<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
LAMONTS APPAREL, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5651 75-2076160
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of classification code number) identification
incorporation or organization) no.)
</TABLE>
------------------------
LAMONTS APPAREL, INC. DEBBIE BROWNFIELD
12413 WILLOWS ROAD N.E. LAMONTS APPAREL, INC.
KIRKLAND, WASHINGTON 98034 12413 WILLOWS ROAD N.E.
(425) 814-5700 KIRKLAND, WASHINGTON 98034
(Address, including zip code, and (425) 814-5461
telephone number, including area code, (Name, address, including zip code,
of registrant's principal executive and telephone number, including area
offices) code, of agent for service)
------------------------
COPIES TO:
MICHAEL A. WORONOFF, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 S. GRAND AVENUE, SUITE 3400
LOS ANGELES, CALIFORNIA 90071-3144
(213) 687-5000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
At any time and from time to time after the effective date of this Registration
Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING/EXERCISE AGGREGATE OFFERING/ AMOUNT OF
REGISTERED REGISTERED(1) PRICE PER SECURITY EXERCISE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A Warrants....... 1,814,568, each to purchase 1 share of $.10(2) $181,456.80 $53.53
Class A Common Stock
Class B Warrants....... 582,510, each to purchase 1 share of $.10(2) $58,251.00 $17.18
Class A Common Stock
Class C Warrants....... 228,639, each to purchase an aggregate $1.56 per share of $5,001,478.13 $1,475.44
of 14 shares of Class A Common Stock Class A Common
Stock(3)
Class C Warrants....... 228,639, each to purchase 1 share of $.10(2) $22,863.90 $6.74
Class A Common Stock
Class A Common Stock... 5,826,666 shares(4) (5) (5)
Class A Common Stock... 2,941,886 shares $.10(2) $294,188.60 $86.79
Total.................. $5,558,238.43 $1,639.68
</TABLE>
(1) Assumes that Senior Claims and General Unsecured Claims (as such terms are
defined in the Plan of Reorganization, as defined below) will be allowed in
an aggregate amount equivalent to the median of the respective estimated
range for such claims set forth in the Disclosure Statement (as defined
below) . The actual number of shares of Class A Common Stock and Warrants
(as defined below) may vary depending on the actual aggregate amount of
Allowed Senior Claims and the actual amounts of Allowed Claims (as such
terms are defined in the Plan of Reorganization) of the other holders of
General Unsecured Claims.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) on the basis of the average of the bid and asked prices of
the Old Common Stock (as defined below) as quoted on the OTC Bulletin Board
on January 9, 1998.
(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rules 457(g) under the Securities Act, based upon the highest possible
initial exercise price of the portion of the Class C Warrants that are
immediately exercisable.
(4) Represents the number of shares of Class A Common Stock which may be issued
pursuant to the exercise of the Class A Warrants, the Class B Warrants and
the Class C Warrants plus such indeterminate number of shares of Class A
Common Stock as may be issuable pursuant to the adjustment provisions of the
Warrants pursuant to which such shares are issuable.
(5) Pursuant to Rule 457(g) under the Securities Act, no separate fee is payable
for the Class A Common Stock to be issued upon the exercise of the Warrants.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
LAMONTS APPAREL, INC.
8,768,552 SHARES OF CLASS A COMMON STOCK
1,814,568 CLASS A WARRANTS
582,510 CLASS B WARRANTS
228,639 CLASS C WARRANTS
------------------
This Prospectus relates to the offer and sale by the Selling Security
Holders referred to below of (i) 1,814,568 Class A Warrants (the "Class A
Warrants"), each of which entitles the holder thereof to purchase one share of
Class A Common Stock, par value $.01 per share (the "Common Stock"), of Lamonts
Apparel, Inc. ("Lamonts" or the "Company") at a current exercise price of $.01
per share, (ii) 582,510 Class B Warrants (the "Class B Warrants"), each of which
entitles the holder thereof to purchase one share of Common Stock at a current
exercise price of $.01 per share, (iii) 228,639 Class C Warrants (the "Class C
Warrants," and together with the Class A Warrants and the Class B Warrants, the
"Warrants"), each of which entitles the holder thereof to purchase fourteen
shares of Common Stock (the "Initial Shares") at a current exercise price of
$1.25 per share and one share of Common Stock (the "Adjustment Shares") at a
current exercise price of $.01 per share, and (iv) 8,768,552 shares of Common
Stock (including 2,941,886 shares being offered by the Selling Security Holders
and 5,826,666 shares issuable upon exercise of the Warrants). The shares of
Common Stock being offered by the Selling Security Holders represent
approximately 97.4% of the shares of Common Stock to be issued and outstanding
on the Plan Effective Date (as defined below). The availability of such a large
number of shares of Common Stock may have the effect of depressing the market
price of the Common Stock.
The securities being offered hereby are being issued in connection with the
Company's Modified and Restated Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code (the "Plan of Reorganization"), pursuant to which a substantial
amount of the Company's existing unsecured debt and equity securities will be
extinguished. The Plan of Reorganization was confirmed by the United States
Bankruptcy Court (the "Bankruptcy Court") for the Western District of Washington
at Seattle on December 18, 1997. Management believes that the Plan of
Reorganization will become effective on or about January 31, 1998 (the "Plan
Effective Date").
The Class A Warrants are exercisable on or after the first date on which the
Aggregate Equity Trading Value (as defined below under "Description of Capital
Stock--Class A Warrants and Class B Warrants") equals or exceeds $20 million.
The Class B Warrants are exercisable on or after the first date on which the
Aggregate Equity Trading Value equals or exceeds $25 million. If not previously
exercised, each Class A Warrant and Class B Warrant will expire on the tenth
anniversary of the Plan Effective Date. The Class C Warrants to purchase the
Initial Shares are exercisable on or after the date of issuance thereof and the
Class C Warrants to purchase the Adjustment Shares are exercisable on or after
the first date on which the Aggregate Equity Trading Value (as defined below
under "Description of Capital Stock--Class C Warrants") equals or exceeds $25
million; provided that the portion of each Class C Warrant to purchase an
Adjustment Share shall not be exercisable by the holder thereof unless and until
the portion of such Class C Warrant to purchase the Initial Shares has been
exercised in full by such holder. If not previously exercised, the Class C
Warrants to purchase the Initial Shares will expire on the fourth anniversary of
the Plan Effective Date and the Class C Warrants to Purchase the Adjustment
Shares will expire on the tenth anniversary of the Plan Effective Date. The
exercise price per share and the number of shares of Common Stock issuable upon
exercise of the Warrants are subject to certain antidilution adjustments. The
exercise price per share of Common Stock issuable pursuant to the exercise of
the Class C Warrants is subject to a 25% increase and the expiration dates for
such Warrants are subject to a one year extension, in each case upon the
happening of certain events described below.
There is currently no public market for the Warrants or the Common Stock and
there can be no assurances that an active public market will develop. The
Company anticipates applying for inclusion of the Common Stock and the Warrants
for quotation on The NASDAQ Stock Market's SmallCap Market
<PAGE>
("Nasdaq"). However, there can be no assurance that the Company's application
will be granted and, even if the securities are accepted for quotation, there
can be no assurance that an active trading market will develop or that the
Company will maintain certain minimum criteria established by Nasdaq for
continued inclusion.
------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE INFORMATION SET FORTH
UNDER "RISK FACTORS."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
IT IS ANTICIPATED THAT EACH OF THE PERSONS NAMED HEREIN UNDER THE CAPTION
"SELLING SECURITY HOLDERS" WILL OFFER AND SELL THE SECURITIES WHICH MAY BE SOLD
BY SUCH PERSON HEREUNDER FROM TIME TO TIME IN ORDINARY TRANSACTIONS TO OR
THROUGH ONE OR MORE BROKERS OR DEALERS IN THE OVER-THE-COUNTER MARKET OR IN
PRIVATE TRANSACTIONS AT SUCH PRICES AS MAY BE OBTAINABLE. ANY SUCH PERSON MAY BE
DEEMED TO BE AN "UNDERWRITER" AS THAT TERM IS DEFINED BY THE SECURITIES ACT OF
1933, AS AMENDED. HOWEVER, THE COMPANY AND SUCH PERSONS DISCLAIM THAT ANY SUCH
PERSON IS AN UNDERWRITER. SEE "PLAN OF DISTRIBUTION." THE COMPANY WILL RECEIVE
NO PROCEEDS FROM THE SALE BY THE SELLING SECURITY HOLDERS OF THE WARRANTS OR THE
SHARES OF COMMON STOCK, BUT WILL RECEIVE AN AGGREGATE OF APPROXIMATELY $4.03
MILLION UPON EXERCISE OF ALL WARRANTS COVERED BY THIS PROSPECTUS FOR SHARES OF
COMMON STOCK . THE COMPANY WILL PAY ALL THE EXPENSES INCIDENT TO THE
REGISTRATION OF THE SECURITIES OFFERED HEREBY, EXCEPT FOR COMMISSIONS OF BROKERS
OR DEALERS. SEE "USE OF PROCEEDS."
THE DATE OF THIS PROSPECTUS IS , 1998.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING SECURITY HOLDER OR ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION...................................................................................... 4
PROSPECTUS SUMMARY......................................................................................... 5
PLAN OF REORGANIZATION..................................................................................... 10
RISK FACTORS............................................................................................... 11
USE OF PROCEEDS............................................................................................ 15
MARKET PRICES OF COMMON STOCK.............................................................................. 16
DIVIDEND POLICY............................................................................................ 16
CAPITALIZATION............................................................................................. 17
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER OPERATING DATA.............................................. 18
PRO FORMA FINANCIAL DATA................................................................................... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 23
BUSINESS................................................................................................... 29
MANAGEMENT................................................................................................. 34
PRINCIPAL STOCKHOLDERS..................................................................................... 40
CERTAIN TRANSACTIONS....................................................................................... 42
SELLING SECURITY HOLDERS................................................................................... 43
PLAN OF DISTRIBUTION....................................................................................... 44
DESCRIPTION OF CAPITAL STOCK............................................................................... 45
DESCRIPTION OF CERTAIN INDEBTEDNESS........................................................................ 49
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................................................. 51
EXPERTS.................................................................................................... 52
LEGAL MATTERS.............................................................................................. 52
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................................. 53
</TABLE>
3
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at
the Regional Offices of the Commission at 7 World Trade Center, 13th Floor, New
York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates by writing to the Public Reference Section of the Commission at
the above Washington D.C. address. The Commission maintains a World Wide Web
site on the Internet at http://www.sec.gov that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission.
This Prospectus, which constitutes a part of a Registration Statement filed
by the Company with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"), omits certain information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and to the
exhibits thereto for further information with respect to the Company and the
securities offered hereby. Statements contained herein concerning provisions of
any document are not necessarily complete, and each such statement is qualified
in its entirety by reference to the copy of such document filed with the
Commission.
------------------------
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
REQUIRES, REFERENCE TO THE "COMPANY" OR "LAMONTS" REFERS TO LAMONTS APPAREL,
INC. AFTER GIVING EFFECT TO THE PLAN OF REORGANIZATION AND THE RELATED
TRANSACTIONS DESCRIBED BELOW. THE COMPANY HAS RETAINED AN INDEPENDENT PUBLIC
ACCOUNTING FIRM TO PERFORM A VALUATION OF THE COMPANY FOR PURPOSES OF APPLYING
FRESH START REPORTING AFTER GIVING EFFECT TO THE PLAN OF REORGANIZATION. FOR
PURPOSES OF APPLYING FRESH START REPORTING IN THE PRO FORMA FINANCIAL DATA SET
FORTH BELOW, THE COMPANY HAS MADE A GOOD FAITH ESTIMATE OF THE VALUE OF THE
COMPANY. THE COMPANY INTENDS TO FILE AN AMENDMENT CONTAINING UPDATED PRO FORMA
FINANCIAL DATA AFTER THE REPORT WITH RESPECT TO SUCH VALUATION BECOMES
AVAILABLE.
THE COMPANY
Lamonts is a Northwest-based regional 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. The Company's stores average approximately 47,000 square
feet and are generally located in shopping centers and malls. The Company's
revenues for Fiscal 1996 (as defined below) 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.
Despite numerous attempts to restructure the Company's capital structure
from 1992 through 1994, and as a result of the continued deterioration of the
Company's financial position, on January 6, 1995 (the "Petition Date"), the
Company filed a voluntary petition for relief under Chapter 11 ("Chapter 11") of
title 11 of the United States Code (the "Bankruptcy Code") in the United States
Bankruptcy Court (the "Bankruptcy 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. On October 31, 1997, the Company
filed with the Bankruptcy Court its Modified and Restated Plan of Reorganization
Under Chapter 11 of the Bankruptcy Code (the "Plan of Reorganization"), along
with the proposed disclosure statement relating to the Plan of Reorganization
(as amended, the "Disclosure Statement"). The Plan of Reorganization was
confirmed by the Bankruptcy Court on December 18, 1997. Management believes that
the Plan of Reorganization will become effective on or about January 31, 1998
(the "Plan Effective Date"). Under the Plan of Reorganization, among other
things, certain indebtedness of Lamonts will be cancelled in exchange for new
equity interests, certain indebtedness will be reinstated, certain other
pre-petition claims will be discharged, certain claims will be settled, existing
equity interests will be extinguished and new equity interests will be issued,
executory contracts and unexpired leases will be assumed or rejected, and the
members of a new board of directors will be designated. See "Plan of
Reorganization."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the Selling
Security Holders................ Class A Warrants to purchase an aggregate of 1,814,568
shares of Common Stock at a current exercise price of
$.01 per share.
Class B Warrants to purchase an aggregate of 582,510
shares of Common Stock at a current exercise price of
$.01 per share.
Class C Warrants to purchase 3,200,949 shares of Common
Stock at an exercise price of $1.25 per share and
228,639 shares of Common Stock at an exercise price of
$.01 per share.
8,768,552 shares of Common Stock (including 5,826,666
shares of Common Stock issuable upon exercise of the
Warrants).
Securities Offered by the 5,826,666 shares of Common Stock issuable upon exercise
Company......................... of the Warrants.
