rights, the Company shall look for payment or satisfaction of
any claim solely to the assets and property of such Holder. With respect to
any Holder which is a portfolio of a Massachusetts business trust, the
Company is expressly put on notice that the rights and obligations of each
series of shares of such Holder under its Declaration of Trust are separate
and distinct from those of any and all other series. Each Holder hereby
acknowledges and agrees that the obligations of the Company under this Grant
of Registration Rights are not binding upon any of the directors, employees,
officers or shareholders of the Company individually, and that no such person
may be held personally liable or responsible for any obligations of the
Company arising out of this Grant of Registration Rights.
SECTION 11. BINDING ARBITRATION.
Any dispute arising out of or relating to this Grant of Registration
Rights shall be finally settled by arbitration pursuant to the JAMS/ENDISPUTE
Comprehensive Arbitrators Rules and Procedures then in effect (the "Rules"),
as modified by this Section 11. Within fifteen (15) Business Days following
the request of any party to submit a dispute to arbitration, the parties
shall select a retired judge or other neutral third party mutually acceptable
to the parties to serve as the sole arbitrator of the dispute. In the event
the parties are unable to select a mutually acceptable arbitrator within such
fifteen day period, the JAMS/ENDISPUTE administrator (the "Administrator")
shall select the arbitrator. Each arbitrator selected hereunder will
disclose to each party any conflict of interest or potential conflict of
interest and, if any such conflict or potential conflict exists, the
Administrator shall, unless otherwise agreed to by the parties, select a
different arbitrator. The parties will be bound by the arbitrator's
determination(s), which will constitute a final, binding and non-appealable
adjudication on the merits. The arbitration shall be conducted in the State
of Washington at a location to be determined by the arbitrator. The
prevailing party(ies) in any arbitration hereunder will be entitled to
recover all costs, including reasonable attorneys' fees, charges and
disbursements from the opposing party(ies). Judgment on any arbitration
award may be entered in any court having jurisdiction. It is the intent of
the parties that the arbitration be conducted and the dispute resolved in as
expeditious a manner as reasonably possible consistent with the Rules.
[Remainder of Page Intentionally Left Blank]
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TAB 8
EMPLOYEE STOCK OPTION PLAN
TAB 8
<PAGE>
LAMONTS APPAREL, INC.
1998 STOCK OPTION PLAN
<PAGE>
LAMONTS APPAREL, INC.
1998 STOCK OPTION PLAN
SECTION PAGE
- ------- ----
1. Purpose; Grants of Options; Construction . . . . . . . . . . . . . . . . 1
2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Stock Subject to the Plan. . . . . . . . . . . . . . . . . . . . . . . . 8
6. Specific Terms of Options. . . . . . . . . . . . . . . . . . . . . . . . 9
7. Change in Control Provisions . . . . . . . . . . . . . . . . . . . . . .11
8. Loan Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
9. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . .11
i
<PAGE>
LAMONTS APPAREL, INC.
1998 STOCK OPTION PLAN
1. PURPOSE; TYPES OF OPTIONS; CONSTRUCTION.
The 1998 Stock Option Plan (the "Plan") of Lamonts Apparel, Inc. (the
"Company") is adopted pursuant to the "Debtor's Amended Plan of Reorganization
under Chapter 11 of the Bankruptcy Code" (the "Reorganization Plan") which was
filed by the Company and confirmed by order of the United States Bankruptcy
Court for the Western District of Washington at Seattle on ________, 1998, and
shall be effective as of the "Effective Date" as defined in the Reorganization
Plan. The purpose of the Plan is to afford an incentive to selected employees,
consultants and directors of the Company, or any Subsidiary or Affiliate which
now exists or hereafter is organized or acquired, to acquire a proprietary
interest in the Company, to continue as employees or consultants, as the case
may be, to increase their efforts on behalf of the Company and to promote the
success of the Company's business. Pursuant to Section 6 of the Plan,
nonqualified stock options may be granted under the Plan. The Plan also
provides the authority to make loans to purchase Stock Option shares. The Plan
is designed to comply with the requirements of Regulation G (12 C.F.R. Section
207) regarding the purchase of shares on margin and the conditions for exemption
from short-swing profit recovery rules under Rule 16b-3 of the Exchange Act, and
shall be interpreted in a manner consistent with the requirements thereof.
2. DEFINITIONS.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity if, at the time of granting of
an Option or a Loan, (i) the Company, directly or indirectly, owns at least 50%
of the combined voting power of all classes of stock of such entity or at least
50% of the ownership interests in such entity or (ii) such entity, directly or
indirectly, owns at least 50% of the combined voting power of all classes of
stock of the Company.
(b) "Aggregate Equity Trading Value" shall have the meaning set
forth in the Warrant Agreement.
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(c) "Beneficiary" means the person, persons, trust or trusts
which have been designated by an Optionee in his or her most recent written
beneficiary designation filed with the Company to receive the benefits specified
under the Plan upon his or her death, or, if there is no designated Beneficiary
or surviving designated Beneficiary, then the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive such
benefits.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means a change in control of the Company
which will be deemed to have occurred if:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than (A) the Company, (B) any trustee
or other fiduciary holding securities under an employee benefit plan
of the Company, (C) any corporation owned, directly or indirectly, by
the shareholders of the Company in substantially the same proportions
as their ownership of Stock or (D) as a result of the exercise of
warrants issued under the Warrant Agreement), becomes after the
Effective Date the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of the
Company's then outstanding voting securities;
(ii) during any period of two consecutive years individuals
who at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described
in clause (i), (iii) or (iv) of Section 2(e)) whose election by the
Board or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority
thereof;
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation,
2
<PAGE>
other than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent entity)
50% or more of the combined voting power of the voting securities of
the Company or such surviving or parent entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined) acquired
50% or more of the combined voting power of the Company's then
outstanding securities; or
(iv) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect).
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" means the Board or the committee established by
the Board to administer the Plan, the composition of which shall at all times
satisfy the provisions of Rule 16b-3.
(h) "Company" means Lamonts Apparel, Inc., a corporation
organized under the laws of the State of Delaware, or any successor corporation.
(i) "Employment Agreements" means those certain employment
agreements between each of Messrs. Schlesinger and Rothschild and the Company in
effect on the Effective Date.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(k) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
Committee. Unless otherwise determined by the Committee in good faith, the per
share Fair
3
<PAGE>
Market Value of Stock as of a particular date shall mean (i) the closing
sales price per share of Stock on the national securities exchange on which
the Stock is principally traded, for the last preceding date on which there
was a sale of such Stock on such exchange, or (ii) if the shares of Stock are
then traded in an over-the-counter market, the average of the closing bid and
asked prices for the shares of Stock in such over-the-counter market for the
last preceding date on which there was a sale of such Stock in such market,
or (iii) if the shares of Stock are not then listed on a national securities
exchange or traded in an over-the-counter market, such value as the
Committee, in its sole discretion, shall determine.
(l) "Loan" means the proceeds from the Company borrowed by a Plan
participant under Section 8 of the Plan.
(m) "NQSO" means any Option that is designated as a nonqualified
stock option.
(n) "Option" means a right, granted to an Optionee under Section
6, to purchase shares of Stock.
(o) "Option Agreement" means any written agreement, contract, or
other instrument or document evidencing an Option granted under the Plan.
(p) "Optionee" means a person who, as a director, employee or
consultant of the Company, a Subsidiary or an Affiliate, has been granted an
Option under the Plan.
(q) "Plan" means this Lamonts Apparel, Inc. 1997 Stock Option
Plan, as amended from time to time.
(r) "Rule 16b-3" means Rule 16b-3, as from time to time in effect
promulgated by the Securities and Exchange Commission under Section 16 of the
Exchange Act, including any successor to such Rule.
(s) "Stock" means shares of the Class A Common Stock, par value
$.01 per share, of the Company.
(t) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of an
Option,
4
<PAGE>
each of the corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in the chain.
(u) "Warrant Agreement" means that certain Warrant Agreement,
dated as of ______, 1998, between the Company and ______, as Warrant Agent,
adopted pursuant to the Reorganization Plan.
3. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee shall
have the authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan or the Reorganization Plan, to administer the
Plan and to exercise all the powers and authorities either specifically granted
to it under the Plan or necessary or advisable in the administration of the
Plan, including, without limitation, the authority to grant Options and make
Loans; to determine the persons to whom and the time or times at which Options
shall be granted and Loans shall be made; to determine number of Options to be
granted and the amount of any Loan, the number of shares of Stock to which an
Option may relate and the terms, conditions and performance criteria (if any)
relating to any Loan; and to determine whether, to what extent, and under what
circumstances an Option may be settled, cancelled, forfeited, exchanged, or
surrendered; to make adjustments in the terms and conditions of, and the
criteria and performance objectives (if any) included in, Options and Loans in
recognition of unusual or non-recurring events affecting the Company or any
Subsidiary or Affiliate or the financial statements of the Company or any
Subsidiary or Affiliate, or in response to changes in applicable laws,
regulations or accounting principles; to designate Affiliates; to construe and
interpret the Plan and any Option or Loan; to prescribe, amend and rescind rules
and regulations relating to the Plan; to determine the terms and provisions of
the Option Agreements and any promissory note or agreement related to any Loan
(which need not be identical for each Optionee); and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The Committee may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by written consent. The
Committee may delegate to one or more of its members or to one or more agents
such
5
<PAGE>
administrative duties as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including the Company, and any Subsidiary, Affiliate or Optionee (or any
person claiming any rights under the Plan from or through any Optionee) and
any shareholder.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Option
granted or Loan made hereunder.
4. ELIGIBILITY.
Options and Loans may be granted to selected employees, consultants
and directors (including directors who are employees of the Company) of the
Company and its present or future Subsidiaries and Affiliates, in the discretion
of the Committee, but subject to the requirements of the Reorganization Plan.
In determining the persons to whom Options and Loans shall be granted and the
amount of any Loan (including the number of shares and exercise price to be
covered by such Option), the Committee shall take into account such factors as
the Committee shall deem relevant in connection with accomplishing the purposes
of the Plan.
5. STOCK SUBJECT TO THE PLAN.
One Million-Seven Hundred Eight Thousand-Seven Hundred-Twenty Nine
shares of Stock shall be reserved for issuance upon exercise of Options granted
under the Plan, of which (i) up to a maximum of 1,333,729 shares shall be
available for issuance upon exercise of Options distributed as set forth on
Exhibit A hereto and otherwise in accordance with the Employment Agreements and
(ii) 375,000 shares shall be reserved for issuance upon exercise of additional
options, if, and to the extent, the Committee determines that such reservation
of additional shares is in the best interest of the Company (subject to
adjustment as provided herein). Such shares may, in whole or in part, be
authorized but unissued shares of Stock or shares that shall have been or may be
reacquired by the Company in the open market, in private transactions or
otherwise. If any shares subject to an Option are forfeited, cancelled,
exchanged or surrendered or if an Option otherwise terminates or expires without
a distribution of shares to the Optionee, the shares of Stock with respect to
6
<PAGE>
such Option shall, to the extent of any such forfeiture, cancellation,
exchange, surrender, termination or expiration, again be available for
Options under the Plan.
If any dividend or other distribution (whether in the form of cash,
Stock or other property), recapitalization, stock split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase or
share exchange, or other similar corporate transaction or event, affects the
Stock such that an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Optionees under the Plan, then the Committee shall
make such equitable changes or adjustments as are reasonably necessary or
appropriate to any or all of (i) the number and kind of shares of Stock that may
thereafter be issued in connection with Options, (ii) the number and kind of
shares of Stock issued or issuable in respect of outstanding Options, and (iii)
the grant or exercise price relating to any Option. There shall be no change or
adjustment whatsoever to any Option granted hereunder as a result of the
exercise of any warrants issued pursuant to the Warrant Agreement.