Class A Warrants.................. Each Class A Warrant entitles its registered holder to
purchase from the Company one share of Common Stock at a
current exercise price of $.01 per share, subject to
adjustment from time to time upon the occurrence of
certain events. The Class A Warrants are exercisable on
or after the first date on which the Aggregate Equity
Trading Value (as defined below under "Description of
Capital Stock--Class A Warrants and Class B Warrants")
equals or exceeds $20 million and, if not previously
exercised, will expire on the tenth anniversary of the
Plan Effective Date. See "Description of Capital
Stock--Class A Warrants and Class B Warrants."
Class B Warrants.................. Each Class B Warrant entitles its registered holder to
purchase from the Company one share of Common Stock at a
current exercise price of $.01 per share, subject to
adjustment from time to time upon the occurrence of
certain events. The Class B Warrants are exercisable on
or after the first date on which the Aggregate Equity
Trading Value (as defined below under "Description of
Capital Stock--Class A Warrants and Class B Warrants")
equals or exceeds $25 million and, if not previously
exercised, will expire on the tenth anniversary of the
Plan Effective Date. See "Description of Capital
Stock--Class A Warrants and Class B Warrants."
Class C Warrants.................. Each Class C Warrant entitles its registered holder to
purchase from the Company fourteen shares of Common
Stock (the "Initial Shares") at a current exercise price
of $1.25 per share and one share of Common Stock (the
"Adjustment Shares") at a current exercise price of $.01
per share, in each case subject to adjustment from time
to time upon the occurrence of certain events. The Class
C Warrants to purchase the Initial Shares are
exercisable on or after the date of issuance thereof
and, if not previously exercised, will expire on the
fourth anniversary of the Plan Effective Date. The Class
C Warrants to purchase the Adjustment Shares are
exercisable on or after the first date on which the
Aggregate Equity Trading Value (as defined below under
"Description of Capital Stock--Class C Warrants") equals
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
or exceeds $25 million and, if not previously exercised,
will expire on the tenth anniversary of the Plan
Effective Date; provided that the portion of each Class
C Warrant to purchase an Adjustment Share shall not be
exercisable by the holder thereof unless and until the
portion of such Class C Warrant to purchase the Initial
Shares has been exercised in full by such holder. The
exercise price per share of Common Stock issuable
pursuant to the exercise of the Class C Warrants is
subject to a 25% increase and the expiration date for
such Warrants is subject to a one year extension, in
each case upon the happening of certain events. See
"Description of Capital Stock--Class C Warrants."
Common Stock to be outstanding
after offering.................. 17,147,939 shares assuming (i) exercise of options ("New
Employee Stock Options") to purchase 1,333,729 shares of
Common Stock reserved for issuance under the Company's
1998 Stock Option Plan (the "Stock Option Plan"), and
(ii) exercise of all Warrants to be issued and
outstanding as of the Plan Effective Date (including
Warrants not covered by this Prospectus). Excludes
potential exercise of the Gordian Warrants (as defined
below) issuable by the Company 120 days following the
Plan Effective Date. See "Description of Capital
Stock--Gordian Warrants."
Proposed Class A Common Stock
Nasdaq symbol................... LMNT
</TABLE>
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA AND CERTAIN OPERATING DATA
The following pro forma and historical data should be read in conjunction
with, and is qualified in its entirety by, the Consolidated Financial Statements
and Notes thereto, the "Pro Forma Financial Information for the Company" and the
other information included elsewhere in this Prospectus. The historical
financial data of the Company for the 52 weeks ended February 1, 1997 ("Fiscal
1996") and the 53 weeks ended February 3, 1996 ("Fiscal 1995") has been derived
from the historical consolidated financial statements of the Company audited by
Coopers & Lybrand L.L.P., independent accountants, whose report with respect
thereto is included elsewhere in this Prospectus. The historical financial data
for the nine months ended November 1, 1997 and November 2, 1996 has been derived
from the Company's unaudited consolidated financial statements included
elsewhere in this Prospectus. The historical financial data for the 52 weeks
ended January 28, 1995 has been derived from the unaudited financial records of
the Company. Such unaudited consolidated financial statements and records
reflect all adjustments which are, in the opinion of management, necessary and
of a normal recurring nature to present fairly the operating results for the
periods presented. The results of operations for the nine months ended November
1, 1997 are not necessarily indicative of the results to be expected for the
fiscal year ending January 31, 1998.
The pro forma financial data gives effect to the reorganization under the
Plan of Reorganization and adoption of fresh start reporting and the amounts are
presented as though the reorganization had been consummated, for purposes of the
statement of operations data, at the beginning of each of the periods presented
and, for purposes of the balance sheet data, on the applicable balance sheet
date. The unaudited pro forma financial data does not purport to be indicative
of the results of operations that would actually have been reported had such
transactions actually been consummated on such dates or of the results of
operations that may be reported by the Company in the future.
The Company has retained an independent public accounting firm to perform a
valuation of the Company for purposes of applying fresh start reporting after
giving effect to the Plan of Reorganization. For purposes of applying fresh
start reporting in the pro forma financial data set forth below, the Company has
made a good faith estimate of the value of the Company. The Company intends to
file an amendment containing updated pro forma financial data after the report
with respect to such valuation becomes available.
8
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
----------- ------------------------ ----------- -------------------------------------
NINE MONTHS NINE MONTHS NINE MONTHS 52 WEEKS 52 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
NOVEMBER 1, NOVEMBER 1, NOVEMBER 2, FEBRUARY 1, FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1997 1996 1997 1997 1996 1995(3)
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues(1)..................... $ 137,394 $ 137,394 $ 138,284 $ 203,602 $ 203,602 $ 199,548 $ 231,199
Cost of merchandise sold........ 87,798 87,798 88,237 130,480 130,480 131,677 175,330
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................... 49,596 49,596 50,047 73,122 73,122 67,871 55,869
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating and administrative
expenses...................... 46,906 47,235 49,482 66,735 67,173 71,372 87,807
Depreciation and amortization... 4,950 5,484 6,051 6,916 7,999 9,232 11,355
Impairment of long-lived
assets........................ -- -- 4,170 4,170 4,170 -- --
Store closure costs............. -- -- -- -- -- -- 7,200
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating costs................. 51,856 52,719 59,703 77,821 79,342 80,604 106,362
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations before
other income/(expense),
reorganization expenses and
income tax
provision/(benefit)........... (2,260) (3,123) (9,656) (4,699) (6,220) (12,733) (50,493)
Other income (expense):
Interest expense
--Cash........................ (3,760) (3,855) (3,773) (4,923) (5,053) (5,098) (6,698)
--Non-Cash(2)................. -- -- -- -- -- -- (5,160)
Other income (expense)........ 6 6 8 12 12 196 27
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations before
reorganization expenses and
income tax
provision/(benefits).......... (6,014) (6,972) (13,421) (9,610) (11,261) (17,635) (62,324)
Reorganization expenses......... -- 1,924 5,090 -- 6,037 7,240 7,499
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations before
income tax
provision/(benefit)........... (6,014) (8,896) (18,511) (9,610) (17,298) (24,875) (69,823)
Income tax
provision/(benefit)........... -- -- -- -- -- -- (400)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss........................ $ (6,014) $ (8,896) $ (18,511) $ (9,610) $ (17,298) $ (24,875) $ (69,423)
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
OTHER DATA
Number of stores at end of
period........................ 38 42 38 43 48
NET LOSS PER COMMON SHARE
Net Loss per common share....... $ (0.67) $ (0.50) $ (1.03) $ (1.07) $ (0.97) $ (1.39) $ (4.13)
Weighted average number of
shares........................ 9,000,000(4) 17,900,053 17,900,053 9,000,000(4) 17,899,906 17,893,675 16,820,257
BALANCE SHEET DATA
(AT END OF PERIOD)
Working capital................. $ 73 $ 2,847 $ (5,622) $ (3,357) $ (2,248) $ 16,025
Total assets.................... 108,904 109,993 112,964 93,272 102,361 120,269
Liabilities subject to
settlement under
reorganization proceedings.... -- 103,489 103,538 102,858 104,845 108,333
Long-term debt and obligations
under capital leases, net of
current maturities............ 23,354 13,246 2,808 2,846 -- --
Stockholders'
equity/(deficit).............. 20,000 (68,411) (61,025) (59,553) (42,556) (17,509)
</TABLE>
- ------------------------------
(1) The additional week in Fiscal 1995 accounted for $2.2 million of revenues.
(2) Non-cash interest expense is comprised of amortization of discounts on the
Company's long-term debt and interest paid-in-kind through issuance of
additional debt.
(3) On March 9, 1995, the Company changed 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. For purposes of comparing the data for Fiscal 1995, the
Company has provided data for the period ended January 28, 1995 which is
derived from unaudited financial records of the Company.
(4) Pursuant to the Plan of Reorganization, on the Plan Effective Date, the
Company will issue (a) 9,000,000 shares of Common Stock and (b) warrants and
options that are immediately exercisable to purchase an aggregate of
6,196,419 shares of Common Stock (based on an estimated reorganization value
of $20 million). Such warrants and options have not been included in the
calculation of net loss per common share because the effect of assuming
their exercise would be anti-dilutive.
9
<PAGE>
PLAN OF REORGANIZATION
The overall purpose of the Plan of Reorganization is to (i) alter the debt
and capital structure of Lamonts to permit it to emerge from Chapter 11, and
(ii) settle, compromise or otherwise dispose of certain claims on terms that
Lamonts considers to be reasonable.
The Plan of Reorganization will result in an approximate $91.3 million net
reduction in the total indebtedness and liabilities subject to reorganization of
the Company. The Plan of Reorganization provides for, among other things,
payment in full by the Company of administrative expenses, certain other
priority claims and secured claims, other than the BankBoston (as defined below)
claim (which is left unimpaired), cancellation of certain indebtedness in
exchange for new equity securities of the Company, the discharge of certain
other pre-petition claims, the cancellation of existing equity securities of the
Company in exchange for new equity securities of the Company, the assumption or
rejection of executory contracts and unexpired leases and the designation of a
new board of directors. In addition, the Plan of Reorganization provides that
the Company will assume all of the obligations under the BankBoston Facility (as
defined below), including any unpaid accrued interest, fees, costs and charges
and, as required under the BankBoston Facility, in consideration of the Surety's
guaranty of the Term Loan (as defined below), the Company will issue the Class C
Warrants covered by this Prospectus and all of the authorized and outstanding
Class B Common Stock, par value $.01 per share of the Company ("Class B Common
Stock"). See "Description of Capital Stock--Class B Common Stock" for a
description of the special voting rights of the Class B Common Stock.
In connection with the Plan of Reorganization, the Company entered into a
Grant of Registration Rights in favor of certain holders of the Warrants and the
Common Stock, pursuant to which, subject to certain exceptions, the Company has
agreed to keep the Registration Statement of which this Prospectus is a part
continuously in effect until no Registerable Securities (as defined in the Grant
of Registration Rights) are outstanding. In addition, such holders are entitled
to certain "piggyback" registration rights in connection with certain
registrations of securities by the Company. In the event such Registration
Statement is not effective within 45 days after the Plan Effective Date, or if
the effectiveness thereof is suspended under certain circumstances, the Company
will be required to pay liquidated damages to the Selling Security Holders. See
"Description of Capital Stock--Registration Rights."
The Plan of Reorganization was filed with the Bankruptcy Court on October
31, 1997. The Disclosure Statement, which was filed with the Bankruptcy Court on
October 31, 1997 and amended on November 21, 1997, was approved by the
Bankruptcy Court on November 24, 1997. The Plan of Reorganization was confirmed
by the Bankruptcy Court on December 18, 1997. Management believes that the Plan
of Reorganization will become effective on or about January 31, 1998.
10
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN
THE SECURITIES OFFERED BY THIS PROSPECTUS.
FORWARD-LOOKING INFORMATION. Statements in this Prospectus including 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 (including, as a result of adverse
weather conditions); the ability to attract and retain qualified personnel;
ownership of Common Stock; volatility of stock price; and other factors
referenced herein. GIVEN THESE UNCERTAINTIES, THOSE READING THIS PROSPECTUS 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.
LEVERAGE. After giving effect to the reduction in its outstanding debt
pursuant to the Plan of Reorganization, the Company will have a reduced, but
nevertheless substantial, degree of leverage. The Company's consolidated ratio
of total debt to equity as of November 1, 1997, on a pro forma basis after
giving effect to the Plan of Reorganization and the adoption of fresh start
reporting, is approximately 2.5:1. See "Capitalization." If the Company is
unable to generate sufficient cash flow from operations in the future, or if it
fails to satisfy the financial covenants contained in the BankBoston Facility,
it could face default on its restructured obligations.
The leveraged nature of the Company's capital structure will have several
important effects on the Company and its operations, including the following:
(i) the Company continues to have significant cash requirements for debt
service; (ii) because the Company's indebtedness under the BankBoston Facility
bears interest at a floating rate, the Company is sensitive to any increase in
prevailing interest rates; (iii) as a result of the Company's debt service
requirements and restrictions imposed under the terms of the BankBoston
Facility, funds available for capital expenditures and cash dividends will be
limited; and (iv) the Company's ability to meet its debt service obligations
(and to satisfy the financial covenants contained therein) 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 the operations
of the Company, including factors beyond the Company's control. See "Description
of Certain Indebtedness."
The Term Loan will mature on December 26, 1999, or, if earlier, upon the
maturity (including, as a result of acceleration, mandatory prepayment or
otherwise) of the Revolver (as defined below) (with provision for two one-year
extensions on the terms and conditions set forth in the BankBoston Facility).
Although the Company will be required to make monthly 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, BankBoston 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 Certain Indebtedness." 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 additional equity, 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 equity 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
Company. See "Description of Capital
11
<PAGE>
Stock--Class B Common Stock" for a description of the special voting rights of
the Class B Common Stock upon the occurrence of certain defaults under the
BankBoston Facility.
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 chains and department stores, also provide
competition on a national and regional basis. In addition, the competitive
environment is often affected by factors beyond a particular retailer's control,
such as shifts in consumer preferences, changes in style, business environment,
population trends, and traffic control. Although management attempts to
anticipate and respond to changes in consumer preferences and changes in styles,
and believes that the Company competes successfully, the Company could face
difficulties in continuing to compete successfully. See "Business--Competition."
CERTAIN ECONOMIC CONDITIONS. The Company's business is dependent upon a
high volume of sales and, with respect to its mall and shopping center stores,
sales are derived, in part, from a high volume of mall and shopping center
traffic. Volume of sales and mall and shopping center traffic may be adversely
affected by local, regional, or national economic downturns, new competition,
and, in the case of its mall and shopping center 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company's profitability is also dependent upon the success of its
merchandising strategies and its ability to anticipate, gauge and respond to
changing consumer demands and fashion trends in a timely manner. New management
has developed and implemented numerous 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 amount of inventory markdowns. There can be no
assurance, however, that the above strategies will result in improved
profitability.
MARKET FOR COMMON STOCK AND WARRANTS. The common stock of the Company
issued and outstanding prior to the Plan Effective Date (the "Old Common Stock")
is quoted on the OTC Bulletin Board and, until January 20, 1995, was listed on
Nasdaq. There had been a limited public trading market for the Old Common Stock.
There is no active trading market for the Common Stock or the Warrants being
offered hereby. There can be no assurance that any market will develop for the
Common Stock or the 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.
The shares of Common Stock being offered by the Selling Security Holders
represent approximately 97.4% of the shares of Common Stock to be issued and
outstanding on the Plan Effective Date. The availability of such a large number
of shares of Common Stock may have the effect of depressing the market price of
the Common Stock.
HISTORY OF LOSSES. The Company has experienced significant losses in the
last five fiscal years. In the long term, the Company's viability is dependent
upon its ability to achieve profitable results of operations and positive cash
flows. Although improvements have been made each year since the 52 weeks ended
12
<PAGE>
January 28, 1995, the Company has continued to realize losses. For Fiscal 1995,
the Company reported a net loss of $24.9 million and, for Fiscal 1996, the
Company reported a net loss of $17.3 million. Management of the Company is
implementing strategies intended to improve profitability. There can be no
assurance, however, that the above strategies will result in improved
profitability.
FUTURE GROWTH. The Company's growth is subject to (i) its ability to
maintain revenues at existing stores, (ii) the availability of capital and (iii)
the restrictions on capital expenditures set forth in the BankBoston Facility,
which prohibits capital expenditures in excess of $6.5 million for the Company's
fiscal year ending January 28, 1999 ("Fiscal 1998"). There can be no assurance
that the Company will be able to maintain revenues at current stores or that
capital will be available to the Company or, if available, that it will be
available on terms the Company considers reasonable. The failure or inability of
the Company to maintain such revenues or obtain such capital on favorable terms
could have a material adverse effect on the Company's operations, business or
financial condition.
The Company's current expansion plans are expected to require capital
expenditures of approximately $2.7 million during Fiscal 1998, which is within
the restrictions contained in the BankBoston Facility. The Company is
continually evaluating store locations and operations to determine whether to
close stores that do not meet its performance objectives. Additionally, the
Company may expand, downsize or relocate existing stores. Management has no
current plans to close any of the remaining 38 Lamonts stores. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL. The future success of the Company is largely
dependent on the talents and efforts of Mr. Alan R. Schlesinger, the Company's
Chairman of the Board, as well as on the talents and abilities of other key
management executives. The Company is entering into a 4-year employment
agreement with Mr. Schlesinger on the Plan Effective Date, but does not maintain
a key person life insurance policy on the life of Mr. Schlesinger. The loss of
Mr. Schlesinger could have a material adverse effect on the Company's
operations, business and financial condition. See "Management--Employment
Agreements."
DIVIDEND POLICY. The Company has never declared or paid cash dividends on
its Old Common Stock or any other equity security, and does not anticipate
paying cash dividends on the Common Stock offered hereby or any other equity
security in the foreseeable future. In addition, the BankBoston Facility
contains certain covenants which directly and indirectly restrict the ability of
the Company to pay dividends. Such restrictions specifically prohibit the
payment of cash dividends on the Common Stock and the Class B Common Stock. See
"Dividend Policy" and "Description of Certain Indebtedness."
RESTRICTIVE COVENANTS. The BankBoston 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. Should the
Company be unable to meet any of these covenants when required, it will be
necessary to request waivers and/or amendments of the facility from BankBoston
and the Surety. There can be no assurance that the necessary waivers and/or
amendments will be granted or that, if granted, they will be on terms acceptable
or favorable to the Company. See "Description of Certain Indebtedness."
EMERGENCE FROM CHAPTER 11. The Company expects to emerge from Chapter 11 on
or about January 31, 1998. The Company's experience in Chapter 11 may affect its
ability to negotiate favorable trade terms with manufacturers and other vendors
and to negotiate favorable lease terms with landlords. The failure to obtain
such favorable terms could have a material adverse effect on the Company's
operations, business or financial condition. In accordance with AICPA Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7"), the Company will adopt "fresh-start reporting"
and reflect the effects of such adoption in its Consolidated
13
<PAGE>
Balance Sheet as of January 31, 1998. Accordingly, the Company's Consolidated
Balance Sheets at and after January 31, 1998 and its Consolidated Statements of
Operations for periods after January 31, 1998 will not be comparable to the
Consolidated Financial Statements for prior periods included elsewhere herein.
Among other things, the Consolidated Statement of Operations for the 52 weeks
ended January 31, 1998 ("Fiscal 1997") will include as an extraordinary item a
one-time gain relating to the debt discharged in the Chapter 11 proceedings. In
addition, as a result of the valuation, the Consolidated Balance Sheet at
January 31, 1998 will include an intangible asset denominated "Reorganization
Value in Excess of Amounts Allocable to Identifiable Assets," which will be
amortized on a straight line basis over 20 years.
POSSIBLE EFFECT OF BLANK CHECK PREFERRED STOCK; ANTITAKEOVER
PROVISIONS. The Company's Second Restated Certificate of Incorporation
authorizes the issuance of "blank check" preferred stock with such designations,
rights, and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the relative voting power or
other rights of the holders of the Common Stock. In the event of issuance, the
preferred stock could be used, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company and
could prevent stockholders from receiving a premium for their shares in the
event of a third party tender offer or change of control transaction. Although
the Company has no present intention to issue any shares of its preferred stock,
there can be no assurance that the Company will not do so in the future.
Additionally, if the Company issues preferred stock, the issuance may have a
dilutive effect upon the holders of the Company's Common Stock, including the
purchasers of the shares of Common Stock offered hereby. In addition, the
Company is subject to Section 203 of the Delaware General Corporation Law which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any of a broad range of business combinations with an "interested stockholder"
for a period of three years following the date that such stockholder became an
interested stockholder.
DILUTION. The Common Stock being offered hereby is subject to dilution by
the additional shares of Common Stock issuable upon exercise of the Class A
Warrants, the Class B Warrants, the Class C Warrants, the New Employee Stock
Options, and the Gordian Warrants. Moreover, the Company will have the right to
issue additional securities (including without limitation under the Stock Option
Plan) in the future upon compliance with applicable law and the Company's Second
Restated Certificate of Incorporation and Amended and Restated Bylaws, which
could result in further dilution.
TAX CONSEQUENCES OF THE PLAN OF REORGANIZATION. As a result of the
implementation of the Plan of Reorganization, the Company will (i) undergo an
"ownership change" (generally, a greater than 50 percentage point change in
ownership) for purposes of section 382 of the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) realize cancellation of indebtedness income
("COI") from the cancellation of certain indebtedness in exchange for new equity
securities. Because such ownership change and cancellation of indebtedness will
arise in a case under Chapter 11, the Company will be able to avoid some of the
adverse Federal income tax consequences generally associated therewith (e.g, the
COI realized will not be includible in income). Nevertheless, the Company
expects that its ability to offset future taxable income with net operating loss
and loss carryforwards ("NOLs"), as well as certain built-in losses and tax
credits, will be limited and that certain of its tax attributes, including NOLs,
will be significantly reduced. In addition, the purchase of the securities
offered hereby, as well as the exercise of the Warrants by certain holders, may
cause the Company to undergo another "ownership change" for purposes of section
382 of the Code and, accordingly, may further limit the Company's ability to use
its NOLs and certain built-in losses and tax credits to offset future taxable
income.
14
<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the sale by the Selling Security
Holders of the Warrants or the shares of Common Stock, but will receive an
aggregate of approximately $4.03 million upon exercise of all of the Class A
Warrants, Class B Warrants and Class C Warrants covered by this Prospectus
(approximately $.02 million upon exercise of such Class A Warrants;
approximately $.01 million upon exercise of such Class B Warrants; and
approximately $4.00 million upon exercise of such Class C Warrants) for shares
of Common Stock. If the exercise price of the Class C Warrants is increased by
25% as required upon the occurrence of certain events pursuant to the Class C
Warrant Agreement, the Company will receive an additional $1 million upon
exercise of all of the Class C Warrants covered by this Prospectus. The proceeds
from the exercise of the Warrants, if any, will be used by the Company for
general corporate purposes. All of the expenses incurred in connection with the
registration of the Warrants and the shares of Common Stock offered hereby will
be paid by the Company, except for commissions of brokers or dealers and any
transfer fees incurred in connection with sales of Warrants and shares of Common
Stock by the Selling Security Holders, which will be paid by the Selling
Security Holders.
15
<PAGE>
MARKET PRICES OF COMMON STOCK
The Old Common Stock is quoted on the OTC Bulletin Board and, until January
20, 1995, was listed on Nasdaq under the symbol "LMNT." As a result of the
filing, the Old Common Stock is no longer listed. The following table sets
forth, for the periods indicated, the high and low closing bid prices as
reported on Nasdaq and over the counter quotes. The bid prices, as stated,
represent inter-dealer prices without adjustments for retail mark-ups,
mark-downs, or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal 1997:
Quarter ended November 1..................................................... 3/16 1/16
Quarter ended August 2....................................................... 1/8 1/16
Quarter ended May 3.......................................................... 1/8 1/16
Fiscal 1996:
Quarter ended February 1..................................................... 7/16 1/16
Quarter ended November 2..................................................... 1/4 1/8
Quarter ended August 3....................................................... 7/16 1/8
Quarter ended May 4.......................................................... 1/4 1/8
Fiscal 1995:
Quarter ended February 3..................................................... 1/4 1/16
Quarter ended Oct. 28........................................................ 1/4 1/16
Quarter ended July 29........................................................ 7/16 1/8
Quarter ended April 29....................................................... 1/2 1/8
January Quarter:(1)
Quarter ended January 28, 1995............................................... 2 1/8
Fiscal 1994:
Quarter ended October 29..................................................... 13/16 5/8
Quarter ended July 30........................................................ 1 3/4 3/4
Quarter ended April 30....................................................... 2 1 1/4
Quarter ended January 29..................................................... $ 2 3/4 $ 2
</TABLE>
- ------------------------------
(1) On March 9, 1995, the Company changed 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. As a result, the Company reports separately financial
information and other data for the quarter ending January 28, 1995.
At November 1, 1997, there were 161 holders of record of the Old Common
Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Old Common
Stock or any other equity security, and does not anticipate paying cash
dividends on the Common Stock or any other equity security in the foreseeable
future. Any future determination as to the payment of dividends will depend upon
certain debt instrument limitations, future earnings, results of operations,
capital requirements, the financial condition of the Company, and such other
factors as the Company's Board of Directors may consider. The ability of the
Company to pay dividends is directly and indirectly restricted under the terms
of the BankBoston Facility. Such restrictions prohibit the payment of dividends
for the foreseeable future. See "Description of Certain Indebtedness."
16
<PAGE>
CAPITALIZATION
The following table sets forth, on an unaudited basis, the capitalization of
the Company as of November 1, 1997 both before and after giving effect to the
revised capital structure of the Company as a result of the Plan of
Reorganization. This table should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF NOVEMBER 1, 1997
----------------------------
HISTORICAL(2) AS ADJUSTED(3)
------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current Debt
BankBoston Facility Revolver.................................. $ 24,401 $ 24,401
Notes Payable................................................. 41 41
Deferred Payment Tax Liabilities.............................. 0 260
Capital Leases................................................ 1,035 1,035
------------ -------
TOTAL CURRENT DEBT.............................................. 25,477 25,737
------------ -------
Long-Term Debt
Liabilities Subject to Compromise............................. 23,631 0
Capital Leases................................................ 12,884 12,884
Old 10 1/4% Notes............................................. 67,600 0
Old 13 1/2% Notes............................................. 838 0
BankBoston Term Loan.......................................... 10,000 10,000
Deferred Payment Tax Liabilities.............................. 0 470
------------ -------
TOTAL LONG-TERM DEBT............................................ 114,953 23,354
------------ -------
TOTAL DEBT...................................................... 140,430 49,091
------------ -------
Stockholders' Equity:(1)
Common Stock.................................................. 179 90
Additional Paid in Capital.................................... 63,010 19,910
Retained Earnings............................................. (131,600) 0
------------ -------
TOTAL STOCKHOLDERS' EQUITY...................................... (68,411) 20,000
------------ -------
TOTAL CAPITALIZATION............................................ $ 72,019 $ 69,091
------------ -------
------------ -------
</TABLE>
- ------------------------------
(1) Does not reflect the possible exercise of (i) non-qualified options to
purchase 1,333,729 shares of Common Stock under the Stock Option Plan, (ii)
Class A Warrants to purchase 2,203,320 shares of Common Stock, (iii) Class B
Warrants to purchase 800,237 shares of Common Stock and (iv) Class C
Warrants to purchase 3,810,653 shares of Common Stock, or the receipt of
proceeds by the Company from such exercise.
(2) Before giving effect to the Plan of Reorganization.
(3) After giving effect to the Plan of Reorganization and the adoption of fresh
start reporting based on an estimated reorganization value of $20 million.
See "Pro Forma Financial Data."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER OPERATING DATA
The following historical data should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and Notes
thereto and the other information included elsewhere in this Prospectus. The
selected historical financial data of the Company for the 52 weeks ended
February 1, 1997, the 53 weeks ended February 3, 1996, the 13 weeks ended
January 28, 1995, the 52 weeks ended October 29, 1994 ("Fiscal 1994") and the 52
weeks ended October 30, 1993 has been derived from the historical consolidated
financial statements of the Company audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report with respect thereto is included elsewhere
in this Prospectus. The historical financial data for the nine months ended
November 1, 1997 and November 2, 1996 has been derived from the Company's
unaudited consolidated financial statements included elsewhere in this
Prospectus. The historical financial data for the 52 weeks ended January 28,
1995 has been derived from the unaudited financial records of the Company. Such
unaudited consolidated financial statements and records reflect all adjustments
which are, in the opinion of management, necessary and of a normal recurring
nature to present fairly the operating results for the periods presented. The
results of operations for the nine months ended November 1, 1997 are not
necessarily indicative of the results to be expected for the fiscal year ending
January 31, 1998.