6. SPECIFIC TERMS OF OPTIONS.
(a) GENERAL. The term of each Option shall be for such period as
may be determined by the Committee. In addition, the Committee may impose on
any Option or the exercise thereof, at the date of grant or thereafter, such
additional terms and conditions, not inconsistent with the provisions of the
Plan, as the Committee shall determine. Notwithstanding anything to the
contrary contained herein, and without any effect resulting from subsequent
amendments to the Plan in accordance with Section 9(d) hereof, Options to
purchase 1,333,729 shares of Stock shall be granted as set forth on Exhibit A
hereto and otherwise in accordance with the terms of the Management Agreements.
No single individual may be granted options hereunder to purchase more than
800,000 shares of Stock during any calendar year during the term of the plan.
(b) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee; PROVIDED THAT,
in no event shall the exercise price for the purchase of shares be less than par
value. The exercise price for Stock subject to an Option may be paid in cash or
by an exchange of Stock previously owned by the Optionee, or a combination of
both, in an amount having a combined value (based on the Fair Market Value of
such Stock) equal to such exercise price. An Optionee may also elect to pay all
or a portion of the aggregate exercise price by having shares of Stock with a
Fair Market Value on the date of exercise equal to the aggregate exercise price
withheld by the Company
7
<PAGE>
or sold by a broker-dealer under circumstances meeting the requirements of 12
C.F.R. Section 220 or any successor thereof.
(c) TERM AND EXERCISABILITY OF OPTIONS. The date as of which the
Committee adopts a resolution expressly granting an Option shall be considered
the day on which such Option is granted. Options shall be exercisable over the
exercise period (which shall not exceed ten years from the date of grant), at
such times and upon such conditions as the Committee may determine, as reflected
in the Option Agreement; PROVIDED THAT the Committee shall have the authority to
accelerate the exercisability of any outstanding Option at such time and under
such circumstances as it, in its sole discretion, deems appropriate.
Notwithstanding the foregoing, the number of protective Options set forth on
Exhibit A which may be exercised by any holder shall bear the same proportion
(based on the total number of protective Options granted to such holder) to the
number of base Options set forth on Exhibit A that have been exercised by such
holder (based on the total number of base Options granted to such holder). An
Option may be exercised to the extent of any or all full shares of Stock as to
which the Option has become exercisable, by giving written notice of such
exercise to the Committee or its designated agent.
(d) TERMINATION OF EMPLOYMENT, ETC. An Option may not be
exercised unless the Optionee is then a director of, in the employ of, or then
maintains a consulting relationship with, the Company or a Subsidiary or an
Affiliate (or a company or a parent or subsidiary company of such company
issuing or assuming the Option in a transaction to which Section 424(a) of the
Code applies), and unless the Optionee has remained continuously so employed, or
continuously maintained such relationship, since the date of grant of the
Option; PROVIDED THAT the Option Agreement may contain provisions extending the
exercisability of Options, in the event of specified terminations, to a date not
later than the expiration date of such Option.
(e) OTHER PROVISIONS. Options may be subject to such other
conditions including, but not limited to, restrictions on transferability of the
shares acquired upon exercise of such Options, as the Committee may prescribe in
its discretion or as may be required by applicable law.
7. CHANGE IN CONTROL PROVISIONS. In the event of a Change in
Control (unless otherwise determined by the Committee prior to the occurrence of
such Change in Control):
8
<PAGE>
(a) any Option carrying a right to exercise that was not
previously exercisable and vested shall become fully exercisable and vested; and
(b) the restrictions, deferral limitations, payment conditions
and forfeiture conditions applicable to any other Option granted under the Plan
shall lapse and such Options shall be deemed fully vested, and any performance
conditions imposed with respect to Options shall be deemed to be fully achieved.
8. LOAN PROVISIONS. Subject to the provisions of the Plan and all
applicable federal and state laws, rules and regulations including, but not
limited to, the requirements of Regulation G (12 C.F.R. Section 207), the
Committee shall have the authority to make Loans to Optionees (on such terms and
conditions as the Committee shall determine), to enable such Optionees to
purchase shares issuable upon the exercise of Options. Loans shall be evidenced
by a promissory note or other agreement, signed by the borrower, which shall
contain provisions for repayment and such other terms and conditions as the
Committee shall determine.
9. GENERAL PROVISIONS.
(a) NONTRANSFERABILITY. Options shall not be transferable by an
Optionee except by will or the laws of descent and distribution or, if then
permitted under Rule 16b-3, pursuant to a qualified domestic relations order as
defined under the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder, and shall be exercisable during
the lifetime of an Optionee only by such Optionee or his guardian or legal
representative.
(b) NO RIGHT TO CONTINUED EMPLOYMENT, ETC. Nothing in the Plan
or in any Option granted or Loan made or any Option Agreement, promissory note
or other agreement entered into pursuant hereto shall confer upon any Optionee
the right to continue in the employ of or to continue as a consultant of the
Company, any Subsidiary or any Affiliate or to be entitled to any remuneration
or benefits not set forth in the Plan or such Option Agreement, promissory note
or other agreement or to interfere with or limit in any way the right of the
Company or any such Subsidiary or Affiliate to terminate such Optionee's
employment or consulting relationship.
(c) TAXES. The Company or any Subsidiary or Affiliate is
authorized to withhold from any Option granted, any payment relating to an
Option under the Plan, including from a distribution of Stock, or any other
payment to an
9
<PAGE>
Optionee, amounts of withholding and other taxes due in connection with any
transaction involving an Option, and to take such other action as the
Committee may deem advisable to enable the Company and Optionees to satisfy
obligations for the payment of withholding taxes and other tax obligations
relating to any Option. This authority shall include authority to withhold
or receive Stock or other property and to make cash payments in respect
thereof in satisfaction of an Optionee's tax obligations.
(d) AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any
time and from time to time alter, amend, suspend or terminate the Plan in whole
or in part; PROVIDED THAT, no amendment shall affect adversely any of the rights
of any Optionee, without such Optionee's consent, under any Option or Loan
theretofore granted under the Plan or the Reorganization Plan.
(e) NO RIGHTS TO OPTIONS OR LOANS; NO SHAREHOLDER RIGHTS. No
Optionee shall have any claim to be granted any Option or Loan under the Plan,
and there is no obligation for uniformity of treatment of Optionees. Except as
provided specifically herein, an Optionee or a transferee of an Option shall
have no rights as a shareholder with respect to any shares covered by an Option
until the date of the issuance of a stock certificate to him for such shares.
(f) UNFUNDED STATUS OF OPTIONS. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to an Optionee pursuant to an Option,
nothing contained in the Plan or any Option shall give any such Optionee any
rights that are greater than those of a general creditor of the Company.
(g) NO FRACTIONAL SHARES. No fractional shares of Stock shall be
issued or delivered pursuant to the Plan or any Option. The Committee shall
determine whether cash or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
(h) REGULATIONS AND OTHER APPROVALS.
(I) The obligation of the Company to sell or deliver Stock
with respect to any Option granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as
10
<PAGE>
may be deemed necessary or appropriate by the Committee.
(II) Each Option is subject to the requirement that, if at
any time the Committee determines, in its absolute discretion, that the listing,
registration or qualification of Stock issuable pursuant to the Plan is required
by any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Stock, no such Option shall be granted or payment made or Stock issued, in whole
or in part, unless listing, registration, qualification, consent or approval has
been effected or obtained free of any conditions not acceptable to the
Committee.
(III) In the event that the disposition of Stock acquired
pursuant to the Plan is not covered by a then current registration statement
under the Securities Act and is not otherwise exempt from such registration,
such Stock shall be restricted against transfer to the extent required by the
Securities Act or regulations thereunder, and the Committee may require an
Optionee receiving Stock pursuant to the Plan, as a condition precedent to
receipt of such Stock, to represent to the Company in writing that the Stock
acquired by such Optionee is acquired for investment only and not with a view to
distribution.
(i) GOVERNING LAW. The Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of
Delaware without giving effect to the conflict of laws principles thereof.
(j) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall take effect
on the Effective Date.
per share.
11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
<S> <C> <C> <C> <C>
BASE PROTECTIVE PROTECTIVE
OPTIONS OPTIONS (1)(5) OPTIONS (2)(5) TOTAL NEWS
Recipient EMPLOYEE
INITIAL INITIAL INITIAL Stock Options
EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE
$1.00 $.01 $.01
Alan R. 600,000 146,888 53,349 800,237
Schlesinger (3)
Loren R. 150,000 36,722 13,337 200,059
Rothschild (3)
Debbie A. 60,000 14,689 5,335 80,024
Brownfield (3)
E.H. Bulen (3) 50,000 12,241 4,446 66,686
Gary A. 30,000 7,344 2,667 40,012
Grossblatt (3)
Others (4) 110,000 26,929 9,781 146,710
Totals 1,000,000 244,813 88,915 1,333,728
(1) Exercisable on the first date on which the Aggregate Equity Trading Value
equals or exceeds $20 million.
(2) Exercisable on the first date on which the Aggregate Equity Trading Value
equals or exceeds $25 million.
(3) Warrants and options will vest 50% on the Effective Date, 25% on the first
anniversary of the Effective Date, and 25% on the second anniversary of the
Effective Date.
(4) To be granted to employees (other than Messrs. Schlesinger and Rothschild)
</TABLE>
12
<PAGE>
from time to time, in such amounts, and subject to such terms (including
vesting), as management shall determine.
(5) The number of protective Options which may be exercised by any holder shall
bear the same proportion (based on the total number of protective Options
granted to such holder) to the number of base Options that have been
exercised by such holder (based on the total number of base Options granted
to such holder).
The grants of the foregoing Options shall be governed by the terms of the
Employee Non-Qualified Stock Option Agreement attached hereto as Exhibit B.
13
<PAGE>
EXHIBIT B
EMPLOYEE NON-QUALIFIED STOCK OPTION AGREEMENT
NON-QUALIFIED STOCK OPTION AGREEMENT, dated as of the ________ day
of ________, 1998, by and between Lamonts Apparel, Inc., a Delaware
corporation (the "Company"), and ________, [an employee, consultant or
director] of the Company or any Subsidiary or Affiliates of the Company
(the "Optionee").
Pursuant to the Lamonts Apparel, Inc. 1998 Stock Option Plan, (the
"Plan"), the Committee has determined that the Optionee is to be granted a
Non-Qualified Stock Option (the "Option") to purchase shares of the Company's
common stock, par value $.01 per share (the "Stock"), on the terms and
conditions set forth herein, and hereby grants such Option. It is intended
that the Option not constitute an "Incentive Stock Option" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Any capitalized terms not defined herein shall have the meaning set forth in
the Plan.
1. NUMBER OF SHARES AND OPTION PRICE. The Option entitles the
Optionee to purchase:
(1) [X] shares of Stock (the "Basic Option Shares"), at a price
(the "Basic Option Price") of $1.00 per share, which is not less than the par
value of the Option Shares as of the date hereof;
(2) [X - 0.244813] shares of Stock (the "Option I Shares"), at a
price (the "Option I Price") of $.01 per share; and
(3) [X - 0.088915] shares of Stock (the "Option II Shares"), at a
price (the "Option II Price") of $.01 per share.
2. PERIOD OF OPTION. The term of the Option and of this Option
Agreement shall commence on the date hereof (the "Date of Grant") and, unless
the Option is previously terminated pursuant to this Option Agreement, shall
terminate no later than the expiration of ten years from the Date of Grant.
Upon termination of the Option, all rights of the Optionee hereunder shall
cease.
<PAGE>
3. CONDITIONS OF EXERCISE.
(1) Subject to the provisions of paragraphs (b) and (c) of this
Section 3, the Option may be exercised
(A) with respect to 50% of the Basic Option Shares, the Option I
Shares and the Option II Shares, as of the Date of Grant;
(B) with respect to 75% of the Basic Option Shares, the Option I
Shares and the Option II Shares, as of the first anniversary of the Date of
Grant; and
(C) with respect to 100% of the Basic Option Shares, the Option
I Shares and the Option II Shares, as of the second anniversary of the Date
of Grant.