The Company was operating under Chapter 11 during Fiscal 1996 and Fiscal
1995. As a result, the financial condition and results of operations of the
Company for such fiscal years are not necessarily comparable. On March 9, 1995,
the Company changed its fiscal year end from the Saturday closest to October 31
to the Saturday closest to January 31. As a result, the financial condition and
results of operations of the Company for Fiscal 1996 and Fiscal 1995 are not
necessarily comparable to its prior fiscal years.
18
<PAGE>
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 13 WEEKS
ENDED ENDED ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
NINE MONTHS NINE MONTHS 52 WEEKS
ENDED ENDED ENDED
NOVEMBER 1, NOVEMBER 2, JANUARY 28,
1997 1996 1995(3)
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues(1).................................. $ 137,394 $ 138,284 $ 203,602 $ 199,548 $ 231,199 $ 71,014
Cost of merchandise sold..................... 87,798 88,237 130,480 131,677 175,330 60,587
----------- ----------- ----------- ----------- ----------- -----------
Gross profit................................. 49,596 50,047 73,122 67,871 55,869 10,427
----------- ----------- ----------- ----------- ----------- -----------
Operating and administrative expenses........ 47,235 49,482 67,173 71,372 87,807 22,400
Depreciation and amortization................ 5,484 6,051 7,999 9,232 11,355 2,666
Impairment of long-lived assets.............. -- 4,170 4,170 -- -- --
Store closure costs.......................... -- -- -- -- 7,200 --
----------- ----------- ----------- ----------- ----------- -----------
Operating costs.............................. 52,719 59,703 79,342 80,604 106,362 25,066
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations before other income/
(expense), reorganization expenses and
income tax provision/(benefit)............. (3,123) (9,656) (6,220) (12,733) (50,493) (14,639)
Other income (expense):
Interest expense
--Cash....................................... (3,855) (3,773) (5,053) (5,098) (6,698) (1,356)
--Non-Cash(2)................................ -- -- -- -- (5,160) (1,670)
Other income (expense)....................... 6 8 12 196 27 29
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations before reorganization
expenses and income tax
provision/(benefit)........................ (6,972) (13,421) (11,261) (17,635) (62,324) (17,636)
Reorganization expenses...................... 1,924 5,090 6,037 7,240 7,499 7,499
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations before income tax
provision/ (benefit)....................... (8,896) (18,511) (17,298) (24,875) (69,823) (25,135)
Income tax provision/(benefit)............... -- -- -- -- (400) --
----------- ----------- ----------- ----------- ----------- -----------
Net loss..................................... $ (8,896) $ (18,511) $ (17,298) $ (24,875) $ (69,423) $ (25,135)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
OTHER DATA
Number of stores at period end............... 38 42 38 43 48 48
NET LOSS PER COMMON SHARE
Net loss per common share.................... $ (0.50) $ (1.03) $ (0.97) $ (1.39) $ (4.13) $ (1.41)
Weighted average number of shares............ 17,900,053 17,900,053 17,899,906 17,893,675 16,820,257 17,883,135
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital.............................. $ 2,847 $ (5,622) $ (3,357) $ (2,248) $ 16,025 $ 16,025
Total assets................................. 109,993 112,964 93,272 102,361 120,269 120,269
Liabilities subject to settlement under
reorganization proceedings................. 103,489 103,538 102,858 104,845 108,333 108,333
Long-term debt and obligations under capital
leases, net of current maturities.......... 13,246 2,808 2,846 -- -- --
Stockholders' equity/(deficit)............... (68,411) (61,025) (59,553) (42,556) (17,509) (17,509)
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
OCTOBER 29, OCTOBER 30,
1994 1993
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues(1).................................. $ 237,922 $ 251,015
Cost of merchandise sold..................... 163,697 157,098
----------- -----------
Gross profit................................. 74,225 93,917
----------- -----------
Operating and administrative expenses........ 88,520 84,176
Depreciation and amortization................ 11,441 11,164
Impairment of long-lived assets.............. -- --
Store closure costs.......................... 7,200 --
----------- -----------
Operating costs.............................. 107,161 95,340
----------- -----------
Loss from operations before other income/
(expense), reorganization expenses and
income tax provision/(benefit)............. (32,936) (1,423)
Other income (expense):
Interest expense
--Cash....................................... (8,130) (12,477)
--Non-Cash(2)................................ (3,490) --
Other income (expense)....................... (369) 29
----------- -----------
Loss from operations before reorganization
expenses and income tax
provision/(benefit)........................ (44,925) (13,871)
Reorganization expenses...................... -- --
----------- -----------
Loss from operations before income tax
provision/ (benefit)....................... (44,925) (13,871)
Income tax provision/(benefit)............... (400) (3,000)
----------- -----------
Net loss..................................... $ (44,525) $ (10,871)
----------- -----------
----------- -----------
OTHER DATA
Number of stores at period end............... 55 56
NET LOSS PER COMMON SHARE
Net loss per common share.................... $ (3.05) $ (1.22)
Weighted average number of shares............ 14,583,038 8,917,624
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital.............................. $ 9,938 $ 43,060
Total assets................................. 152,589 183,709
Liabilities subject to settlement under
reorganization proceedings................. -- --
Long-term debt and obligations under capital
leases, net of current maturities.......... 80,642 93,130
Stockholders' equity/(deficit)............... 7,560 6,208
</TABLE>
- ------------------------------
(1) The additional week in Fiscal 1995 accounted for $2.2 million of revenues.
(2) Non-cash interest expense is comprised of amortization of discounts on the
Company's long-term debt and interest paid-in-kind through issuance of
additional debt.
(3) On March 9, 1995, the Company changed 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. For purposes of comparing the data for Fiscal 1995, the
Company has provided data for the period ended January 28, 1995 which is
derived from unaudited financial records of the Company.
19
<PAGE>
PRO FORMA FINANCIAL DATA
The following pro forma data should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and Notes
thereto for the 52 weeks ended February 1, 1997 and the unaudited Consolidated
Financial Statements and Notes thereto for the nine month period ended November
1, 1997 and the other information included elsewhere in this Prospectus. The pro
forma financial data gives effect to the reorganization under the Plan of
Reorganization and adoption of fresh start reporting and the amounts are
presented as though the reorganization had been consummated, for purposes of the
statement of operations data, at the beginning of each of the periods presented
and, for purposes of the balance sheet data, on the applicable balance sheet
date. The unaudited pro forma financial data does not purport to be indicative
of the results of operations that would actually have been reported had such
transactions actually been consummated on such dates or of the results of
operations that may be reported by the Company in the future.
The Company has retained an independent public accounting firm to perform a
valuation of the Company for purposes of applying fresh start reporting after
giving effect to the Plan of Reorganization. For purposes of applying fresh
start reporting in the pro forma financial data set forth below, the Company has
made a good faith estimate of the value of the Company. The Company intends to
file an amendment containing updated pro forma financial data after the report
with respect to such valuation becomes available.
20
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NOVEMBER 1, 1997 52 WEEKS ENDED FEBRUARY 1, 1997
--------------------------------------------- ---------------------------------------
ADJUSTMENTS AS REPORTED ADJUSTMENTS PRO FORMA
------------------- ----------- ------------- -----------
AS REPORTED (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- PRO FORMA
(UNAUDITED) -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA
Revenues........................ $ 137,394 $ 137,394 $ 203,602 $ 203,602
Cost of merchandise sold........ 87,798 87,798 130,480 130,480
----------- ----------- ----------- -----------
Gross profit.................... 49,596 49,596 73,122 73,122
----------- ----------- ----------- -----------
Operating and administrative
expenses...................... 47,235 $ (329)(a) 46,906 67,173 $ (438)(a) 66,735
Depreciation and amortization... 5,484 8(b) 4,950 7,999 (360)(b) 6,916
(542)(c) (723)(c)
Impairment of long-lived
assets........................ -- -- 4,170 4,170
----------- ----------- ----------- -----------
Operating costs................. 52,719 51,856 79,342 77,821
----------- ----------- ----------- -----------
Loss from operations before
other income/(expense) and
reorganization expenses....... (3,123) (2,260) (6,220) (4,699)
Other income (expense):
Interest expense
--Cash.......................... (3,855) 360(d) (3,760) (5,053) 480(d) (4,923)
(210)(e) (280)(e)
(55)(f) (70)(f)
--Non-Cash...................... -- -- -- --
Other income (expense).......... 6 6 12 12
----------- ----------- ----------- -----------
Loss from operations before
reorganization expenses....... (6,972) (6,014) (11,261) (9,610)
Reorganization expenses......... 1,924 (1,924)(g) -- 6,037 (6,037)(g) --
----------- ----------- ----------- -----------
Net loss........................ $ (8,896) $ (6,014) $ (17,298) $ (9,610)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE
Net loss per common share....... $ (0.50) $ (0.67) $ (0.97) $ (1.07)
Weighted average number of
shares........................ 17,900,053 9,000,000(h) 17,899,906 9,000,000(h)
</TABLE>
- ------------------------------
(a) To record reduced rent expense for several stores where the landlord has
agreed to concessions upon assumption of the lease, which will occur on the
Plan Effective Date.
(b) To reflect amortization of reorganization value in excess of amounts
allocable to identifiable assets over a 20 year period.
(c) To reflect the reversal of the historical amortization of deferred financing
fees associated with outstanding warrants to purchase Old Common Stock which
will be cancelled on the Plan Effective Date.
(d) To reflect the reversal of the historical fees in respect of the Company's
working capital facility assessed while the Company was in Chapter 11.
(e) To reflect amortization of the facility fee in respect of the working
capital facility, payable in the amount of $336,000 on the Plan Effective
Date and in the amount of $224,000 on December 31, 1998.
(f) To record quarterly interest expense associated with debt arising from
allowed priority tax claims.
(g) To reverse historical reorganization expense.
(h) Pursuant to the Plan of Reorganization, on the Plan Effective Date, the
Company will issue (a) 9,000,000 shares of Common Stock and (b) warrants and
options that are immediately exercisable to purchase an aggregate of
6,196,419 shares of Common Stock (based on an estimated reorganization value
of $20 million). Such warrants and options have not been included in the
calculation of net loss per common share because the effect of assuming
their exercise would be anti-dilutive.
21
<PAGE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 1, 1997
----------------------------------------------
ADJUSTMENTS
--------------------
DEBIT CREDIT PRO FORMA
--------- --------- -----------
AS REPORTED
-----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (AT END OF PERIOD)
Current Assets:
Cash............................................................ $ 2,298 $ 2,298
Merchandise Inventories......................................... 55,712 55,712
Other Current Assets............................................ 6,339 $ 280(a) 6,619
----------- -----------
Total current assets.......................................... 64,349 64,629
Property and equipment, net....................................... 27,765 27,765
Leasehold interests............................................... 3,156 3,156
Excess of cost over net assets acquired, net/Reorganization Value
in Excess of Amounts Allocable to Identifiable Assets........... 11,347 $ 202(g) 11,145
Deferred Financing Fees........................................... 1,447 1,447(b) 0
Other Assets...................................................... 1,929 280(a) 2,209
----------- --------- --------- -----------
Total assets.................................................. $ 109,993 $ 560 $ 1,649 $ 108,904
----------- --------- --------- -----------
----------- --------- --------- -----------
Current Liabilities:
Borrowings under BankBoston Facility............................ $ 24,401 $ 24,401
Accounts Payable................................................ 25,435 25,435
Other Current Liabilities....................................... 11,666 $ 560(a) 14,720
2,494(d)
----------- -----------
Total Current Liabilities..................................... 61,502 64,556
Other Liabilities................................................. 167 827(d) 994
Deferred Payment Tax Liabilities.................................. 0 470(d) 470
BankBoston Term Loan.............................................. 10,000 10,000
Obligations Under Capital Leases.................................. 3,246 9,638(d) 12,884
Liabilities subject to settlement under reorganization
proceedings..................................................... 103,489 $ 103,489(c) 0
Stockholders' Equity (Deficit):
Common Stock.................................................... 179 179(e) 90(f) 90
Additional paid-in capital...................................... 63,010 63,010(e) 19,910(f) 19,910
Accumulated deficit............................................. (131,600) 131,600(e) 0
----------- -----------
Total stockholders' equity (deficit).......................... (68,411) 20,000
----------- --------- --------- -----------
Total Liabilities and Stockholders' Equity.................... $ 109,993 $ 166,678 $ 165,589 $ 108,904
----------- --------- --------- -----------
----------- --------- --------- -----------
</TABLE>
- ------------------------------
(a) To capitalize the $560,000 facility fee in respect of the Company's working
capital facility payable in the amount of $336,000 on the Plan Effective
Date and in the amount of $224,000 on December 31, 1998.
(b) To write off the balance of deferred financing costs associated with
outstanding warrants to purchase Old Common Stock which will be cancelled on
the Plan Effective Date.
(c) To discharge liabilities subject to settlement under reorganization
proceedings.
(d) To reclassify certain liabilities subject to settlement under reorganization
proceedings where the obligation will be assumed or settled in cash.
(e) Cancellation of historical Stockholders' Equity (Deficit).
(f) To record estimated reorganization value of $20,000,000, $90,000 of which is
classified as Common Stock based on issuance and sale of 9,000,000 shares of
Class A Common Stock, $0.01 par value, pursuant to the Plan of
Reorganization. The Remaining $19,910,000 is classified as additional paid
in capital.
(g) Allocation of the fair market value of identifiable net assets in excess of
the reorganization value in accordance with purchase method accounting. The
goodwill will be amortized over 20 years.
22
<PAGE>
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 Prospectus. On March 9, 1995, the Company changed 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 (including, as a result of adverse weather conditions), (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 of
Reorganization 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.
BACKGROUND
Despite numerous attempts to restructure the Company's capital structure
from 1992 through 1994, and as a result of the continued deterioration of the
Company's financial position, on January 6, 1995 (the "Petition Date"), the
Company filed a voluntary petition for relief under Chapter 11 ("Chapter 11") of
title 11 of the United States Code in the United States Bankruptcy Court (the
"Bankruptcy 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. On December 18, 1997, the Bankruptcy Court
confirmed the Plan of Reorganization. Under the Plan of Reorganization, among
other things, certain indebtedness of Lamonts will be cancelled in exchange for
new equity interests, certain indebtedness will be reinstated, certain other
pre-petition claims will be discharged, certain claims will be settled, existing
equity interests will be extinguished and new equity interests will be issued,
executory contracts and unexpired leases will be assumed or rejected, and the
members of a new board of directors will be designated. See "Plan of
Reorganization."
STORE LOCATIONS
Since October 29, 1994, the Company has closed 19 stores, eleven of which
with the approval of the Bankruptcy 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. The Company intends to use
funds generated from operating cash flow and, in certain circumstances, tenant
reimbursements to cover the costs associated with opening such new stores. There
can be no
23
<PAGE>
assurance, however, that operating cash flow and/or the amount of tenant
reimbursements will be sufficient to cover such costs.
COMPARISON OF NINE MONTHS ENDED NOVEMBER 1, 1997 ("YTD 1997") TO
NINE MONTHS ENDED NOVEMBER 2, 1996 ("YTD 1996")
REVENUES. 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 decrease is
attributable to the closure of 4 stores that were operating during the prior
periods. 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. Comparable store revenues are defined as revenues generated at stores
open for at least nine months in each of the periods.
GROSS PROFIT. Gross profit, as a percentage of revenues was 36.1% for YTD
1997, compared to 36.2% for YTD 1996.
OPERATING AND ADMINISTRATIVE EXPENSES. 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. Costs associated with making the Company's computer
systems year 2000 compliant included in operating and administrative expenses
for YTD 1997 amounted to approximately $0.2 million.
DEPRECIATION AND AMORTIZATION. 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.
INTEREST EXPENSE. 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 Company's credit facilities.
REORGANIZATION EXPENSES. YTD 1997 reorganization expenses of $1.9 million
decreased $3.2 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 1996 in connection with the preparation of the Disclosure
Statement.
NET LOSS. 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 $3.2 million, (iii) the decrease in operating and
administrative expenses of $2.2 million, and (iv) the decrease in depreciation
and amortization expense of $0.5 million, offset by a decrease in gross profit
of $0.5 million.
COMPARISON OF FISCAL 1996 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 increased due to increased levels of
24
<PAGE>
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 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 continued efforts to improve the quality of
merchandise offered while maintaining price points geared to the Company's
customer base. The Company also implemented policies to mark-down and clear out
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 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 was 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. The charge consisted of a non-cash writeoff 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 noncash charges), of which $6.0 million was incurred during Fiscal 1996 and
$7.2 million during Fiscal 1995. These expenses relate primarily to professional
fees associated with the Company's Chapter 11 case, the accrued or estimated
costs associated with the rejection of real property leases, and costs related
to closing underperforming and nonprofitable stores subsequent to the Company's
Chapter 11 case. The charges for store closures were primarily non-cash
writeoffs 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 $7.6
million, a 30% improvement over the net loss or $24.9 million for Fiscal 1995.
The reduction in net loss was primarily a result of (i) a $5.2 million
improvement in gross margin which includes non-cash charges for LlFO 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.
25
<PAGE>
COMPARISON OF FISCAL 1995 TO
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
consisted 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 turnovers 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 were 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 was 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 commencement of the Company's Chapter 11 case. The charges for
store closures are primarily non-cash writeoffs 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 was primarily
a result of the Company's Chapter 11 case. As of February 3, 1996, the Company's
working capital 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
26
<PAGE>
Fiscal 1995 compared to the comparable prior year period, (iii) lower operating
and administrative expenses of $16.4 million in Fiscal 1995 as discussed above,
(iv) a $6.8 million reduction in interest expense in Fiscal 1995 due to the
Company's Chapter 11 filing and (v) a $2.1 million decline in depreciation and
amortization expense during Fiscal 1995. Although the Company has realized a
significant reduction in operating and other expenses due to downsizing, these
savings have been partially offset by a decline in sales also attributable to a
reduced number of operating stores.
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.
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
Company's revolving credit facility.
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 Chapter 11 filing.
CAPITAL RESOURCES
The Company has entered into the Loan Agreement (as defined below), pursuant
to which BankBoston is providing Lamonts with a $42 million credit facility on
the terms and conditions set forth in the Loan Agreement. For a description of
the BankBoston Facility, see "Description of Certain Indebtedness."
For the nine months ended November 1, 1997, the weighted average interest
rate for loans based on the Base Rate (as defined in the BankBoston Facility)
was 10.0% (calculated on the average monthly balance of the revolving line of
credit) and the weighted average interest rate for loans based on the Eurodollar
Rate (as defined in the BankBoston Facility) 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 Company's revolving
credit facility.
As of January 2, 1998, the Company had $10.9 million of borrowings
outstanding under the Revolver with additional borrowing capacity thereunder of
$13.1 million. In addition, the Company had $10 million outstanding under the
Term Loan at such date.
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 the Company's performance after the Plan
Effective Date, as well as other factors.
27
<PAGE>
OTHER
The Company has never declared or paid cash dividends on its Old 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 on the Common
Stock will depend upon certain debt instrument limitations, future earnings,
results of operations, capital requirements, the financial condition of the
Company, and such other factors as the Company's Board of Directors may
consider. The ability of the Company to pay dividends is directly and indirectly
restricted under the terms of the BankBoston Facility. Such restrictions
prohibit the payment of dividends for the foreseeable future.
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 Fiscal 1996 and
Fiscal 1995:
<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>
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 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 estimates it will spend approximately $350,000 in fiscal 1997, $500,000
in fiscal 1998 and $150,000 in fiscal 1999 to make its computer systems year
2000 compliant. The Company expects to complete this process by the middle of
fiscal 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
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 fourth quarter of
Fiscal 1997. 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.
28
<PAGE>
BUSINESS
GENERAL
Lamonts is a Northwest-based regional 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. The Company's stores average approximately 47,000 square
feet and are generally located in shopping centers and malls. The Company's
revenues for Fiscal 1996 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.
The Company was incorporated in Delaware as Texstyrene Corporation in 1985,
changed its name to Aris Corporation in October 1988 and to Lamonts Corporation
in April 1991. In September 1989, the Company acquired Lamonts Apparel, Inc.
("Apparel") from LH Group, Inc., a subsidiary of Northern Pacific Corporation.
Prior to the completion of the divestiture of its original core business in
August 1989, the Company manufactured expandable polystyrene beads and converted
them into foam cups and containers, insulation products, packing materials, and
custom-molded packaging products. Apparel's predecessor was incorporated in
Washington in May 1923. On October 30, 1992, Apparel was merged with and into
the Company and the name of the Company was changed to Lamonts Apparel, Inc.
The Company's principal executive offices are located at 12413 Willows Road
N.E., Kirkland, Washington 98034 and its telephone number at that address is
(425) 814-5700.
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 and
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.
SHOE LICENSEE
Lamonts utilizes a licensee, Shoe Corporation of America, for its family
shoe department. The sales of shoes represented approximately 6.0% of the
Company's total annual revenues for Fiscal 1996, but are not reflected in such
revenues for financial reporting purposes because income derived from the rental
fees charged to the licensee is reported as an offset to operating expenses. The
license agreement with Shoe Corporation of America expires in January 2001 with
one three year extension option.
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
were 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.
29
<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 anticipated
requirements. However, like other apparel retailers, the Company is highly
dependent upon its ability to obtain trade credit.
DISTRIBUTION
The Company utilizes a contractor-operated distribution center dedicated to
the Company for centralized receiving and marking (ticketing). Through its
distribution center, the Company is generally able to receive and ship
merchandise to its stores within a two-to-three day period. The Company believes
that this distribution center enables it to monitor vendor shipments more
effectively, reduce receiving and marking expenses, reduce related
transportation costs, improve inventory control and reduce inventory shrinkage.
The current lease for this distribution facility, which is guaranteed by the
Company, covers 100,000 square feet of space and has an initial term running
through February 1998. The lessee recently executed a new lease for this
facility, which is also guaranteed by the Company, covering 62,500 square feet
of space and having a three year term commencing in March 1998 with one
three-year extension option.
RETURN POLICY
It is the Company's policy to exchange or issue a credit if a customer is
not completely satisfied with any Lamonts purchase. Management believes that the
Company's customer return policy and experience is consistent with industry
practices.
STORE LOCATIONS AND 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. The Company currently operates 38
stores in the following locations:
<TABLE>
<CAPTION>
LAMONTS APPAREL STORES
- -----------------------------------------------------------------------------------------------------
ALASKA(7) WASHINGTON(23) UTAH(1)
- ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
Anchorage: 3 stores Seattle: 6 stores Logan
Fairbanks Bellevue/Eastside: 4 stores
Juneau Tacoma 2 stores OREGON(2)
Soldoma Spokane: 2 stores Astoria
Wasilla Aberdeen Corvallis
Marysville
IDAHO(5) Moses Lake
Coeur d' Alene Olympia
Idaho Falls Port Angeles
Lewiston Silverdale
Moscow Tri-Cities
Pocatello Wenatchee
Yakima
</TABLE>
Of the 38 Lamonts' 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
30
<PAGE>
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 decorated and organized with the intention of maximizing
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 closed eight stores because of poor performance.
Also, in connection with its operational restructuring, the Company received
permission from the Bankruptcy Court to close six additional underperforming
stores in early 1995. In 1996, the Company received permission from the
Bankruptcy Court to close five additional underperforming stores. In February
1996, the Company entered into a sale-leaseback transaction involving the land
and building at the Company's Alderwood store in Seattle, Washington. The
Company sold the property for approximately $5 million and leased the property
back for a 20 year period, plus option terms.
In March 1995, the Company opened a new 36,000 square foot store 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. See "Risk
Factors--Future Growth."
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.
EMPLOYEES
The Company employs 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.
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 attempts to differentiate 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
Department 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."
31
<PAGE>
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.
INFORMATION SYSTEMS
In recent years, the Company has invested in the development of management
information systems (MIS) in the areas of merchandise reporting, distribution
and allocation, customer service (full and promotional price look-up at the
register), as well as financing, credit authorization and store operations. The
company has made generational improvements in its systems since the late 1980's
and is continuing to make enhancements to its merchandising systems.
The Company uses the Universal Product Code (UPC) on each ticket and
automatic price look-up and electronic data interchange (EDI) for re-ordering
basic merchandise and for vendor provided advance ship notices (ASN's) which
improves in-stock inventories on predictable, basic merchandise. The point-of-
sale (POS) data provides the basis for merchandise unit reporting, merchandise
allocation decisions and electronic transmission of orders. In addition to
running its own automatic basic stock replenishment system, the Company also
uses automatic basic merchandise replenishment programs offered by key vendors.
Sales and POS markdowns are monitored daily by using POS terminals to record
ticketed information. This information flows electronically from the stores to
the corporate office and then to a service bureau under contract with the
Company. These sales and POS markdowns are combined with receipt, on-hand and
on-order information to support merchant reports and on-line screens at the
department, vendor, class style, and in some cases, color/size or UPC level.
Current MIS efforts are focused on enhancing vendor level reporting for the
merchants, Year 2000 preparations, customer database and direct marketing
systems, as well as a new POS platform to support enhanced customer service and
the direct marketing initiatives.
The Company utilizes an outside service bureau for its mainframe computer
processing pursuant to a contract that continues through February 2000. In
addition, the outside service bureau licenses certain system and application
software programs to the Company.
CREDIT POLICY
The Company offers its customers various methods of payment including cash,
check, Lamonts charge card, certain major credit cards and a lay-away plan.
Since its inception in July 1988, the Company's charge-card program has been
expanded to approximately 608,000 accounts, of which 142,000 have transactions
within the last 30 days. Growth in credit sales represents an important element
in the Company's marketing strategy because statistics show that Lamonts' charge
card holders shop more regularly and purchase more merchandise than the customer
who pays by cash, check or most bank credit cards. The Company believes that its
proprietary credit card program provides additional benefits in two areas: (i)
industry research shows that proprietary credit cards build significant customer
loyalty and (ii) proprietary credit cards enhance target marketing by providing
valuable demographic and purchasing behavior information on customers.
The Company's proprietary 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
32
<PAGE>
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, 1996, 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.
REGULATION
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.
LEGAL PROCEEDINGS
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 will not have a material adverse effect on the financial
position of the Company, but, if decided adversely to the Company, could have a
material effect on quarterly or annual operating results during the period such
matters are resolved.
CHANGE IN FISCAL YEAR
On March 9, 1995, the Company changed 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.
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 estimates it will spend approximately $350,000 in fiscal 1997, $500,000
in fiscal 1998 and $150,000 in fiscal 1999 to make its computer systems year
2000 compliant. The Company expects to complete this process by the middle of
fiscal 1999.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age, positions and offices with the Company, present occupation or
employment and employment history of each of the directors, nominees for
directors and executive officers of the Company are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Alan R. Schlesinger................................. 55 Chairman of the Board, President,
and Chief Executive Officer
Loren R. Rothschild................................. 59 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
Stanford Springel(*)................................ 51 Director
John J. (Jack) Wiesner(*)........................... 59 Director
Paul M. Buxbaum(*).................................. 42 Director
</TABLE>
- ------------------------
* Designated for appointment to the Board of Directors by Messrs. Schlesinger
and Rothschild and approved by the committees that represent Lamonts'
unsecured trade creditors and bondholders under and in accordance with the
Plan of Reorganization. Such individuals are expected to serve on the Board
of Directors of the Company as of the Plan Effective Date.
Mr. Schlesinger joined the Company as President and Chief Executive Officer
in November 1994. In December 1994, Mr. Schlesinger was appointed 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 the Company in December 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. Prior to his
affiliation with Vans, Inc., Mr. Bulen was Senior Vice President with May
Company--California, where he served in a variety of merchandising roles from
February 1976 to January 1993.
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.