(2) Notwithstanding the foregoing, (i) the Option may not be
exercised with respect to the Option I Shares prior to the first date on
which the Aggregate Equity Trading Value equals or exceeds $20,000,000, (ii)
the Option may not be exercised with respect to the Option II Shares prior to
the first date on which the Aggregate Equity Trading Value equals or exceeds
$25,000,000 and (iii) the number of Option I Shares and Option II Shares
which may be purchased by the Optionee upon exercise of the Option shall bear
the same proportion (based on the total number of Option I Shares and Option
II Shares that the Optionee is entitled to purchase upon exercise of the
Option as originally granted) to the number of Basic Option Shares that have
been purchased by the Optionee (based on the total number of Basic Option
Shares the Optionee is entitled to purchase upon exercise of the Option as
originally granted).
(3) The right of the Optionee to purchase shares with respect to
which this Option has become exercisable as herein provided may be exercised
in whole or in part at any time or from time to time up to ten years from the
Date of Grant, but only during the period and to the extent in which such
Option remains exercisable as herein provided.
4. NONTRANSFERABILITY OF OPTION. The Option and this Option
Agreement shall not be transferable otherwise than by will or by the laws of
descent and distribution or pursuant to a "qualified domestic relations
order," as defined in
2
<PAGE>
the Employee Retirement Income Security Act of 1974; and the Option may be
exercised, during the lifetime of the Optionee, only by the Optionee or by
the Optionee's legal representative.
5. ANTI-DILUTION ADJUSTMENTS. If any dividend or other distribution
(whether in the form of cash, Stock or other property), recapitalization,
stock split, reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase or share exchange, or other similar corporate
transaction or event, affects the Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of
Optionees under the Plan, then the Committee shall make such equitable
changes or adjustments as are reasonably necessary or appropriate to any or
all of (i) the number and kind of shares of Stock that may thereafter be
issued in connection with Options, (ii) the number and kind of shares of
Stock issued or issuable in respect of outstanding Options, and (iii) the
grant or exercise price relating to any Option.
6. TERMINATION BY DEATH. If the Optionee's employment with the
Company or any Subsidiary of the Company terminates by reason of death, the
Option may thereafter be exercised by the legal representative of the estate
or by the legatee of the Optionee under the will of the Optionee, but only to
the extent the Option is exercisable at the time of death, for a period of
twelve (12) months or until the expiration of the stated term of such Option,
whichever period is shorter.
7. TERMINATION BY REASON OF DISABILITY. If the Optionee's
employment with the Company or any Subsidiary of the Company terminates by
reason of disability, the Option may thereafter be exercised, but only to the
extent exercisable at the time of such termination, for a period of twelve
(12) months from the date of such termination of employment or until the
expiration of the stated term of the Option, whichever period is shorter;
PROVIDED, HOWEVER, that if the Optionee dies within such twelve-month period
and prior to the expiration of the stated term of the Option, the Option may
thereafter be exercised, but only to the extent exercisable at the time of
termination for disability, for a period of twelve (12) months from the date
of death or until the expiration of the stated term of the Option.
8. OTHER TERMINATION. If the Optionee's employment with the
Company or any Subsidiary of the Company terminates for any reason other than
death or disability, the Option may be exercised, but only to the extent
exercisable at the time of such termination, until the earlier to occur of
(A) three (3) months from the date of such termination or (B) the expiration
of the term of the Option.
3
<PAGE>
9. NOTICES. Any notice required or permitted under this Option
Agreement shall be deemed given when delivered personally, or when deposited
in a United States Post Office, postage prepaid, addressed, as appropriate,
to the Optionee either at the Optionee's address hereinbelow set forth or
such other address as the Optionee may designate in writing to the Company,
or to the Company: Attention: Debbie Brownfield (or her designee), at the
Company's address or such other address as the Company may designate in
writing to the Optionee.
10. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to
enforce at any time any provision of this Option Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
11. GOVERNING LAW. This Option Agreement shall be governed by and
construed according to the laws of the State of Delaware without regard to
its principles of conflict of laws.
12. INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part hereof, and the Option and this Option Agreement
are subject to all terms and conditions of the Plan.
13. AMENDMENTS. This Option Agreement may be amended or modified at
any time by an instrument in writing signed by the parties hereto.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Option Agreement
on the day and year first above written.
LAMONTS APPAREL, INC.
By:
-----------------------------
Name:
Title:
The undersigned hereby accepts and
agrees to all the terms and provisions
of the foregoing Option Agreement and
to all the terms and provisions of the
Plan herein incorporated by reference.
---------------------------------
Optionee
---------------------------------
---------------------------------
Address
5
<PAGE>
TAB 9
AMENDED AND RESTATED EMPLOYMENT AGREEMENTS
TAB 9
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"),
made and entered into as of ________________ ___, 1998, is by and between
Lamonts Apparel, Inc., a Delaware corporation (the "Company"), and Alan
Schlesinger ("Executive").
WHEREAS, this Agreement, which amends and restates the Employment
Agreement, dated as of April 18, 1995 (the "Existing Employment Agreement"),
between executive and the Company, is being entered into in connection with the
Company's Plan of Reorganization (the "Plan of Reorganization" or "Plan");
WHEREAS, the Plan of Reorganization provides, among other things, for
the continued employment of Executive after confirmation of the Plan of
Reorganization and dismissal of the Company's Chapter 11 case (the "Bankruptcy
Case") under Chapter 11 of the United States Bankruptcy Code;
WHEREAS, the Plan was confirmed by order entered on [ ] by the
United States Bankruptcy Court for the Western District of Washington at Seattle
and the Bankruptcy Case has been dismissed; and
WHEREAS, the Plan included provision for employment of the Executive
pursuant to the terms of the Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants set forth herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
to amend and restate the Existing Employment Agreement as follows:
1. EMPLOYMENT OF EXECUTIVE; TITLE.
(a) EMPLOYMENT. Executive agrees to be employed by the Company,
and the Company agrees to employ Executive, on the terms and conditions set
forth in this Agreement. Executive agrees during the term of his employment to
devote substantially all of his business time, efforts, skills and abilities to
the performance of his duties as stated in this Agreement and to the furtherance
of the Company's business.
<PAGE>
(b) TITLE. Executive's job title will be Chief Executive
Officer and his duties will be those as are designated by the Board of Directors
of the Company ("Board"), consistent with the position of Chief Executive
Officer. Executive further agrees to serve, without additional compensation, as
a director of the Company, and as an officer or director, or both, of any
subsidiary, division or affiliate of the Company or any other entity in which
the Company holds an equity interest; PROVIDED, however, that the Company shall
indemnify Executive from liabilities in connection with serving in any such
position to the same extent as his indemnification rights pursuant to the
Company's Certificate of Incorporation, By-Laws and applicable Delaware law.
2. COMPENSATION.
(a) BASE SALARY. Executive's BASE SALARY shall be composed of
the following:
i) SALARY. During the term of Executive's employment with
the Company pursuant to this Agreement, the Company shall pay to Executive as
compensation for his services an annual salary of $450,000 payable semi-monthly
("Salary"). Executive's Salary will be payable in arrears in accordance with
the Company's normal payroll procedures and will be reviewed annually and
subject to upward adjustment as provided in paragraph 3(a)(iii) below.
ii) GUARANTEED PERFORMANCE BONUS. In addition to his salary
the Executive shall be paid a guaranteed annual bonus in the sum of $100,000 per
year the ("Minimum Bonus"), payable at the end of each calendar year. In the
event the Executive resigns or the Executive's employment is terminated during
the year, the guaranteed annual bonus shall be prorated and paid upon
termination.
iii) INCREASES IN BASE SALARY. Beginning on January 31,
1998, the Executive's Base Salary and Minimum Bonus shall be reviewed by the
Board or the Compensation Committee thereof no less frequently than on each
January 31 during the Term. The Base Salary and Minimum Bonus payable to
Executive may be increased on each such date (and at such other times as such
Board or the Compensation Committee may deem appropriate during the Term) to
such amount determined appropriate by such Board or the Compensation Committee;
PROVIDED, HOWEVER, that Executive's Base Salary and Minimum Bonus shall be
increased annually in a minimum amount equal to the cost-of-living increment as
2
<PAGE>
reported in the "Consumer Price Index, Seattle, Washington, All Items,"
published by the U.S. Department of Labor (using January 1, 1995 as the base
date for comparison with respect to the increase to be made on January 31,
1998, and using January 1, of the immediately preceding year as the base date
for comparison with respect to each annual increase to be made thereafter).
Each such new Base Salary and Minimum Bonus shall become the base for each
successive year increase. Any increase in Base Salary, Minimum Bonus or
other compensation shall in no way limit or reduce any other obligations of
the Company hereunder and, once established as an increased specified rate,
Executive's Base Salary and Minimum Bonus shall not be reduced unless
Executive otherwise agrees in writing.
(b) BONUS COMPENSATION.
i) REORGANIZATION BONUS. Upon the Effective Date, the
Company became obligated to pay to the Executive, a bonus (the "Reorganization
Bonus") in an amount equal to $400,000. The Reorganization Bonus shall be
payable within 10 days after the Effective Date. If Executive shall cease to be
employed by the Company prior to the one year anniversary of the Effective Date
as a result of Executive's voluntary termination of this Agreement in accordance
with Section 7 hereof, Executive shall repay to the Company on such date
Executive ceases to be so employed, one-half of the amount of the Reorganization
Bonus received by Executive hereunder. The Reorganization Bonus shall be an
Expense of Administration obligation of the Company.
ii) EXTENSION BONUS. The Company shall pay to Executive an
extension bonus of $175,000 payable on February 2, 1998, PROVIDED THAT,
Executive is employed by the Company on such date.
(c) RETENTION OF PRIOR BENEFITS. The Executive shall retain all
monies and other benefits previously paid to him by reason of the Existing
Employment Agreement.
(d) EXECUTIVE PERQUISITES. Executive shall be entitled to
receive such executive perquisites and fringe benefits as have been customarily
provided to senior executives of the Company.
(e) MISCELLANEOUS BUSINESS EXPENSES. Executive shall be entitled
to receive an allowance of $1,500 per month, payable monthly in advance,
3
<PAGE>
for unreimbursed business-related expenses including the use of one personal
vehicle.
(f) STOCK OPTIONS.
i) On the Effective Date, the Company shall issue to
Executive (i) options to purchase 600,000 shares of common stock of the Company
("Common Stock"), and (ii) to prevent dilution upon exercise of the New Class A
Warrants and the New Class B Warrants (as each such term is defined in the Plan
of Reorganization), (x) options to purchase 146,888 shares of Common Stock,
which option shall be exercisable at a price of $.01 per share on the first date
on which the Aggregate Equity Trading Value (as such term is defined in the Plan
of Reorganization) equals or exceeds $20 million and (y) options to purchase
53,349 shares of Common Stock, which option shall become exercisable at a price
of $.01 per share on the first date on which the Aggregate Equity Trading Value
equals or exceeds $25 million; PROVIDED THAT, the aggregate number of options
described in clauses (ii)(x) and (y) above which may be exercised by Executive
shall bear the same proportion (based on the total number of such options
granted to Executive) to the number of options described in clause (i) above
that have been exercised by Executive (based on the total number of such options
granted to Executive). In addition, to prevent dilution upon the exercise of
the New Class C Warrants (as such term is defined in the Plan of
Reorganization), Executive will be issued New Class C Warrants exercisable for
228,639 shares of Common Stock, exercisable in accordance with the terms
thereof.
ii) The Options shall have a term of ten years and shall
vest (x) 50% upon the Effective Date, (y) 25% on the first anniversary of the
Effective Date and (z) 25% on the second anniversary of the Effective Date;
PROVIDED THAT, such options shall vest in full upon a Change in Control (as
defined in Section 6 hereof).