Mr. Springel is expected to serve on the Board of Directors of the Company
as of the Plan Effective Date. Since 1991, Mr. Springel has acted as an
independent consultant serving in a variety of executive roles providing
domestic and international turnaround management services to financially
distressed
34
<PAGE>
companies, including (i) Omega Environmental, Inc, an environmental services
company currently in Chapter 11 where, since June 1997, Mr. Springel has served
as Chief Executive Officer, (ii) Interlogic Trace, Inc. ("Interlogic"), a
nationwide provider of computer maintenance and repairs services where, from
February 1995 to December 1995, Mr. Springel served as Interim Chief Operating
Officer and Interim President, (iii) Riedel Environmental Technologies, Inc.
("Riedel"), an environmental remediation and services company where, from
January 1994 to March 1996, Mr. Springel served as Interim Chief Executive
Officer and President and, for a period of time, as a member of the board of
directors, and (iv) Ter Meulen Post, a Dutch retail catalogue company where,
during 1993, Mr. Springel served as Chief Operating Officer. Both Interlogic and
Riedel were in Chapter 11 during Mr. Springel's association with those
companies. Since December 1995, Mr. Springel has served on the board of
directors of Pinebrook Capital.
Mr. Wiesner is expected to serve on the Board of Directors of the Company as
of the Plan Effective Date. Mr. Wiesner has served as Chairman of the Board and
Chief Executive Officer of C.R. Anthony Company, a regional apparel retailer
with 246 stores operating in 18 southwestern and midwestern states, since 1987.
Since July 1997, Mr. Wiesner has served on the board of directors of Stage
Stores, Inc. and, since December 1997, Mr. Wiesner has served on the board of
directors of Elder Berrman.
Mr. Buxbaum is expected to serve on the Board of Directors of the Company as
of the Plan Effective Date. Since 1984, Mr. Buxbaum has been a principal of
Buxbaum, Ginsberg & Associates, Inc., a national consulting firm specializing in
providing liquidation analysis and asset recovery services to banks and other
financial institutions. Since January 1993, Mr. Buxbaum has served as Chairman
of the Board of Directors of Ames Department Stores, Inc., a discount department
store with over 300 locations in the northeastern United States. Since April
1995, Mr. Buxbaum has served on the board of directors of Richman Gordon 1/2
Price Stores and, since May 1997, Mr. Buxbaum has served on the board of
directors of the Jay Jacob Stores.
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 Plan 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 Company will (following the Plan Effective Date) 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 of Reorganization. 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 Company, evaluating the independent
accountants' performance, and recommending to the Board of Directors as to
whether the accounting firm should be retained by the Company for the ensuing
fiscal year. In addition, the committee will review the Company'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 Company and administering the Stock Option Plan.
Members of the Audit and Compensation Committee may be addressed at 12413
Willows Road N.E., Kirkland, Washington 98034.
COMPENSATION OF DIRECTORS
The Company will pay each director (other than Messrs. Schlesinger and
Rothschild) an annual fee to be determined, plus reimbursement for reasonable
expenses incurred in connection with attending meetings of the Board or the
Audit and Compensation Committee.
35
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during Fiscal 1996, Fiscal 1995 and Fiscal 1994, to (i) the Company's Chief
Executive Officer and (ii) the Company's four other most highly compensated
senior executive officers (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) COMPENSATION ($)(1)
- --------------------------------------------------------- ------------- ----------- ----------- ---------------------
<S> <C> <C> <C> <C>
Alan R. Schlesinger, .................................... 1996 450,000 100,000 5,100
Chairman of the Board, President, and Chief Executive 1995 450,000 100,000 3,600
Officer 1994 58,270 125,000 0
Loren R. Rothschild, .................................... 1996 240,000 0 2,790
Vice Chairman of the Board 1995 240,000 0 2,790
1994 6,462 125,000 0
Peter Aaron, ............................................ 1996 210,000 30,000 3,118
Executive Vice President(2) 1995 205,833 30,000 3,247
1994 183,836 8,160 3,540
Debbie A. Brownfield, ................................... 1996 160,000 30,000 2,016
Executive Vice President, Chief Financial Officer and 1995 121,249 35,000 1,497
Secretary 1994 99,722 0 1,227
E.H. Bulen, ............................................. 1996 152,000(4) 15,000 661
Senior Vice President and General Merchandise 1995 48,930 0 0
Manager(3)
</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) Mr. Aaron resigned from his position as Executive Vice President effective
July 1997.
(3) Mr. Bulen commenced his employment with the Company in November 1995.
(4) Includes $24,430 in consulting fees for the period from September 27, 1995
to November 30, 1995.
OPTION GRANTS DURING FISCAL 1996; CANCELLATION OF OLD EMPLOYEE STOCK OPTIONS
There were no options granted to Named Executive Officers during Fiscal
1996. Pursuant to the Plan of Reorganization, all employee stock options granted
under the Lamonts Apparel, Inc. 1992 Incentive and Non-Statutory Stock Option
Plan will be cancelled on the Plan Effective Date.
OPTIONS GRANTED PURSUANT TO THE PLAN OF REORGANIZATION
On and after the Plan Effective Date, the Company will issue from time to
time options to purchase Common Stock (the "New Employee Stock Options") under
the Stock Option Plan. The New Employee Stock Options initially granted pursuant
to the Plan of Reorganization will be initially exercisable for the purchase of
1,333,729 shares of Common Stock and will consist of: (i) options exercisable
for the purchase of 1,000,000 shares of Common Stock with an initial exercise
price of $1.00 per share; (ii) to prevent dilution resulting from the issuance
of the Class A Warrants, options exercisable for the purchase of an additional
244,813 shares of Common Stock with an initial exercise price of $0.01 per
share, exercisable only on or after the date on which the Class A Warrants
become exercisable; and (iii) to prevent dilution resulting from the issuance of
the Class B Warrants, options exercisable for the purchase of an additional
36
<PAGE>
88,915 shares of Common Stock with an initial exercise price of $0.01 per share,
exercisable only on or after the date on which the Class B Warrants become
exercisable. The number of New Employee Stock Options described in clauses (ii)
and (iii) above 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 Class C Warrants to the Surety, holders of New Employee Stock Options will
be issued, on a pro rata basis and with the same vesting schedule as each
holder's respective New Employee Stock Options, Class C Warrants initially
exercisable for the purchase of an aggregate of 381,065 shares of Common Stock
(355,661 shares with an exercise price of $1.25 per share and 25,404 shares with
an exercise price of $.01 per share). The New Employee Stock Options and the
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 Class A Warrants, the Class B Warrants, the 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 Stock Option Plan,
and the Class C Warrants issued in conjunction therewith will be governed by a
Warrant Agreement in substantially the form of the Class C Warrant Agreement
between the Company and the Surety. Those New Employee Stock Options and Class C
Warrants are to be allocated as of the Plan Effective Date as follows:
<TABLE>
<CAPTION>
PROTECTIVE PROTECTIVE
BASE OPTIONS OPTIONS(1)(5) OPTIONS(2)(5)
-------------- -------------- --------------- TOTAL NEW
INITIAL INITIAL INITIAL EMPLOYEE
EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE STOCK CLASS C
RECIPIENT $1.00 $.01 $.01 OPTIONS WARRANTS
- ----------------------------------------- -------------- -------------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Alan R. Schlesinger(3)................... 600,000 146,888 53,349 800,237 15,243
Loren R. Rothschild(3)................... 150,000 36,722 13,337 200,059 3,811
Debbie A. Brownfield(3).................. 60,000 14,689 5,3358 0,024 1,524
E.H. Bulen(3)............................ 50,000 12,241 4,446 66,687 1,270
Gary A. Grossblatt(3).................... 30,000 7,344 2,66 740,011 762
Others(4)................................ 110,000 26,929 9,781 146,711 2,794
-------------- ------- ------ ---------- -----------
Totals................................... 1,000,000 244,813 88,915 1,333,729 25,404
-------------- ------- ------ ---------- -----------
-------------- ------- ------ ---------- -----------
</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 Plan Effective Date, 25% on the
first anniversary of the Plan Effective Date, and 25% on the second
anniversary of the Plan 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 Stock Option Plan, the Company will have available,
in addition to the shares of Common Stock reserved for issuance upon exercise of
the New Employee Stock Options, an additional 375,000 shares (subject to
adjustment to prevent dilution upon certain events, excluding any exercise of
Class A Warrants, Class B Warrants, Class C Warrants, or New Employee Stock
Options) of Common Stock for possible grants of additional stock options from
time to time after the Plan Effective Date if, and to the extent, the
disinterested committee administering the Stock Option Plan may determine that
such additional grants would be in the best interest of the Company.
37
<PAGE>
PENSION PLANS
The Company maintains the Lamonts Apparel, Inc. Employees' Retirement Trust
(as amended, the "Pension Plan"). The Pension Plan is a noncontributory defined
benefit plan under which benefits are determined primarily by final average
compensation and years of service. The following table contains the estimated
annual benefit payable to Pension Plan participants in the specified
compensation and years of service categories set forth therein.
PENSION PLAN TABLE (1)(3)
<TABLE>
<CAPTION>
YEARS OF SERVICE AT RETIREMENT(2)
------------------------------------------
FINAL AVERAGE EARNINGS 15 20 25 30
- ----------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
150,000................................................................ 20,302 27,070 33,837 40,604
200,000................................................................ 27,802 37,070 46,337 55,604
250,000................................................................ 35,302 47,070 58,837 70,604
300,000................................................................ 42,802 57,070 71,337 85,604
350,000................................................................ 50,302 67,070 83,837 100,604
400,000................................................................ 57,802 77,070 96,337 115,604
450,000................................................................ 65,302 87,070 108,837 130,604
500,000................................................................ 72,802 97,070 121,337 145,604
550,000................................................................ 70,302 107,070 133,837 160,604
600,000................................................................ 87,802 117,070 146,337 175,604
</TABLE>
- ------------------------
(1) Compensation covered by the Pension Plan includes all payments for personal
services as an employee of the Company other than deferrals under any
non-qualified plan of the Company.
(2) Credited years of service for the Named Executive Officers are as follows:
Alan R. Schlesinger (3 years); Loren R. Rothschild (3 years); Peter Aaron
(15 years); Debbie A. Brownfield (22.25 years); and E.H. Bulen (2 years).
(3) Benefits are based on the product of years of service multiplied by the sum
of (a) 0.5% of final average earnings PLUS (b) 0.5% of final average
earnings in excess of the average Social Security Wage Base ($29,304 for
1997). However, in the case of Peter Aaron's service prior to January 1,
1994 and Debbie Brownfield's service prior to January 1, 1995, benefits are
based on the product of years of service multiplied by the sum of (a) 1.00%
of final average earnings PLUS (b) 0.65% of final average earnings in excess
of the average Social Security Wage Base ($29,304 for 1997).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The determination of Fiscal 1996 executive compensation was made by the
Board of Directors.
EMPLOYMENT AGREEMENTS
Pursuant to the Plan of Reorganization, Messrs. Schlesinger and Rothschild
will enter into new employment agreements with the Company (respectively, the
"Schlesinger Employment Agreement" and the "Rothschild Employment Agreement"),
which amend and restate their existing employment agreements. The Schlesinger
Employment Agreement will provide that Mr. Schlesinger will receive a one-time
bonus of $175,000 (payable on February 2, 1998) for extending the term of his
employment through January 31, 2002. His base salary and guaranteed annual bonus
will remain at $450,000 and $100,000, respectively, subject in each case 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. A
$400,000 bonus upon exit from Chapter 11, as well as 800,237 New Employee Stock
Options and 15,243 Class C Warrants will be provided to Mr. Schlesinger as
additional compensation under the Schlesinger Employment Agreement. In addition,
Mr. Schlesinger will receive $1,500 per month for unreimbursed business expenses
and a car allowance. The Rothschild Employment Agreement will provide that Mr.
Rothschild will receive a one-time bonus of $80,000 (payable on the 90th day
following the Plan Effective Date) for extending the term
38
<PAGE>
of his employment to the third anniversary of the 90th day following the Plan
Effective Date. For the first ninety days following the Plan Effective Date, Mr.
Rothschild's base salary will remain at $240,000 per year and, thereafter, will
be reduced to $150,000 per year, subject to a non-discretionary annual cost of
living adjustment beginning on the first anniversary of the extension. A
$187,000 bonus upon exit from Chapter 11, as well as 200,059 New Employee Stock
Options and 3,811 Class C Warrants will be provided to Mr. Rothschild as
additional compensation under the Rothschild Employment Agreement. See
"Management-- Options Granted Pursuant to the Plan of Reorganization."
If the Company terminates either executive's employment without "cause"
during the initial terms of the amended and restated employment agreements, such
executive will be entitled to receive, for a period of no less than 24 months in
the case of Mr. Schlesinger and for a period no less than 12 months in the case
of Mr. Rothschild, the base salary and guaranteed minimum bonus (if any) that
the executive would have received had such termination not occurred and to
continue to participate in all benefit plans and receive all other benefits to
which the executive was entitled at the time of the termination. The Company may
elect to pay the severance payments payable under the Schlesinger Employment
Agreement in a single lump sum equal to the present value of such payments at an
effective annual interest rate of 10%.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the General Corporation Law of the State of Delaware, a
Delaware corporation has the power, under specified circumstances, to indemnify
its directors, officers, employees and agents in connection with actions, suits
or proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against liabilities and expenses incurred in any
such action, suit or proceeding. Article VIII of the Company's Amended and
Restated Bylaws provides that the Company shall indemnify all persons that are
officers and directors of the Company on or after the Plan Effective Date to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware.
The officers and directors of the Company will each enter into
indemnification agreements (the "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 certain other circumstances. The Indemnification Agreements are 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. Individuals not entering into indemnification agreements will
remain entitled to the indemnification provisions of the Company's Amended and
Restated Bylaws and as otherwise provided by law.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following tables set forth as of November 1, 1997 information known to
the management of the Company concerning the beneficial ownership of the Old
Common Stock by (a) each person who is known by the Company to be the beneficial
owner of more than five percent of such class, (b) each director and executive
officer of the Company and (c) all directors and executive officers of the
Company as a group. The tables also show, as of the Plan Effective Date, the
number of shares and percentage of the outstanding Common Stock and Class B
Common Stock, as the case may be, expected to be received by each such person
under the Plan of Reorganization. In addition, the tables show, to the best of
the Company's knowledge, all persons who will be a holder of at least 5% of the
shares of each such class of stock outstanding as of the Plan Effective Date.
CLASS A COMMON STOCK
For purposes of calculating beneficial ownership below as of the Plan
Effective Date, shares beneficially owned include (a) shares of Common Stock
issuable upon the exercise of vested New Employee Stock Options that become
exercisable on the first date on which the Aggregate Equity Trading Value equals
or exceeds $20 million and that portion of the vested Class C Warrants held by
directors and executive officers that are immediately exercisable, (b) shares of
Common Stock issuable upon the exercise of the Class A Warrants, and (c) with
respect to the Class C Warrants to be issued to the Surety, the Initial Shares.
Shares beneficially owned does not include (i) shares of Common Stock issuable
upon the exercise of unvested New Employee Stock Options or that portion of the
vested New Employee Stock Options and 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, (ii) shares of
Common Stock issuable upon the exercise of the Class B Warrants, and (iii) with
respect to the Class C Warrants to be issued to the Surety, the Adjustment
Shares.
<TABLE>
<CAPTION>
AS OF THE PLAN EFFECTIVE DATE
AS OF NOVEMBER 1, 1997 -------------------------------------
------------------------------------- AMOUNT AND NATURE OF
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
BENEFICIAL OWNERSHIP PERCENTAGE OF OF CLASS A COMMON PERCENTAGE OF
OF OLD COMMON STOCK(1) CLASS STOCK CLASS
---------------------- ------------- ---------------------- -------------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Alan R. Schlesinger....................... 480,143(3) 5.1%
Loren R. Rothschild....................... 120,036(3) 1.3%
Debbie A. Brownfield...................... 7,411(2) * 48,038(3) *
E.H. Bulen................................ 40,012(3) *
Gary A. Grossblatt........................ 24,007(3) *
All directors and executive officers as
group (5 persons)....................... 7,411(2) * 712,236(3) 7.3%
5% STOCKHOLDERS
Apollo Retail Partners, L.P.(4)........... 6,887,133 38.5% 76,951(5) *
c/o Apollo Advisors, L.P.
2 Manhattanville Road
Purchase, New York 10577
BEA Associates(6)......................... 1,104,351 6.1% 558,922(7) 6.1%
153 East 53rd St., 57th Floor
New York, NY 10022
FMR Corp.(8).............................. 2,734,938 14.0% 4,756,455(7) 44.0%
82 Devonshire Street
Boston, Massachusetts 02109
Morgens Waterfall Vintiadis & Co.,
Inc.(9)................................. 3,032,906 16.9% 33,887(5) *
610 Fifth Avenue, 7th Floor
New York, New York 10020
Specialty Investment I LLC(10)............ 3,200,949(11) 26.24%
40 Broad Street
Boston, Massachusetts 02109
</TABLE>
- ------------------------------
* Percentage equal to less than 1%
40
<PAGE>
(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 Petition Date, 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 Plan Effective Date. See "Certain
Transactions."
(2) Includes 5,311 shares of Old Common Stock subject to immediately
exercisable, non-qualified existing employee stock options that have an
exercise price of $.01 per share. Such employee stock options will be
cancelled on the Plan Effective Date. See "Management--Options Granted
During Fiscal 1996; Cancellation of Old Employee Stock Options."
(3) Represents shares of Common Stock issuable upon the exercise of (i) vested
New Employee Stock Options 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 Class C Warrants held by directors and
executive officers that are immediately exercisable. Does not include shares
of Common Stock issuable upon the exercise of unvested New Employee Stock
Options or that portion of the vested New Employee Stock Options and 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--Options Granted Pursuant to the Plan of
Reorganization." Also includes, in the case of Ms. Brownfield, 23 shares
issuable upon cancellation of Old Common Stock.
(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) Represents shares issuable upon cancellation of Old Common Stock. Does not
include 38,475 shares and 16,944 shares of Common Stock issuable upon the
exercise by ARP and Morgens (as defined below), respectively, of Class B
Warrants, which become exercisable on the first date on which the Aggregate
Equity Trading Value equals or exceeds $25 million.
(6) According to the Schedule 13G filed by BEA Associates on February 11, 1997,
CS Holding directly owns 80% of the partnership units in BEA Associates. CS
Holding and its direct and indirect subsidiaries, in addition to BEA
Associates, may beneficially own shares of the Company and such shares are
not reported in such Schedule 13G. CS Holding disclaims beneficial ownership
of shares of the Company beneficially owned by its direct and indirect
subsidiaries, including BEA Associates, and BEA Associates disclaims
beneficial ownership of all the shares of the Company, which shares are held
in discretionary accounts which BEA Associates manages. The Company has been
informed by Executive Life Insurance Company of New York ("ELICNY") that
these shares are held for the account of ELICNY.
(7) Represents shares issuable upon cancellation of Old Common Stock and shares
issuable in exchange for Senior Claims and General Unsecured Claims (as such
terms are defined in the Plan of Reorganization) assuming 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 the Disclosure Statement. The actual number of shares
may vary depending on the actual aggregate amount of Allowed Senior Claims
and the actual amounts of Allowed Claims (as such terms are defined in the
Plan of Reorganization) of the other holders of General Unsecured Claims.
Also includes shares of Common Stock issuable upon the exercise of 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 71,731
shares and 582,510 shares of Common Stock issuable upon the exercise by BEA
Associates and Fidelity, respectively, of Class B Warrants, which become
exercisable on the first date on which the Aggregate Equity Trading Value
equals or exceeds $25 million.
(8) Such shares are owned indirectly by FMR Corp., a Massachusetts corporation
("FMR"). Such shares are owned directly by (a) various portfolios of
investment companies (the "Fidelity Funds") registered under Section 8 of
the Investment Company Act of 1940, as amended, which are advised by
Fidelity Management & Research Company ("FMRC"), a wholly-owned subsidiary
of FMR and an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, and (b) various private investment accounts
(the "Accounts") for which Fidelity Management Trust Company ("FMTC"), a
wholly-owned subsidiary of FMR and a bank as defined in Section 3(a)(6) of
the Securities Exchange Act of 1934, acts as trustee or managing agent.
According to the Schedule 13G Filed by FMR on February 14, 1997, FMR
beneficially owns (i) through FMRC, 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 warrants to purchase Old Common Stock which will be cancelled on
the Plan Effective Date 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.
(9) 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.
(10) The sole member of Specialty Investment I LLC, the Surety, is GBP LLC.
Certain direct and indirect beneficial owners of Specialty Investment I LLC
are also beneficial owners of Gordon Brothers Partners, Inc.
(11) Represents Initial Shares issuable upon the exercise of that portion of the
Class C Warrants that are immediately exercisable. Does not include the
Adjustment Shares issuable upon the exercise of that portion of the Class C
Warrants which become exercisable on the first date on which the Aggregate
Equity Trading Value equals or exceeds $25 million.
41
<PAGE>
CLASS B COMMON STOCK
<TABLE>
<CAPTION>
AS OF NOVEMBER 1, 1997 AS OF THE PLAN EFFECTIVE DATE
-------------------------------- ----------------------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL BENEFICIAL
OWNERSHIP PERCENTAGE OF CLASS OWNERSHIP PERCENTAGE OF CLASS
----------- ------------------- ----------- ---------------------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS
Specialty Investment I LLC ................... -- -- 10 100%
40 Broad Street
Boston, Massachusetts 02109
</TABLE>
CERTAIN TRANSACTIONS
In connection with a recapitalization of the Company in October 1992 (the
"Recapitalization"), pursuant to which, among other things, the Company issued
an aggregate of $75 million in principal amount of its 10 1/4% Senior
Subordinated Notes due 1999 (the "Old 10 1/4% Notes"), 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) ARP may designate six
persons to the Board of Directors, and (ii) a majority of certain former holders
of the Company's 13 1/2% Senior Subordinated Notes which were due February 1995
(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 Petition Date,
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 Plan
Effective Date.
In connection with the Recapitalization, the parties to the agreement
effecting the Recapitalization (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 Plan Effective Date.
A former director of the Company is an affiliate of Morgens. Pursuant to the
Recapitalization, certain affiliates of Morgens 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 will receive their respective pro rata
shares of Common Stock and Class B Warrants under the Plan of Reorganization.
See "Principal Stockholders."
Pursuant to the Recapitalization, ELICNY received 898,406 shares of the Old
Common Stock and $7.8 million ($6.4 million after adjustment for the Company's
capital infusion and debt reduction plan (the "Infusion") in December 1993) in
principal amount of the Old 10 1/4% Notes. As a result of the commencement of
the Chapter 11 case, 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 Common Stock, Class A Warrants and Class
B Warrants under the Plan of Reorganization. See "Principal Stockholders."
42
<PAGE>
In connection with the Infusion, certain funds and accounts managed or
advised by 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 Fiscal
1994, 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 commencement of the Chapter 11 Case, 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 Common Stock, Class A Warrants and Class B Warrants
under the Plan of Reorganization. See "Principal Stockholders."
The Company believes that, to the extent applicable, none of the
transactions described above were on terms less favorable to the Company than
those available from unaffiliated parties offering comparable goods and
services.
SELLING SECURITY HOLDERS
The following table sets forth certain information, as of the Plan Effective
Date, regarding the Class A Warrants, the Class B Warrants, the Class C Warrants
and the shares of Common Stock held by the Selling Security Holders named below
(including shares issuable upon exercise of the Warrants), all of which may be
offered by this Prospectus. Each Class A Warrant and Class B Warrant is
initially exercisable for the purchase of one share of Common Stock at an
exercise price per share of $.01. Each Class C Warrant is initially exercisable
for the purchase of 14 shares at an exercise price of $1.25 per share and 1
share at an exercise price of $.01 per share. For a description of the nature of
the relationship between the Company and the Selling Security Holders named
herein, see "Certain Transactions" and Description of Certain Indebtedness."
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES OF
SHARES OF CLASS A
NUMBER OF NUMBER OF NUMBER OF CLASS A COMMON STOCK
CLASS A CLASS B CLASS C COMMON BENEFICIALLY
WARRANTS WARRANTS WARRANTS STOCK OWNED UPON
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICALLY EXERCISE OF
SELLING HOLDER: OWNED(1) OWNED(1) OWNED(1) OWNED(1) WARRANTS(1)
- ----------------------------------------------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Fidelity Management Trust Company
(on behalf of accounts managed by it).............. 107,870 34,564 174,757 142,434
Fidelity Summer Street Trust: Fidelity Capital &
Income Fund........................................ 572,957 183,810 928,672 756,767
Fidelity Charles Street Trust: Fidelity Asset
Manager............................................ 402,229 127,833 649,536 530,062
Fidelity Charles Street Trust: Fidelity Asset
Manager: Growth.................................... 48,569 15,436 78,432 64,005
Variable Insurance Products Fund II: Asset Manager
Portfolio.......................................... 86,345 27,441 139,434 113,786
Variable Insurance Products Fund: High Income
Portfolio.......................................... 67,488 21,648 109,383 89,136
Fidelity Advisor High Yield Fund..................... 67,488 21,648 109,383 89,136
Fidelity Fixed-Income Trust: Spartan High Income
Fund............................................... 94,471 33,164 158,835 127,635
Fidelity Puritan Trust: Fidelity Puritan Fund........ 94,501 30,314 153,166 124,815
Fidelity Magellan Fund............................... 269,952 85,794 435,929 355,746
Fidelity Global Asset Allocation Fund................ 2,698 858 4,357 3,556
Speciality Investment I LLC.......................... -- -- 228,639 3,429,588
----------- ----------- ----------- ----------- ------------
Total.............................................. 1,814,568 582,510 228,639 2,941,884 5,826,666
----------- ----------- ----------- ----------- ------------
</TABLE>
- ------------------------------
(1) Assumes that Senior Claims and General Unsecured Claims (as such terms are
defined in the Plan of Reorganization) will be allowed in an aggregate
amount equivalent to the median of the respective estimated range for such
claims set forth in the Disclosure Statement. The actual number of Class A
Warrants, Class B Warrants and shares of Common Stock, as applicable, may
vary depending on the actual aggregate amount of Allowed Senior Claims and
the actual amounts of Allowed Claims (as such terms are defined in the Plan
of Reorganization) of the other holders of General Unsecured Claims.
43
<PAGE>
PLAN OF DISTRIBUTION
It is anticipated that the Selling Security Holders named herein will offer
and sell the shares of Common Stock and/or Warrants offered by them hereby as
principals or through one or more brokers, dealers or agents from time to time
in one or more transactions (which may involve crosses or block transactions)
(i) on any exchange or in the over-the-counter market, (ii) in transactions
otherwise than in the over-the-counter market or (iii) through the writing of
options (whether such options are listed on an options exchange or otherwise)
on, or settlement of short sales of, the securities. The Selling Security
Holders may from time to time offer such securities through brokers, dealers or
agents who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Security Holders and/or the
purchasers of the securities offered hereby for whom they may act as agent
(which discounts, concessions or commissions as to particular brokers, dealers
or agents may be in excess of those customary in the types of transactions
involved). The Selling Security Holders and any brokers, dealers or agents that
participate in the distribution of securities may be deemed to be an
"underwriter" as that term is defined by the Securities Act, and any profit on
the sale of securities by them and any discounts, concessions or commission
received by any such brokers, dealers or agents may be deemed to be underwriting
discounts and commissions under the Securities Act. However, the Company and
such persons disclaim that any such person is an underwriter of the Common Stock
or Warrants. The Company is not aware of any arrangements with any underwriters,
brokers, dealers or agents with respect to a sale of the securities offered
hereby. At any time a particular offer of Common Stock or Warrants is made, if
required, a Prospectus Supplement will be distributed that will set forth the
aggregate amount of such securities being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
Selling Security Holders and any discounts, commissions or concessions allowed
or reallowed or paid to dealers. Such Prospectus Supplement and, if necessary, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part will be filed with the Commission to reflect the disclosure of
additional information with respect to the distribution of such securities.
No director, officer or agent of the Company is expected to be involved in
soliciting offers to purchase the securities offered hereby, and no such person
will be compensated by the Company for the sale of any of such securities.