(g) TAX WITHHOLDING. The Company has the right to deduct from
any compensation payable to Executive under this Agreement social security
(FICA) taxes and all federal, state, municipal or other such taxes or charges as
may now be in effect or that may hereafter be enacted or required.
(h) BOARD MEMBERSHIP. The Company agrees that it will use its
best efforts to cause Executive to be nominated to the Board and to serve as
4
<PAGE>
Chairman of the Board at each annual meeting of stockholders of the Company
during the term of this Agreement.
(i) LIFE INSURANCE. In addition to any other insurance which the
Company may choose to maintain on the life of the Executive, the Company shall
provide, to the extent it is reasonably able to do so, a term life insurance
policy in the face amount of two million dollars ($2,000,000) payable to such
beneficiary as the Executive may designate; provided, however, that in no event
shall the Company be required to pay premiums on such term life insurance policy
in excess of $15,000 per annum.
(j) DIRECTOR'S AND OFFICER'S INSURANCE. The Company shall
maintain directors' and officers' insurance policies during the term of
Executive's employment hereunder and for a period of twelve months thereafter on
substantially the same terms as the Company's current policies; PROVIDED THAT,
if any insurer shall cancel or refuse to renew any such policy and the Company
is unable to obtain a replacement policy on substantially the same terms
reasonably satisfactory to Executive, the Company will timely exercise any and
all options thereunder, and pay any and all premiums or other charges necessary,
to extend the period during which claims may be made thereunder; further
PROVIDED THAT, the Company shall not be required to pay such premiums or other
charges necessary to extend such period if they are substantially in excess of
the premiums in effect on the date hereof. If the Company does not maintain
directors' and officers' insurance at any time during the term of Executive's
employment hereunder, Executive may terminate this Agreement immediately and
such termination shall be treated as a termination without Cause hereunder.
3. DURATION OF EMPLOYMENT.
(a) TERM. Unless otherwise terminated at an earlier date in
accordance herewith Sections 4 or 6 hereof, the term of Executive's employment
under this Agreement shall be for a period commencing on the effective date of
the Plan of Reorganization (the "Effective Date") and ending on January 31,
2002, (the "Term").
(b) EARLY TERMINATION. Notwithstanding the foregoing, this
Agreement (other than Sections 5 through 14, hereof) will terminate upon the
earliest to occur of: (a) the date the Company terminates Executive's
employment, (b) the date Executive resigns from the Company, (c) notice from the
Company following
5
<PAGE>
the disability of Executive that renders him unable to perform his essential
duties under this Agreement, even with reasonable accommodation that does not
cause undue hardship to the Company, for at least 90 days out of any 120
consecutive day period, or (d) the death of Executive, provided, however,
that in the event of the death of Executive, the Company shall pay to the
estate of Executive six months of Base Salary commencing with the next
regular pay period after the date of his death ("Death Benefit"). Any Death
Benefit otherwise payable by the Company shall be offset by proceeds from any
life insurance furnished by the Company for payment of the Death Benefit
under this Section 3(b).
4. TERMINATION BY THE COMPANY; DEFINITION OF CAUSE. Executive's
employment under this Agreement (and his right to receive the compensation set
forth in Section 2 hereof) may be terminated by the Company at any time for
"Cause," or (subject to the rights of Executive pursuant to Section 5 hereof)
without "Cause." As used herein, "Cause" shall mean:
(a) Any dishonest or fraudulent act or course of conduct by
Executive, or other act or course of conduct by Executive constituting a
criminal act or which results in improper gain or personal enrichment of
Executive at the expense of the Company, or the commission by Executive of an
act or a course of conduct involving moral turpitude, or Executive's
insubordination to the Board.
(b) Executive's material breach of any of the terms or
conditions of this Agreement or of policies established by the Board, or
Executive's material neglect of his duties or of the Company's business,
provided, however, that no such termination pursuant to this clause (b) shall
be effective unless the Company shall have given Executive ten days' prior
written notice of any such conduct which, if not discontinued or corrected,
would lead to his termination for Cause. Executive will have the opportunity
to cure such non-complying conduct or performance within such 10-day period.
Termination pursuant to this clause (b) shall be effective with respect to
matters referred to in this clause (b) ten days after such notice unless such
conduct has been cured in the good faith judgment of the Board, subject to
the provisions of clause (c) below.
(c) In the event that the Executive disputes the grounds for a
claim of misconduct under clause (b) above, the Bankruptcy Court, prior to the
Effective Date, shall have jurisdiction to determine whether the alleged
misconduct constitutes reasonable grounds for termination for cause. In such
event the determination of the Bankruptcy Court shall be binding upon the
parties.
6
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5. SEVERANCE PAYMENT ON TERMINATION WITHOUT CAUSE.
(a) TERMINATION WITHOUT CAUSE. If Executive's employment is
terminated by the Company without Cause during the term of this Agreement, the
Company shall be obligated to continue to pay Executive his Base Salary for a
period of two years or for the remainder of the term of this Agreement,
whichever period is shorter, subject to the provisions in Section 6 pertaining
to Change in Control; PROVIDED THAT, such payments are subject to reduction in
accordance with the provisions of 5(b) hereof. At the Company's sole option,
the Company may elect to pay Executive any remaining Base Salary due under this
5(a) in a lump sum, equal to the present value of such remaining Base Salary
payments at an effective annual interest rate of 10 percent.
(b) OFFSET. If Executive's employment with the Company is
terminated pursuant to 5(a), this clause (b) shall apply. The payments which
would have been due and payable in accordance with 5(a) hereof shall be reduced
by an amount equal to any amounts that Executive receives in connection with
any other employment, or engagement as a consultant and/or independent
contractor, during the period such payments pursuant to 5(a) would have been
due and payable. For purposes of this 5(b), any fringe benefits received by
Executive in connection with any other employment that are reasonably
comparable, but not necessarily as beneficial, to Executive as the fringe
benefits then being provided by the Company pursuant to 5(a) hereof, shall be
deemed to be the equivalent of, and shall terminate the Company's responsibility
to continue providing, the fringe benefits then being provided by the Company if
Executive's employment with the Company is terminated pursuant to 5(a).
Executive shall have no duty to mitigate his damages and, specifically,
Executive shall have no obligation to seek any employment or engagement which
would generate payments or benefits that would constitute an offset hereunder.
(c) GENERAL RELEASE. Acceptance by Executive of any amounts
pursuant to this Section 5 shall constitute a full and complete release by
Executive of any and all claims Executive may have against the Company, any of
its past, present or future shareholders or any of their respective officers,
directors and affiliates (past, present or future), including, but not limited
to, claims he might have relating to Executive's cessation of employment with
the Company, or with respect to claims under Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act of 1967, the Americans with
Disabilities Act of 1990, or any other
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similar Federal, state or local statute, rule or regulation; PROVIDED THAT,
there shall be properly excluded from the scope of such general release the
following:
i) claims that Executive may have against the Company for
reimbursement of ordinary and necessary business expenses incurred by him during
the course of his employment;
ii) claims that may be made by the Executive for payment of
Base Salary, fringe benefits, stock, or stock options properly due to him; and
iii) claims respecting matters for which the Executive is
entitled to be indemnified under the Company's Certificate of Incorporation or
Bylaws or indemnification agreements, respecting third party claims asserted or
third party litigation pending or threatened against the Executive.
A condition to Executive's receipt of any amounts pursuant to this 5 shall be
Executive's execution and delivery of a general release as described above.
Such payment shall be considered independent consideration made in exchange for
such release. In exchange for such release, the Company shall, if Executive's
employment is terminated without Cause, provide a release to Executive, but only
with respect to claims against Executive which are actually known to the Company
as of the time of such termination.
6. EFFECT OF CHANGE IN CONTROL.
(a) If a Change in Control (as hereinafter defined) shall occur
on or prior to the date specified in Section 3(a) hereof as the end of the Term,
then (i) if the remaining portion of the Term is less than two years, the Term
shall be automatically extended to a date which is 2 years from the date on
which such Change in Control is consummated ("Extended Term"), and, (ii) if
Executive's options, including warrants, have not fully vested, then upon
consummation of a Change in Control on or after the Effective Date, all
Executive options, including warrants, shall vest immediately upon such event.
In the event that Executive is terminated during the Extended Term the
provisions of Section 5 shall apply.
(b) As used herein, a "Change in Control" shall be deemed to have
occurred if, subsequent to the date hereof:
8
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i) any "person" (as such term is defined in Section 13(d) of
the Securities Exchange Act of 1934), other than (i) Apollo Advisors, L.P., Lion
Advisors, L.P., FMR Corp., Fidelity Management & Research Company, Fidelity
Management Trust Company, any other beneficial owner of the Company's common
stock as of the Effective Date, or (ii) any investment fund managed by, or firm
or group affiliated with any of the persons specified in clause (i) above, or
any of their respective affiliates, becomes the beneficial owner, directly or
indirectly, of either (A) a majority of the Company's outstanding common stock
or (B) securities of the Company representing a majority of the combined voting
power of the Company's then outstanding voting securities;
ii) a sale is made to any purchaser unaffiliated with the
Company or any of the persons specified in clause (1) above of all or
substantially all of the assets of the Company; or
iii) a merger or consolidation of the Company is made with
another corporation or other legal person unaffiliated with the Company or
any of the persons specified in clause (1) above if, immediately after such
merger or consolidation, less than a majority of the combined voting power of
the then-outstanding securities of such corporation or person are held,
directly or indirectly, in the aggregate by the holders immediately prior to
such transaction of the then-outstanding securities of the Company entitled
to vote generally in the election of the Board.
In no event shall the term "Change in Control" be construed to
include any change of control of the Company or any affiliate of the Company
solely as a result of any exchange of equity for debt securities of the
Company or any such affiliate upon consummation of a plan of reorganization
for the Company in the Bankruptcy Case.
(C) Notwithstanding any other provision of this Agreement, if
the aggregate present value of the "parachute payments" to the Executive,
determined under Section 280G(b) of the Internal Revenue Code of 1986, as
amended ("Code"), is at least three times the "base amount" determined under
such Section 280G, then the Base Salary otherwise payable under this
Agreement and any other amount payable hereunder or any other severance plan,
program, policy or obligation of the Company or any other affiliate thereof
shall be reduced so that the aggregate present value of the "parachute
payments" to the Executive, determined under Section 280G, does not exceed
2.99 times the base amount. In no event, however, shall any benefit
9
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provided hereunder be reduced to the extent such benefit is specifically
excluded by Section 280G of the Code as a "parachute payment" or as an
"excess parachute payment." Any decisions regarding the requirement or
implementation of such reductions shall be made by such tax counsel as may be
selected by the Company and acceptable to Executive.
7. VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement for any reason by giving the Company at least 180 days' written
notice of termination. The Company shall have no obligation to provide any
severance compensation under Section 5 in the event of Executive's voluntary
termination of this Agreement.
8. NONSOLICITATION OF EMPLOYEES. For a period of two years after
the termination or cessation of his employment with the Company for any
reason whatsoever, Executive shall not, on his own behalf or on behalf of any
other person, partnership, association, corporation, or other entity, solicit
or in any manner attempt to influence or induce any employee of the Company
or its subsidiaries or affiliates (known by the Executive to be such) to
leave the employment of the Company or its subsidiaries or affiliates, nor
shall he use or disclose to any person, partnership, association, corporation
or other entity any information obtained while an employee of the Company
concerning the names and addresses of the Company's employees.
9. NONDISCLOSURE OF TRADE SECRETS. During the term of this
Agreement, Executive will have access to and become familiar with various
trade secrets and proprietary and confidential information of the Company,
its subsidiaries and affiliates, including, but not limited to, processes,
computer programs, compilations of information, records, sales procedures,
customer and supplier requirements, pricing techniques, customer and supplier
lists, methods of doing business and other confidential information
(collectively referred to as "Trade Secrets") which are owned by the Company,
its subsidiaries and/or affiliates and regularly used in the operation of its
business, and as to which the Company, its subsidiaries and/or affiliates
take precautions to prevent dissemination to persons other than certain
directors, officers and employees. Executive acknowledges and agrees that
the Trade Secrets (1) are secret and not known in the industry; (2) give the
Company or its subsidiaries or affiliates an advantage over competitors who
do not know or use the Trade Secrets; (3) are of such value and nature as to
make it reasonable and necessary to protect and preserve the confidentiality
and secrecy of the Trade Secrets; and (4) are valuable, special and unique
assets of the Company or its subsidiaries or affiliates, the disclosure of
which could cause substantial injury and loss of profits
10
<PAGE>
and goodwill to the Company or its subsidiaries or affiliates. Executive may
not use in any way or disclose any of the Trade Secrets, directly or
indirectly, either during the term of this Agreement or at any time
thereafter, except as required in the course of his employment under this
Agreement, if required in connection with a judicial or administrative
proceeding, or if the information becomes public knowledge other than as a
result of an unauthorized disclosure by the Executive. All files, records,
documents, information, data and similar items relating to the business of
the Company, whether prepared by Executive or otherwise coming into his
possession, will remain the exclusive property of the Company and may not be
removed from the premises of the company under any circumstances without the
prior written consent of the Board (except in the ordinary course of business
during the Executive's period of active employment under this Agreement), and
in any event must be promptly delivered to the Company upon termination of
Executive's employment with the Company. Executive agrees that upon his
receipt of any subpoena, process or other request to produce or divulge,
directly or indirectly, any Trade Secrets to any entity, agency, tribunal or
person, Executive shall timely notify and promptly hand deliver a copy of the
subpoena, process or other request to the Board. For this purpose, Executive
appoints the Company (including any attorney retained by the Company), as his
true and lawful attorney-in-fact, to act in Executive's name, place and stead
to perform any act that Executive might perform to defend and protect against
any disclosure of any Trade Secrets.
10. EQUITABLE RELIEF. Executive acknowledges that the restrictions
contained in Sections 8 and 9 are, in view of the nature of the business of the
Company, reasonable and necessary to protect the legitimate interests of the
Company, that the company would not have entered into this Agreement in the
absence of such restrictions, and that any violation of any provisions of those
Sections will result in irreparable injury to the Company. Executive also
acknowledges that the remedy at law for any violation of these restrictions will
be inadequate and that the Company shall be entitled to temporary and permanent
injunctive relief prohibiting any such violation, without the necessity of
proving actual damages or the posting of an bond, and that the Company shall be
further entitled to an equitable accounting of all earnings, profits and other
benefits arising from any such violation, which rights shall be cumulative of
and in addition to any other rights or remedies to which the Company may be
entitled. In the event of any such violation, the Company shall be entitled to
commence an action for temporary and permanent injunctive relief and other
equitable relief in any court of competent jurisdiction and Executive further
irrevocably submits to the jurisdiction of any federal or state court in the
geographical jurisdiction of Seattle, Washington over any suit, action or
proceeding arising
11
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out of or relating to any asserted violation of Section 8 and/or 9.
Executive hereby waives, to the fullest extent permitted by law, any
objection that he may now or hereafter have to the jurisdiction of any
federal or state court in the geographical jurisdiction of Seattle,
Washington or to the venue of any such suit, action or proceeding brought in
such a court and any claim that such suit, action or proceeding has been
brought in an inconvenient forum. Effective service of process may be made
upon Executive by mail under the notice provisions contained in Section 14.
11. SEVERABILITY. The parties hereto intend all provisions of
Sections 8 and 9 hereof to be enforced to the fullest extent permitted by law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any provision of Section 8 or 9 hereof is too broad to be enforced as
written, the parties intend that the court reform the provision to such narrower
scope as it determines to be reasonable and enforceable. In addition, however,
Executive agrees that the noncompetition, nonsolicitation and nondisclosure
agreements set forth above each constitute separate agreements independently
supported by good and adequate consideration and shall be severable from the
other provisions of, and shall survive, this Agreement. The existence of any
claim or cause of action of Executive against the Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of the covenants of Executive contained in the noncompetition,
nonsolicitation and nondisclosure agreements. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under present or
future laws effective during the term hereof, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision never constituted a part of this Agreement;
and the remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such illegal,
invalid or unenforceable provision, there shall be added as part of this
Agreement, a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
12. LEGAL EXPENSES; EXECUTIVE'S WARRANTY.
(a) The Company agrees to reimburse Executive for reasonable
attorneys' fees and disbursements incurred and to be incurred by Executive (net
of amounts previously advanced) in the making of this agreement, in seeking
approval of the Bankruptcy Court thereof in the Bankruptcy Case, and in
obtaining such other services as may be required by the Executive in connection
with the effect
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<PAGE>
of the Bankruptcy Case on his employment by the Company. In the event that
the parties do not agree on the amount of such attorneys' fees the Bankruptcy
Court shall be requested to make such determination; provided, however, that
in no event shall the Company be required to pay attorneys' fees and
disbursements in excess of $10,000 after the date of the commencement of the
Bankruptcy Case.
(b) Executive affirms that his employment is not contrary to or
in breach of any lawful agreement or other obligation Executive has to The May
Department Stores Company, and that based upon information known to him as of
the date of this Agreement regarding the business of the Company, he does not
know or possess any trade secrets or proprietary information of The May
Department Stores Company, or any of its affiliates (including its parent) which
would provide the Company with an unfair advantage over such entities in the
retail apparel business, and, in any event, will not, and does not have any
intent to convey any trade secrets or proprietary information to the Company.
13. ARBITRATION - EXCLUSIVE REMEDY.
(a) Except as otherwise provided herein, the parties agree that
the exclusive remedy or method of resolving all disputes or questions arising
out of or relating to this Agreement shall be arbitration. Arbitration shall be
held in Seattle, Washington, presided over by one arbitrator. Any arbitration
may be initiated by either party by written notice ("Arbitration Notice") to the
other party specifying the subject of the requested arbitration.
(b) If the parties are unable to mutually select an arbitrator to
hear the matter, then the American Arbitration Association, upon application of
the initiating party, shall provide a panel of arbitrators from which the
parties shall select one to hear the matter.
(c) The arbitration proceeding shall be conducted in accordance
with the Rules for Resolution of Employment Disputes of the American Arbitration
Association. The administrative costs of arbitration (including the expense of
a party in preparing for and presenting the party's case at the arbitration and
of the fees and expenses of legal counsel to a party, all of which shall be
borne by that party), shall be borne by the Company only if Executive receives
substantially the relief sought by him in the arbitration; otherwise, the costs
shall be borne equally between the parties. The arbitration determination or
award shall be final
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<PAGE>
and conclusive on the parties, and judgment upon such award may entered and
enforced in any court of competent jurisdiction.
14. MISCELLANEOUS.
(a) NOTICES. Any notices, consents, demands, requests, approvals
and other communications to be given under this Agreement by either party to the
other must be in writing and must be either (i) personally delivered, (ii)
mailed by registered or certified mail, postage prepaid with return receipt
requested, (iii) delivered by overnight express delivery service or same-day
local courier service, or (iv) delivered by telex or facsimile transmission, to
the address set forth below, or to such other address as may be designated by
the parties from time to time in accordance with this Section 14(a):
If to the Company: Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, Washington 98034
Attention: Chief Financial Officer
Facsimile: (425) 814-9749
With a copy (which
shall not constitute
notice) to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Facsimile: (213) 687-5600
Attention: Michael A. Woronoff
If to Executive: Alan Schlesinger
Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, Washington 98034
Facsimile: (425) 814-9749
14
<PAGE>
With a copy (which
shall not constitute
notice) to: Lawrence A. Jacobson
Cohen and Jacobson
577 Airport Boulevard
Suite 230
Burlingame, California 94010
Facsimile: (415) 347-2916
Notices delivered personally or by overnight express delivery
service or by local courier service are deemed given as of actual receipt.
Mailed notices are deemed given three business days after mailing. Notices
delivered by telex or facsimile transmission are deemed given upon receipt by
the sender of the answer back (in the case of a telex) or transmission
confirmation (in the case of a facsimile transmission).
(b) ENTIRE AGREEMENT. This Agreement supersedes any and all
other agreements, either oral or written, between the parties with respect to
the subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect to the subject matter of this
Agreement.
(c) MODIFICATION. No change or modification of this Agreement
is valid or binding upon the parties, nor will any waiver of any term or
condition in the future be so binding, unless the change or modification or
waiver is in writing and signed by the parties to this Agreement.
(d) GOVERNING LAW. THE PARTIES ACKNOWLEDGE AND AGREE THAT THIS
AGREEMENT AND THE OBLIGATIONS AND UNDERTAKINGS OF THE PARTIES UNDER THIS
AGREEMENT WILL BE PERFORMED IN SEATTLE, WASHINGTON. THIS AGREEMENT IS
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
WASHINGTON, AND, WHERE APPLICABLE, THE LAWS OF THE UNITED STATES.
(e) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which constitutes an original, but all of which
constitute one document.
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(f) ESTATE. If Executive dies prior to the expiration of the
term of employment or during a period when monies are owing to him, any monies
that may be due him from the Company under this Agreement as of the date of his
death shall be paid to his estate when and as otherwise payable.
(g) ASSIGNMENT. The Company shall have the right to assign this
Agreement to its successors or assigns. The terms "successors" and "assigns"
shall include any person, corporation, partnership or other entity that buys all
or substantially all of the Company's assets or a control block of stock of the
Company, or with which the Company merges or consolidates. The rights, duties
and benefits to Executive hereunder are personal to him, and no such right or
benefit may be assigned by him. The provisions of this clause (g) are all
subject to the provisions of Section 6.
(h) BINDING EFFECT. This Agreement is binding upon the parties
hereto, together with their respective executors, administrators, successors,
personal representatives, heirs and permitted assigns, and upon any Trustee
appointed in the Bankruptcy Case whether in the pending Chapter 11 case, in
any converted Chapter 7 case, or otherwise.
(i) WAIVER OF BREACH. The waiver by the Company or Executive
of a breach of any provision of this Agreement by Executive or the Company
may not operate or be construed as a waiver of any subsequent breach.
(j) COURT APPROVAL. This Employment Agreement is subject to
approval of the Bankruptcy Court in the Bankruptcy Case.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth in the first paragraph.
ALAN SCHLESINGER
---------------------------------
Alan Schlesinger
LAMONTS APPAREL, INC.
By:
---------------------------------
Name:
-----------------------------
Title:
-----------------------------
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AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"),
made and entered into as of _______________ ___, 1998, is by and between Lamonts
Apparel, Inc., a Delaware corporation (the "Company"), and Loren R. Rothschild
("Rothschild").
WHEREAS, this Agreement, which amends and restates the Employment
Agreement, dated as of April 18, 1995 (the "Existing Employment Agreement"),
between executive and the Company, is being entered into in connection with the
Company's Plan of Reorganization (the "Plan of Reorganization" or "Plan");
WHEREAS, the Plan provides, among other things, for the continued
employment of Executive after confirmation of the Plan and dismissal of the
Company's Chapter 11 case (the "Bankruptcy Case") under Chapter 11 of the United
States Bankruptcy Code; and
WHEREAS, the Plan was confirmed by order entered on[ ] by the
United States Bankruptcy Court for the Western District of Washington at Seattle
and the Bankruptcy Case has been dismissed;
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants set forth herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
to amend and restate the Existing Employment Agreement as follows:
1. EMPLOYMENT OF ROTHSCHILD; TITLE.
(A) EMPLOYMENT. The Company hereby agrees to employ Rothschild,
and Rothschild agrees to enter into the employment of the Company, on the terms
and conditions set forth in this Agreement. Rothschild agrees during the term
of his employment to devote such portion of his business and professional time,
efforts, skills and abilities to the performance of his duties as stated herein
and to the furtherance of the Company's business as the Chairman of the Board of
Directors of the Company (the "Board") may reasonably direct.
(B) TITLE. Rothschild's job title will be Vice Chairman of the
Board and his duties will be those as are mutually determined by the Chairman
<PAGE>
and the Vice Chairman of the Board, consistent with the position of
Vice Chairman, including managing the legal, financial and administrative
functions of the Company.
(C) BOARD MEMBERSHIP. The Company agrees that it will use its
best efforts to cause Executive to be nominated to the Board and to serve as
Vice Chairman of the Board at each annual meeting of stockholders of the Company
during the term.
2. TERM. Unless terminated at an earlier date in accordance with
Section 8, the term of this Agreement (the "Term") shall continue until the
third anniversary of the 90th day following the effective date of the Plan (the
"Effective Date").
3. COMPENSATION.
(A) BASE SALARY. Subject to Section 8 hereof, as compensation
for Rothschild's services hereunder, the Company shall pay to Rothschild a
base salary of (i) $240,000 per year, payable in equal monthly installments
of $20,000, in arrears at the end of each calendar month during the first 90
days of the Term and (ii) $150,000 per year, payable in equal monthly
installments of $12,500, in arrears at the end of each calendar month during
the remainder of the Term.
(B) REORGANIZATION BONUS. Upon the Effective Date, the
Company became obligated to pay to Rothschild, a bonus (the "Reorganization
Bonus") in an amount equal to (i) $186,667 and (ii) an additional bonus of
$80,000. The portion of the Reorganization Bonus payable pursuant to clause
(ii) of this Section 3(b) shall be payable on the 90th day after the
Effective Date. The Reorganization Bonus shall be an Expense of
Administration obligation of the Company.
(C) INCREASES IN BASE SALARY. Beginning on January 31, 1998,
Rothschild's Base Salary shall be reviewed by the Board or the Compensation
Committee thereof no less frequently than on each January 31 during the Term.
The Base Salary payable to Rothschild may be increased on each such date (and at
such other times as such Board or the Compensation Committee may deem
appropriate during the Term) to such amount determined appropriate by such Board
or the Compensation Committee; PROVIDED, HOWEVER, that Rothschild's Base Salary
shall be increased annually in a minimum amount equal to the cost-of-living
increment as reported in the "Consumer Price Index, Los Angeles, California, All
Items," published by the U.S. Department of Labor (using January 1, 1995 as the
base date for
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comparison with respect to the increase to be made on January 31, 1998, and
using January 1, of the immediately preceding year as the base date for
comparison with respect to each annual increase to be made thereafter). Each
such new Base Salary shall become the base for each successive year increase.
Any increase in Base Salary or other compensation shall in no way limit or
reduce any other obligations of the Company hereunder and, once established
as an increased specified rate, Rothschild's Base Salary shall not be reduced
unless Rothschild otherwise agrees in writing.
4. ADDITIONAL COMPENSATION. On the Effective Date, the Company
shall issue to Rothschild (i) options to purchase 150,000 shares of common
stock of the Company ("Common Stock"), and (ii) to prevent dilution upon
exercise of the New Class A Warrants and the New Class B Warrants (as each
such term is defined in the Plan of Reorganization), (x) options to purchase
36,722 shares of Common Stock, which options shall be exercisable at a price
of $.01 per share on the first date on which the Aggregate Equity Trading
Value (as such term is defined in the Plan of Reorganization) equals or
exceeds $20 million and (y) options to purchase 13,337 shares of Common
Stock, which options shall become exercisable at a price of $.01 per share on
the first date on which the Aggregate Equity Trading Value equals or exceeds
$25 million; PROVIDED THAT, the aggregate number of options described in
clauses (ii)(x) and (y) above which may be exercised by Rothschild shall bear
the same proportion (based on the total number of such options granted to
Rothschild) to the number of options described in clause (i) above that have
been exercised by Rothschild (based on the total number of such options
granted to Rothschild). In addition, to prevent dilution upon the exercise
of the New Class C Warrants (as such term is defined in the Plan of
Reorganization), Rothschild will be issued New Class C Warrants exercisable
for 57,160 shares of Common Stock, exercisable in accordance with the terms
thereof.
The options shall have a term of ten years and shall vest (x) 50% upon
the Effective Date, (y) 25% on the first anniversary of the Effective Date and
(z) 25% on the second anniversary of the Effective Date; PROVIDED THAT, if this
Agreement is thereafter terminated pursuant to Section 8(a)(i), such options
shall vest in full upon the date of such termination.
5. TAX WITHHOLDING; WAIVER OF BENEFITS. The Company has the right
to deduct from all compensation and amounts payable to Rothschild under this
Agreement social security (FICA) taxes and all federal, state, municipal or
other such taxes, deductions or charges as may now be in effect or that may
hereafter be enacted or required. During the Term, Rothschild hereby waives, to
the fullest extent
3
<PAGE>
permitted by applicable law, all benefits and executive perquisites provided
to employees of the Company, including, without limitation, those provided to
its senior executives (but excluding 401(k) benefits and benefits and
perquisites provided to directors of the Company, including (without
limitation), directors' and officers' liability insurance).
6. EXPENSES. Rothschild acknowledges that the performance of his
duties hereunder will require significant travel, primarily to Kirkland,
Washington, and agrees to be present in such other locations at such other
times as the Chairman of the Board may reasonably request. Rothschild shall
be reimbursed by the Company, in accordance with its reimbursement policy
from time to time in effect, for all reasonable and necessary out-of-pocket
expenses incurred by him in performing his duties under this Agreement,
including (without limitation) hotel, rental car, airfare and other
reasonable travel expenses between Rothschild's home in Los Angeles,
California, and Kirkland, Washington. Rothschild shall be furnished with a
suitable office and secretarial assistance at the Company's headquarters.
7. CONFIDENTIAL INFORMATION.
(A) CONFIDENTIALITY. Except as permitted or directed by the
Board through written authorization, during the Term and for a period of two
years thereafter, Rothschild shall not, and shall not permit any of his
affiliates or representatives (collectively, "REPRESENTATIVES") to, divulge,
furnish or make accessible to anyone or use in any way (other than in the
ordinary course of the business of the Company) any confidential or secret
knowledge or information of the Company which Rothschild or any of his
Representatives has acquired or becomes acquainted with or will acquire or
become acquainted with prior to the termination of this Agreement, whether
developed by itself or by others, concerning any trade secrets, confidential
or secret designs, directly or indirectly useful in any aspect of the
business of the Company, any customer or supplier lists of the Company, any
confidential or secret development or research work of the Company, or any
other confidential information or secret aspects of the business of the
Company. The foregoing obligations of confidentiality, however, shall not
apply to disclosure of any knowledge or information that is required by any
governmental agency or instrumentality to be disclosed or is now published or
which subsequently becomes generally publicly known in the form in which it
was obtained from the Company, other than as a direct or indirect result of
the breach of this Agreement by Rothschild or any of his Representatives;
PROVIDED THAT, in the case of a governmental agency or instrumentality
seeking disclosure of such confidential material, Rothschild agrees to
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provide the Company with prompt notice, sufficient information and reasonable
assistance so that the Company can seek an appropriate order or other
appropriate remedy or, if the Company wishes, waive Rothschild's compliance
with this Section 7.
(B) CONFIDENTIAL MATERIALS. Upon termination of this Agreement
and upon written request of the Company, Rothschild agrees to deliver promptly
to the Company all written confidential or secret knowledge or information of
the Company, including, without limitation, all analyses, compilations, studies
or other documents or records prepared by Rothschild, his Representatives or any
others, and all copies or other reproductions of any of the aforementioned
items.
8. TERMINATION.
(A) BASES FOR TERMINATION. Notwithstanding any other
provision hereof, this Agreement and the relationship created hereunder
between the Company and Rothschild shall terminate prior to the expiration of
the Term only upon the occurrence of any one of the following events:
(I) 30 days after delivery to Rothschild by the Company of
written notice of the Company's voluntary and unilateral termination
of this Agreement;
(II) 30 days after delivery to the Company by Rothschild of
written notice of Rothschild's voluntary and unilateral termination of
this Agreement; or
(III) immediately after delivery to Rothschild by the
Company of written notice of termination for "cause." For purposes of
this Agreement, "cause" shall mean (A) any dishonest or fraudulent act
or course of conduct by Rothschild, or other act or course of conduct
by Rothschild constituting a criminal act or that results in improper
gain or personal enrichment of Rothschild at the expense of the
Company, or the commission by Rothschild of an act or a course of
conduct involving moral turpitude, or Rothschild's insubordination to
the Board; or (B) the engaging by Rothschild in willful misconduct or
gross negligence that is injurious to the Company; or (C) a material
breach by Rothschild of any of the terms or conditions of this
Agreement or of policies reasonably established by the Board, or
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<PAGE>
Rothschild's material neglect of his duties or of the Company's
business, PROVIDED THAT, no such termination pursuant to this clause
(C) shall be effective unless the Company shall have given Rothschild
30 days' prior written notice specifying the manner in which
Rothschild's conduct or performance fails to comply with this
clause (C) and Rothschild shall not have cured such non-complying
conduct or performance within such 30-day period. (Termination
pursuant to this clause (C) shall be effective 30 days after such
notice unless such conduct has been cured in the good faith judgment
of the Board of Directors of the Company.)
(B) EFFECT OF TERMINATION.
(I) If this Agreement is terminated pursuant to Section
8(a)(i), Rothschild shall be entitled to receive only (A) the unpaid
portion of his base salary that would have been payable pursuant to
Section 3(a) during the Termination Period (defined below) had this
Agreement not been so terminated, which shall be paid to Rothschild in
arrears at the end of each calendar month during such period, plus (B)
any unreimbursed expenses payable pursuant to Section 6, which shall
be paid to Rothschild within ten business days after the date that
Rothschild submits to the Company reasonable documentation of such
unreimbursed expenses. "TERMINATION PERIOD" shall mean the period
beginning on the effective date of termination and ending on the last
day of the Term.
(II) If this Agreement is terminated pursuant to Section
8(a)(ii) or (iii), Rothschild shall be entitled to receive only (A)
his base salary payable pursuant to Section 3(a), pro-rated through
the effective date of such termination, which shall be paid to
Rothschild on the effective date of such termination, plus (B) any
unreimbursed expenses payable pursuant to Section 6, which shall be
paid to Rothschild within ten business days after the date that
Rothschild submits to the Company reasonable documentation of such
unreimbursed expenses.
(C) GENERAL RELEASE. Acceptance by Rothschild of any amounts
pursuant to this Section 8 shall constitute a full and complete release by
Rothschild of any and all claims Rothschild may have against the Company, its
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<PAGE>
officers, directors, and affiliates, including, but not limited to, claims he
might have relating to Rothschild's cessation of employment with the Company;
PROVIDED, however, that there may be properly excluded from the scope of such
general release the following:
(I) claims that Rothschild may have against the Company for
reimbursement of reasonable and necessary business expenses incurred
by him during the course of his employment;
(II) claims that may be made by Rothschild for payment of
base salary properly due to him; or
(III) claims respecting matters for which Rothschild is
entitled to be indemnified under the Company's Certificate of
Incorporation or Bylaws or indemnification agreements, respecting
third-party claims asserted or third-party litigation pending or
threatened against Rothschild.
A condition to Rothschild's receipt of any amounts pursuant to this Section 8
shall be Rothschild's execution and delivery of a general release as described
above. In exchange for such release, the Company shall, if Rothschild's
employment is terminated without cause, provide a release to Rothschild, but
only with respect to claims against Rothschild that are actually known to the
Company as of the time of such termination.
9. LIABILITY OF ROTHSCHILD. Rothschild assumes no responsibility
under this Agreement, other than to perform the services to be performed
hereunder in good faith and to maintain the confidentiality of any
confidential or secret information of the Company pursuant to Section 7.
Rothschild shall not be liable to the Company, except by reason of acts
constituting bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties.
The Company shall maintain directors' and officers' insurance policies
during the Term and for a period of twelve months thereafter on substantially
the same terms as the Corporation's current policies; PROVIDED THAT, if any
insurer shall cancel or refuse to renew any such policy and the Company is
unable to obtain a replacement policy on substantially the same terms reasonably
satisfactory to Rothschild, the Company will timely exercise any and all options
thereunder, and pay any and all premiums or other charges necessary, to extend
the period during
7
<PAGE>
which claims may be made thereunder; PROVIDED further THAT, the Company shall
not be required to pay such premiums or other charges necessary to extend
such period if they are substantially in excess of the premiums in effect on
the date hereof. If the Company does not maintain directors' and officers'
insurance at any time during the Term, Rothschild may terminate this
Agreement immediately and such termination shall be treated as a termination
under 8(a)(i) hereof.
10. OTHER BUSINESS ACTIVITIES. The Company acknowledges and agrees
that Rothschild may perform consulting services for other persons; PROVIDED
THAT, Rothschild may not perform consulting or other services for any retail
apparel chain that is competitive with the Company or its subsidiaries in any
geographical area in which the Company or any of its subsidiaries engages in
business. Subject to the foregoing proviso, nothing in this Agreement shall
restrict or limit the right of Rothschild, the Company or their respective
affiliates or associates to engage in whatever activities they choose,
whether or not competitive with matters covered by this Agreement, and none
of them shall, as a result of this Agreement, have any obligation to offer
any interest in such activities to any party hereto.
11. ARBITRATION - EXCLUSIVE REMEDY.
(A) Except as otherwise provided herein, the parties agree that
the exclusive remedy or method of resolving all disputes or questions arising
out of or relating to this Agreement shall be arbitration. Arbitration shall be
held in Seattle, Washington, presided over by one arbitrator. Any arbitration
may be initiated by either party by written notice ("Arbitration Notice") to the
other party specifying the subject of the requested arbitration.
(B) If the parties are unable to mutually select an arbitrator
to hear the matter, then the American Arbitration Association, upon application
of the initiating party, shall provide a panel of arbitrators from which the
parties shall select one to hear the matter.
(C) The arbitration proceeding shall be conducted in accordance
with the Rules for Resolution of Employment Disputes of the American Arbitration
Association. The administrative costs of arbitration (including the expense of
a party in preparing for and presenting the party's case at the arbitration and
of the fees and expenses of legal counsel to a party, all of which shall be
borne by that party), shall be borne by the Company only if Rothschild receives
substantially the relief sought by him in the arbitration; otherwise, the costs
shall be borne
8
<PAGE>
equally between the parties. The arbitration determination or award shall be
final and conclusive on the parties, and judgment upon such award may entered
and enforced in any court of competent jurisdiction.
12. MISCELLANEOUS.
(A) ASSIGNMENT. The Company shall have the right to assign
this Agreement to its successors or assigns. The terms "successors" and
"assigns" shall include any person, corporation, partnership or other entity
that buys all or substantially all of the Company's assets or all of its
stock, or with which the Company merges or consolidates. The rights, duties
and benefits to Rothschild hereunder are personal to him, and no such right
or benefit may be assigned by him.
(B) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF WASHINGTON AND FOR ALL PURPOSES
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WITHIN SAID STATE WITHOUT CONSIDERATION OF
ANY CONFLICTS OF LAW PROVISIONS THEREOF.
(C) ENTIRE AGREEMENT. This Agreement evidences the entire
understanding and agreement of the parties hereto relative to the employment
arrangement between Rothschild and the Company and the other matters
discussed herein. This Agreement supersedes any and all other agreements and
understandings, whether written or oral, relative to the matters discussed
herein.
(D) SEVERABILITY. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law. If any term, provision
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find and employ a
valid, legal, nonvoid and enforceable alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without
9
<PAGE>
including any of such that may be hereafter declared invalid, illegal, void
or unenforceable.
(E) AMENDMENTS/WAIVERS. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
(F) HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(G) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
(H) NOTICES. Any notices or other communications to the Company
or Rothschild required or permitted hereunder shall be in writing, and shall be
sufficiently given if made by hand delivery, by telex, by telecopier or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Company:
Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, WA 98034
Telecopier No.: (425) 814-9749
Attention: Chief Executive Officer
If to Rothschild:
Loren R. Rothschild
1201 Tower Grove Drive
Beverly Hills, California 90210
Telecopier No.: (310) 271-1784
The Company or Rothschild by notice to the other party may designate additional
or different addresses as shall be furnished in writing by such party. Any
notice or
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<PAGE>
communication to the Company or Rothschild shall be deemed to have been given
or made as of the date so delivered, if personally delivered; when answered
back, if telexed; when receipt is acknowledged, if telecopied; and five
business days after mailing if sent by registered or certified mail, postage
prepaid (except that a notice of change of address shall not be deemed to
have been given until actually received by the addressee).
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<PAGE>
IN WITNESS WHEREOF, the Company and Rothschild have executed this
Agreement as of the date set forth in the first paragraph.
LAMONTS APPAREL, INC.
By: _______________________________
Name: Alan Schlesinger
Title: Chairman and
Chief Executive Officer
LOREN R. ROTHSCHILD
____________________________
Loren R. Rothschild
12
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TAB 10
GORDIAN WARRANT AGREEMENT
TAB 10
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of ___________, between Lamonts Apparel, Inc.
(the "Company"), and Gordian Group, L.P. ("Gordian") with respect to the
Company's issuance of warrants (the "Warrants") to purchase shares (the
"Warrant Shares") of the Company's common stock (the "Common Stock"). This
Warrant Agreement is adopted pursuant to the "Debtor's Amended Plan of
Reorganization under Chapter 11 of the Bankruptcy Code" (the "Reorganization
Plan") which was filed by the Company and confirmed by order of the United
States Bankruptcy Court for the Western District of Washington at Seattle on
________________, 1997, and shall be effective as of the "Effective Date" as
defined in the Reorganization Plan.
Section 1. CERTAIN DEFINITIONS. For the purposes of this Agreement,
(a) "CLOSING PRICE" means (i) the closing sales price per share on the
national securities exchange on which the common stock is principally traded,
or (ii) if the shares are then traded in an over-the-counter market, the
average of the closing bid and asked prices on such market, or (iii) if the
shares are not then traded on the national securities exchange or in an
over-the-counter market, then such value as Lamont's Board of Directors shall
in good faith reasonably determine; if Gordian disagrees with such
determination, then an investment banking firm shall be mutually agreed upon,
engaged and compensated by Lamonts for a definitive valuation of the
Normalized Share Price (as hereinafter defined).
(b) "COMMON STOCK" means (i) the class of stock designated as the common
stock of the Company on the date hereof or (ii) any other class of stock
resulting from successive changes or reclassifications of such shares
consisting solely of changes in par value, or from par value to no par value,
or from no par value to par value. Unless the context requires otherwise,
all references to Common Stock and Warrant Shares in this Agreement and in
the Warrant Certificates (as defined herein) shall, in the event of an
adjustment pursuant to Section 8 hereof, be deemed to refer also to any other
securities or property then issuable upon exercise of the Warrants as a
result of such adjustment.
(c) "EXERCISE PERIOD" means the period during which the Warrants may be
exercised.
Section 2. FORM OF WARRANT CERTIFICATE; PURCHASE PRICE.
2.1 The certificate(s) evidencing the Warrants (the "Warrant
Certificates") (and the forms of election to purchase Warrant Shares and of
assignment of Warrants to be printed on the reverse thereof) shall be
substantially in the form attached hereto as Exhibit A, and may have such
letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed or engraved thereon
as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto.
<PAGE>
2.2 Each Warrant shall entitle the holder thereof to purchase one
Warrant Share upon the exercise thereof at the applicable Exercise Price (as
defined in Section 3 hereof) subject to adjustment as provided in Section 8
hereof during the time period specified in Section 3 hereof; PROVIDED,
HOWEVER, that the Warrants are exercisable only for whole shares; cash will
be paid in lieu of fractional shares in accordance with Section 3.3. The
Warrant Certificate shall be executed on behalf of the Company by the manual
or facsimile signature of the present or any future President or any Vice
President of the Company, attested by the manual or facsimile signature of
the present or future Secretary or Assistant Secretary of the Company.
Warrants shall be dated as of the date of their initial issuance.
Section 3. DURATION AND EXERCISE OF WARRANTS.
3.1 (a) The Warrants may be exercised at any time on or after the date
of their issuance and, subject to earlier expiration pursuant to Section 10,
will expire at 5:00 p.m., New York time, on the fifth anniversary of the date
hereof (the "Expiration Date"). Upon the Expiration Date, all rights
evidenced by the Warrants shall terminate and the Warrants shall become void.
(b) Subject to the provisions of this Agreement, the registered holder
of each Warrant shall have the right to purchase from the Company (and the
Company shall issue and sell to such registered holder) one fully paid and
nonassessable Warrant Share (or such number of Warrant Shares as may result
from adjustments made from time to time as provided in this Agreement), at
the exercise price per Warrant Share in lawful money of the United States of
America (such exercise price per Warrant Share, as adjusted from time to time
as provided herein, being referred to herein as the "Exercise Price"), upon
(i) surrender of the Warrant Certificates to the Company, and (ii) payment,
in lawful money of the United States of America, of the Exercise Price for
the Warrant Share or Warrant Shares in respect of which such Warrant is then
exercised. The Warrants may be exercised for all or some of the Warrant
Shares. The number of shares for which the warrants will be exercisable in
the aggregate will be equal to $200,000 divided by the "Normalized Share
Price" defined below. The Exercise Price will be initially set equal to the
Normalized Share Price. The Normalized Share Price will be set equal to the
average closing price of the common stock for the 45 trading days commencing
45 calendar days following the Effective Date of the Reorganization Plan.
The Exercise Price payable upon exercise of Warrants may at the option of the
holder be paid in cash, certified check or money order payable to the order
of the Company. Except as provided in Section 8 hereof, no adjustment shall
be made for any dividends on any share of Common Stock issuable upon exercise
of a Warrant. Upon surrender of a Warrant Certificate, and payment of the
Exercise Price, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the registered holder of
such Warrant and in such name or names and in such per share amounts as such
registered holder may reasonably designate, a certificate or certificates for
the number of Warrant Shares so purchased upon the exercise of such Warrant,
together with cash in respect of any fraction of a Warrant Share issuable
upon such surrender.
<PAGE>
(c) Each person in whose name any certificate for Warrant Shares is
issued upon the exercise of Warrants shall for all purposes be deemed to have
become the holder of record of the Warrant Shares represented thereby, and
such certificate shall be dated the date upon which the Warrant Certificate
evidencing such Warrants was duly surrendered and payment of the Exercise
Price (and any applicable transfer taxes pursuant to Section 4 hereof) was
made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a
date upon which the Common Stock transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such Warrant
Shares on, and such certificate shall be dated, the next succeeding business
day on which the Common Stock transfer books of the Company are open.
3.2 The Warrants evidenced by a Warrant Certificate shall be
exercisable, at the election of the registered holder thereof, either as an
entirety or from time to time for only part of the number of Warrants
specified in the Warrant Certificate. In the event that less than all of the
Warrants represented by a Warrant Certificate are exercised before 5:00 p.m.,
New York time, on the Expiration Date, a new Warrant Certificate, duly
executed by the company, will be issued for the remaining number of Warrants
exercisable pursuant to the Warrant Certificate so surrendered.
3.3 No fractional shares of Common Stock shall be issued to any holder
in connection with the exercise of a Warrant. Instead of any fractional
shares of Common Stock that would otherwise be issuable to such holder, the
Company will pay to such holder a cash adjustment in respect of such
fractional interest in an amount equal to that fractional interest of the
then current Closing Price per share of Common Stock.
3.4 The number of Warrant Shares to be received upon the exercise of a
Warrant and the price to be paid for a Warrant Share are subject to
adjustment from time to time as hereinafter set forth.
Section 4. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the original issuance of the Warrants and of the
shares of Common Stock issuable upon the exercise of Warrants; PROVIDED,
HOWEVER, that the Company shall not be required to (a) pay any tax which may
be payable in respect to any transfer involved in the transfer and delivery
of Warrant Certificates or the issuance or delivery of certificates for
Warrant Shares in a name other than that of the registered holder of the
Warrant Certificate surrendered upon the exercise of a Warrant, or (b) issue
or deliver any certificate for Warrant Shares upon the exercise of any
Warrants until any such tax required to be paid under clause (a) shall have
been paid, all such tax being payable by the holder of such Warrant at the
time of surrender.
Section 5. MUTILATED OR MISSING WARRANTS. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company may in its
discretion issue, or in lieu of and substitution for the lost, stolen or
destroyed Warrant Certificate, a new Warrant Certificate of like tenor and
evidencing the number of Warrant Shares purchasable upon exercise of the
Warrant Certificate so mutilated, lost, stolen or destroyed, but only upon
receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant Certificate and indemnity, if requested, also
satisfactory to it. Applicants for such substitute Warrant Certificate shall
also
<PAGE>
comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe. Any such new Warrant Certificate shall
constitute an original contractual obligation of the Company, whether or not
the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall
be at any time enforceable by anyone.
Section 6. RESERVATION OF WARRANT SHARES; STOCK CERTIFICATES. The
Company shall at all times reserve for issuance and delivery upon exercise of
the Warrants, such number of Warrant Shares or other shares of capital stock
of the Company from time to time issuable upon exercise of the Warrants. All
such shares shall be duly authorized and, when issued upon such exercise,
shall be validly issued, fully paid and nonassessable, free and clear of all
liens, security interests, charges and other encumbrances or restrictions on
sale (other than restrictions on transfer imposed under federal or state
securities laws) and free and clear of all preemptive rights. The Company is
hereby irrevocably authorized to requisition from time to time from the
Company's transfer agent stock certificates issuable upon exercise of
outstanding Warrants. All Warrants surrendered upon exercise shall be
canceled by the Company and shall thereafter be delivered to the Company or
otherwise disposed of in a manner satisfactory to the Company. The Company
shall keep a copy of this Agreement on file with its transfer agent and with
every transfer agent for any shares of Common Stock.
Section 7. RIGHTS OF WARRANT CERTIFICATE HOLDER. The holder of any
Warrant Certificate or Warrant shall not, by virtue thereof, be entitled to
any rights of a stockholder of the Company, either at law or in equity, and
the rights of the holder are limited to those expressed in this Agreement.
Section 8. ANTIDILUTION PROVISIONS. The Exercise Price and the
number of Warrant Shares that may be purchased upon the exercise of a Warrant
will be subject to change or adjustment as follows:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If at any time after the date of
the issuance of the Warrants and before 5:00 p.m., New York time, on the
Expiration Date, (i) the Company shall fix a record date for the issuance of
any stock dividend payable in shares of Common Stock or (ii) the number of
shares of Common Stock shall have been increased by a subdivision or split-up
of shares of Common Stock, then, on the record date fixed for the
determination of holders of Common Stock entitled to receive such dividend or
immediately after the effective date of such subdivision or split-up, as the
case may be, the number of shares to be delivered upon exercise of any
Warrant will be appropriately increased so that each holder thereafter will
be entitled to receive the number of shares of Common Stock that such holder
would have owned immediately following such action had the warrant been
exercised immediately prior thereto, and the Exercise Price will be
appropriately adjusted.
(b) COMBINATION OF STOCK. If the number of shares of Common Stock
outstanding at any time after the date of the issuance of the Warrants and
before 5:00 p.m., New York time, on the Expiration Date shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of
shares of Common Stock to be delivered upon exercise of any Warrant will be
appropriately
<PAGE>
decreased so that each holder thereafter will be entitled to receive the
number of shares of Common Stock that such holder would have owned
immediately following such action had the Warrant been exercised immediately
prior thereto, and the Exercise Price will be appropriately adjusted.
(c) SPECIAL DIVIDENDS. If (other than in a dissolution or liquidation)
securities of the Company (other than shares of Common Stock) or assets
(other than cash dividends payable out of retained earnings or out of any
amounts legally available for dividends under the laws of the State of
Delaware) are issued by way of a dividend on outstanding shares of Common
Stock, then the Exercise Price shall be adjusted so that it shall equal the
price determined by multiplying the Exercise Price in effect immediately
prior to the close of business on the record date for the determination of
the stockholders entitled to receive such dividend by a fraction, the
numerator of which shall be the Closing Price on such record date less the
then fair market value as determined by the Board of Directors of the
Company, whose determination shall be conclusive, of the portion of the
securities or assets distributed applicable to one share of Common Stock, and
the denominator of which shall be such Closing Price. Such adjustment shall
become effective immediately prior to the opening of business on the day
following such record date.
(d) RIGHTS OFFERING. If the Company at any time after the date of
issuance of the Warrants and before 5:00 p.m., New York time, on the
Expiration Date shall issue or sell or fix a record date for the issuance of
rights, options, warrants or convertible or exchangeable securities to all
holders of Common Stock entitling the holders thereof to subscribe for or
purchase Common Stock (or securities convertible into Common Stock), in any
such case, at a price per share (or having a conversion price per share)
that, together with the value (if for consideration other than cash, as
determined in good faith by the Board of Directors of the Company) of any
consideration paid for any such rights, options, warrants or convertible or
exchangeable securities, is less than the Closing Price on the date of such
issuance or sale or on such record date, then, immediately after the date of
such issuance or sale or on such record date, as the case may be, the number
of shares to be delivered upon exercise of the Warrants shall be
appropriately increased so that each holder thereafter, during the Exercise
Period, will be entitled to receive the number of shares of Common Stock
determined by multiplying the number of shares such holder would have been
entitled to receive immediately before the date of such issuance or sale or
such record date by a fraction, the numerator of which will be the number of
shares of Common Stock outstanding on such date plus the number of additional
shares of Common Stock offered for subscription or purchase (or into which
the convertible securities so offered are initially convertible) and the
denominator of which will be the number of shares of Common Stock outstanding
on such date plus the number of shares of Common Stock that the aggregate
offering price of the total number of shares so offered for subscription or
purchase (or the aggregate initial conversion price of the convertible
securities so offered) would purchase at such Closing Price.
(e) NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in the Exercise Price
in accordance with the provisions of paragraph (a) or (b) of this Section 8 need
be made if such adjustment would amount to a change in such Exercise Price of
less than $.01; PROVIDED, HOWEVER, that the amount by which any adjustment is
not made by reason of the provisions of
<PAGE>
this Section shall be carried forward and taken into account at the time of
any subsequent adjustment in the Exercise Price.
(f) READJUSTMENTS, ETC. If an adjustment is made under paragraph (a),
(b), (c) or (d) of this Section 8, and the event to which the adjustment
relates does not occur, then any adjustments in the Exercise Price or Warrant
Shares that were made in accordance with such paragraphs shall be adjusted
back to the Exercise Price and the number of Warrant Shares that were in
effect immediately prior to the record date for such event.
(g) Neither the issuance not the exercise of options under the Company's
1996 Stock Option Plan or the Class A Warrants or the Class B Warrants, in
each case adopted pursuant to the Reorganization Plan, shall result in an
adjustment to the exercise price or the number of shares issuable upon the
exercise of the Warrants issued hereunder.
Section 9. OFFICER'S CERTIFICATE. Whenever the number of Warrant
Shares that may be purchased upon exercise of the Warrants or the Exercise
Price is adjusted as required by the provisions of this Agreement, the
Company will forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office an officer's certificate showing the
adjusted number of Warrant Shares that may be purchased upon exercise of the
Warrants and the adjusted Exercise Price, determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment and
the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the holder
of any Warrant. The Company shall, forthwith after each such adjustment,
cause a copy of such certificate to be mailed to the holder of any Warrant.
Section 10. NOTICE OF CERTAIN EVENTS. At any time before the last day
of the Exercise Period, in the event:
(a) the Company authorizes the issuance to all holders of the Common
Stock of rights, options or warrants to subscribe for or purchase shares or
of convertible or exchangeable securities; or
(b) the Company authorizes the distribution to all holders of the Common
Stock of evidences of its indebtedness or assets (other than cash dividends
payable out of retained earnings or out of amounts legally available for
distribution under the laws of the State of Delaware); or
(c) of any capital reorganization or reclassification of the Common
Stock (other than a subdivision or combination of the outstanding Common
Stock and other than a change in par value of the Common Stock) or any other
consolidation or merger to which the Company is a party (other than a
consolidation or merger in which the Company is the continuing corporation
and that does not result in any reclassification or change in the outstanding
Common Stock) or of the sale, lease or other transfer of all or substantially
all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution or winding-up of the
Company;
<PAGE>
then the Company will cause to be mailed to the registered holder of any
Warrant, at least 10 days before the applicable record or effective date, as
the case may be, a notice stating (A) the date as of which the holders of
Common Stock of record entitled to receive any such rights, warrants or
distributions are to be determined or (B) the date on which any such capital
reorganization or reclassification of Common Stock, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up is expected to
become effective, such that the holders of Common Stock of record will be
entitled to exchange their shares of Common Stock for securities or other
property, if any, deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding-up (the "Entitlement Date").
Section 11. SUCCESSORS. All covenants and provisions of this
Agreement by or for the benefit of the Company or the holders of the Warrants
shall bind and inure to the benefit of their respective successors, assigns,
heirs and personal representatives.
Section 12. TERMINATION. This Agreement shall terminate at 5:00 p.m.,
New York time, on the Expiration Date or on such earlier date upon which all
Warrants have been exercised.
Section 13. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same agreement.
Section 14. HEADINGS. The headings of sections of this Agreement have
been inserted for convenience of reference only, are not to be considered a
part hereof and shall in no way modify or restrict any of the terms or
provisions hereof.
Section 15. SUPPLEMENTS AND AMENDMENTS. The Company may from time to
time supplement or amend this Agreement without the approval of any holders
of any Warrants in order to cure any ambiguity or to correct or supplement
any provisions contained herein which may be defective or inconsistent with
any provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company may deem necessary or desirable
and which do not adversely affect the interests of the holders of Warrants.
Any other supplement or amendment to this Agreement may be made with the
written consent of the Company and the affirmative vote or the written
consent of holders holding not less than two-thirds in interest of the then
outstanding Warrants; PROVIDED, HOWEVER, that, except as expressly provided
herein, this Agreement may not be amended to change (a) the Exercise Price,
(b) the Exercise Period, (c) the number or type of securities to be issued
upon the exercise of the Warrants, or (d) the provisions of this Section 15,
without the consent of each holder of the Warrants.
<PAGE>
Section 16. NOTICES. Any notice pursuant to this Agreement to be
given by the registered holder of any Warrant to the Company shall be
sufficiently given if sent by first-class mail, postage pre-paid, as follows:
<PAGE>
Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, WA 98034
Attn: ____________________________
Section 17. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any person or corporation, other than the
Company and the registered holders of the Warrant Certificates, any legal or
equitable right, remedy or claim under this Agreement, but this Agreement
shall be for the sole and exclusive benefit of the Company and the registered
holders of the Warrants.
Section 18. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
Section 19. EXEMPTION FROM REGISTRATION OF WARRANTS AND WARRANT
SHARES. The Reorganization Plan will provide that the Warrants and the
Warrant Shares will be issued in accordance with the securities law exemption
of section 1145 of the Bankruptcy Code of 1978, as amended.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the first date written above.
LAMONTS APPAREL, INC.
By: ________________________________
Name:_______________________________
Title: _____________________________
Attest:
By: ________________________________
Name:_______________________________
Title: _____________________________
GORDIAN GROUP, L.P.
By: ________________________________
Name:_______________________________
Title: _____________________________
Attest:
By: ________________________________
Name:_______________________________
Title: _____________________________