Certain officers of the Company may assist representatives of the Selling
Security Holders in such efforts but will not be compensated therefor.
The securities offered hereby (other than the Common Stock issuable by the
Company upon exercise of the Warrants, which will be sold by the Company at the
exercise price of the Warrants) may be sold from time to time in one or more
transactions at a fixed offering price, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices will
be determined by the Selling Security Holders or by agreement between the
Selling Security Holders and underwriters or dealers.
To comply with the securities laws of certain jurisdictions, the securities
offered hereby will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain jurisdictions
the securities offered hereby may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 39,999,990 shares of
Common Stock, 10 shares of Class B Common Stock and 10 million shares of
preferred stock, $.01 par value per share (the "Preferred Stock").
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, and all shares of Common Stock offered hereby will
be, when issued and paid for, 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, as and if declared by the
Board of Directors from funds legally available therefor and, upon liquidation,
to a pro rata share in any distribution to stockholders. The Company does not
anticipate declaring or paying any dividends on the Common Stock in the
foreseeable future. See "Dividend Policy."
CLASS B COMMON STOCK
Except as set forth in the following paragraphs, the holders of Class B
Common Stock shall enjoy the same rights, privileges and preferences and be
subject to the same restrictions as the holders of the Common Stock.
During the continuance of any Special Share Event (as defined below), upon
the affirmative vote of not less than 3/4 of the then outstanding shares of the
Class B Common Stock, the Company 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 Class B Common Stock
will terminate upon satisfaction in full of all of the Company's obligations in
respect of the Term Loan, whereupon each share of Class B Common Stock will
automatically convert into one share of Common Stock. 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 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
Company's Second Restated Certificate of incorporation, shares of Class B Common
Stock are non-transferable.
A "Special Share Event" shall be deemed to exist (a) during the continuance
of any Event of Default under the BankBoston Facility; provided that the Company
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,
dated as of September 26, 1997 (the "Loan Agreement"), among the Company,
certain financial institutions from time to time parties thereto and BankBoston,
N.A. (f/k/a The First National Bank of Boston) ("BankBoston"), as agent
thereunder) 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, and (b) upon
acceleration of any of the loans under the Loan Agreement and until such
acceleration is rescinded or all amounts due under such accelerated loan are
paid in full.
As required under the BankBoston Facility, in consideration of the Surety's
guaranty of the Term Loan, the Surety will be issued, as of the Plan Effective
Date, 10 shares of Class B Common Stock representing all of the authorized and
outstanding Class B Common Stock. See "Description of Certain Indebtedness."
45
<PAGE>
PREFERRED STOCK
The Second Restated Certificate of Incorporation of the Company provides for
the issuance of 10 million shares of Preferred Stock. The Preferred Stock may be
issued in one or more classes or series, and the Board of Directors is
authorized 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 General Corporation Law of the State of Delaware, including, without
limitation, the authority to provide that any such class or series may be (a)
subject to redemption at such time or times and at such price or prices; (b)
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; (c) entitled to such rights upon the dissolution of, or upon
any distribution of the assets of, the Company; or (d) 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 Company 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. Because the Board of
Directors has the power to establish the preferences and rights attributable to
the Preferred Stock, it may afford the holders of any Preferred Stock
preferences, powers and rights (including voting rights) senior to the rights of
the holders of Common Stock. No shares of Preferred Stock are currently
outstanding. Although the Company has no present intention to issue shares of
Preferred Stock, the issuance of shares of Preferred Stock, or the issuance of
rights to purchase such shares, may have the effect of delaying, deferring or
preventing a change in control of the Company. See "Risk Factors-- Possible
Effect of Blank Check Preferred Stock; Antitakeover Provisions."
TRANSFER AGENT
The transfer agent and registrar for the Common Stock and the Warrants is
Norwest Bank, Minnesota, N.A.
REGISTRATION RIGHTS
In connection with the Plan of Reorganization, the Company executed and
delivered the Grant of Registration Rights in favor of certain parties pursuant
to which the Company agreed to file the shelf registration statement of which
this Prospectus is a part. The Company shall use reasonable best efforts to
cause this shelf registration to remain continuously effective for a period
ending on the date on which no securities registerable under the Grant of
Registration Rights are outstanding. The Company will pay all expenses (other
than underwriting fees, discounts or commissions) in connection with all such
registrations. The Grant of Registration Rights also provides for certain
piggyback registration rights. In the event such Registration Statement is not
effective within 45 days after the Plan Effective Date, or a stop order is
imposed prior to the effectiveness of the Registration Statement, or, except as
permitted by Section 5 of the Grant of Registration Rights, the effectiveness
thereof is suspended, or, in the case of a suspension permitted by such Section
5, such suspension exceeds the length of time permitted by such section, the
Company will be required to pay liquidated damages to the Selling Security
Holders. Such liquidated damages shall begin to accrue as set forth below and,
in each case, shall be in an amount equal to: (i) $.10 per 500 shares of Common
Stock (or, in the case of Warrants, per 500 shares issuable upon exercise of
such Warrants) per week for the first ninety (90) days; (ii) $.20 per 500 shares
of Common Stock (or, in the case of Warrants, per 500 shares issuable upon
exercise of such Warrants) per week for the next ninety (90) days; and (iii)
$.30 per 500 shares of Common Stock (or, in the case of Warrants, per 500 shares
issuable upon exercise of such Warrants) per week thereafter. The liquidated
damages shall begin to accrue on the date the Registration Statement is required
to become effective, on the date such stop order is imposed, in the case of
suspensions other than those permitted by Section 5 of the Grant of Registration
Rights, on the
46
<PAGE>
date of such suspension and, in the case of suspensions permitted by such
Section 5, on the date on which such suspension failed to comply with such
section, as applicable.
CLASS A WARRANTS AND CLASS B WARRANTS
Class A Warrants to purchase an aggregate of 2,203,320 shares of Common
Stock and Class B Warrants to purchase an aggregate of 800,237 shares of Common
Stock are being issued by the Company in accordance with the Plan of
Reorganization pursuant to a Warrant Agreement (the "Class A/B Warrant
Agreement") to be entered into between the Company and the Warrant Agent named
therein. The Class A Warrants are exercisable, in whole or in part, on the first
date on which the Aggregate Equity Trading Value equals or exceeds $20 million
and, if not previously exercised, expire on the tenth anniversary of the Plan
Effective Date. The Class B Warrants are exercisable, in whole or in part, on
the first date on which the Aggregate Equity Trading Value equals or exceeds $25
million and, if not previously exercised, expire on the tenth anniversary of the
Plan Effective Date. The current exercise price for the Class A Warrants and the
Class B Warrants is $.01 per share.
As used in the Class A/B Warrant Agreement, "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 (as defined) of the Common Stock
for the five (5) Trading Days (as defined) 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 (as defined) has occurred, the exercise of all Class B Warrants
which are exercisable as of such date).
The number and type of securities issuable upon exercise of the Class A
Warrants and the Class B Warrants and the exercise price payable upon exercise
thereof are subject to customary anti-dilution protection in the event of (a)
stock dividends, subdivisions, combinations, and reclassifications affecting the
Common Stock, (b) issuances of rights, options, or warrants to all holders of
Common Stock entitling them to subscribe for or purchase Common Stock (or
securities convertible into Common Stock) at a price per share of Common Stock
(or having a conversion price per share of Common Stock, if a security
convertible into Common Stock) less than the fair market value per share of
Common Stock, (c) distributions to all holders of Common Stock of evidences of
indebtedness or assets, including capital stock other than 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 Common Stock); and (d) subject to certain exceptions,
issuances to any Affiliate (as defined in the Class A/B Warrant Agreement),
officer, director or employee of the Company of Common Stock or rights, options
or warrants to purchase Common Stock (or securities convertible into Common
Stock) at a price per share of Common Stock (or having a conversion price per
share of Common Stock, if a security convertible into Common Stock) less than
the Closing Price (as defined in the Class A/B Warrant Agreement) per share of
Common Stock on the date of issuance.
In addition to the foregoing provisions, if the Company at any time
consolidates with or merges with or into another corporation or the property of
the Company is sold substantially as an entirety, the holder of any outstanding
Class A Warrant or Class B Warrant would be entitled to receive, upon the
exercise thereof in accordance with its terms, the securities, property, or cash
to which the holder of the number of shares of Common Stock deliverable upon the
exercise of such Class A Warrant or Class B Warrant immediately prior to such
transaction would have been entitled upon such transaction.
47
<PAGE>
CLASS C WARRANTS
254,043 Class C Warrants to purchase an aggregate of 3,810,653 shares of
Common Stock are being issued by the Company in accordance with the Plan of
Reorganization pursuant to one or more Warrant Agreements (collectively, the
"Class C Warrant Agreements") to be entered into between the Company and the
initial holders of the Class C Warrants, and will be distributed as follows: (i)
228,639 Class C Warrants to purchase an aggregate of 3,429,588 shares of Common
Stock will be distributed to the Surety as required under the BankBoston
Facility and in consideration of the Surety's guaranty of the Term Loan and in
partial exchange for the Surety's administrative claim against the Company's
Chapter 11 estate; and (ii) 25,404 Class C Warrants to purchase an aggregate of
381,065 shares of Common Stock will be distributed to the holders of New
Employee Stock Options. The Class C Warrants are exercisable, in whole or in
part, as follows: (a) at any time after the date of issuance thereof and until
the fourth anniversary of the Plan Effective Date, the Class C Warrants are
exercisable for an aggregate of 3,556,610 shares of Common Stock at an exercise
price of $1.25 per share; and (b) at any time after the first date on which the
Aggregate Equity Trading Value equals or exceeds $25 million and until the tenth
anniversary of the Plan Effective Date, the Class C Warrants are exercisable for
an aggregate of 254,043 additional shares of Common Stock at an exercise price
of $.01 per share; provided that the portion of each Class C Warrant otherwise
exercisable after the first date on which the Aggregate Equity Trading Value
equals or exceeds $25 million shall not be exercisable by any holder thereof
unless such holder has exercised in full such holder's portion of such Class C
Warrant that is immediately exercisable upon the issuance thereof.
As used in the Class C Warrant Agreements, "Aggregate Equity Trading Value"
means , as of any date, the product of (a) the "Fair Market Value" per share of
Stock (as defined), 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). "Fair Market Value" of shares of Stock means (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 (as defined) of the
Stock for the five (5) trading days immediately preceding the date of exercise
or the sale date, 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.
The number and type of securities issuable upon exercise of the Class C
Warrants are subject to customary antidilution protection in the event of (a)
stock dividends, subdivisions and combinations; (b) subject to certain
exceptions, issuances to any person of Additional Stock (as defined) which is
common Stock (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 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 Merger Party (as defined in the
Class C Warrant Agreements) (or in connection with a financing related to any
such transaction), the Fair Market Value 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 and the Fair Market Value per share of common
Stock and (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. 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 Plan Effective Date, the exercise price for each
share of Common Stock purchasable upon exercise of the Class C Warrants shall be
increased by 25% and the expiration date for such warrant shall be extended by
one year.
48
<PAGE>
In addition to the foregoing provisions, if the Company at any time
consolidates with or merges with or into another corporation (whether or not
such corporation is the Merger Party) or the property of the Company is sold
substantially as an entirety, the holder of any outstanding Class C Warrant
would be entitled to receive, upon the exercise thereof in accordance with its
terms, the securities, property, or cash to which the holder of the number of
shares of Common Stock deliverable upon the exercise of such Class C Warrant
immediately prior to such transaction would have been entitled upon such
transaction.
GORDIAN WARRANTS
As part of the compensation to Gordian Group, L.P. ("Gordian") for
investment banking services rendered to the Company during the Company's Chapter
11 case, Gordian will be issued, on the 120th calendar day following the Plan
Effective Date, warrants (the "Gordian Warrants") to purchase an aggregate
amount of shares of Common Stock equal to 200,000 divided by the Normalized
Share Price (as defined below). The Gordian Warrants are immediately exercisable
upon issuance thereof and, if not previously exercised, expire 5 years from
their issuance date. The exercise price for the Gordian Warrants is the
Normalized Share Price per share. The "Normalized Share Price" is equal to the
average of the "Closing Prices" of the Common Stock for the 45 trading days
commencing on the calendar day next following the Plan Effective Date. For
purposes of determining the Normalized Share Price, the 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 a national securities
exchange or in an over-the-counter market, then such value as the Board of
Directors of the Company 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 Company for a definitive
determination of the Normalized Share Price.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The Company has entered into the Loan Agreement, pursuant to which
BankBoston is providing Lamonts with a $42 million credit facility (the
"BankBoston Facility") on the terms and conditions set forth in the Loan
Agreement. The BankBoston Facility consists of: (i) a revolving line of credit
with a maximum borrowing capacity of $32 million (the "Revolver"); and (ii) a
term loan (the "Term Loan") in the amount of $10 million. The Term Loan has been
guarantied by the Surety. Pursuant to, and on the terms and conditions set forth
in the Loan Agreement, 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 in the Loan Agreement). The Term Loan
was fully disbursed during the Chapter 11 case and no further amounts may be
borrowed thereunder.
The Revolver will mature two years after the Plan Effective Date or, if
earlier, upon maturity (including, as a result of acceleration, mandatory
prepayment or otherwise) of the Term Loan. The Term Loan will mature December
26, 1999, or, if earlier, upon maturity (including, as a result of acceleration,
mandatory prepayment or otherwise) 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 Loan Agreement and upon payment of the Extension Fee
described therein. There are no extension options in respect of the Revolver.
Lamonts is 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."
49
<PAGE>
Lamonts' borrowings under both the Revolver and the Term Loan bear interest
at a floating rate of 1.50% above the Base Rate (as defined in the Loan
Agreement) or, at Lamonts' option, at 2.75% above the fully reserved adjusted
Eurodollar Rate (as defined in the Loan Agreement). 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 Loan
Agreement. See "Risk Factors--Leverage." 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 is payable in the amount of
$336,000 on the Plan 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 in the
Loan Agreement) 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 Loan Agreement. In addition to the Closing Fee in
the amount of $500,000 that 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 Loan Agreement. 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 Loan Agreement.
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 any proceeds of
bankruptcy causes of action under sections 544 through 550 of the Bankruptcy
Code 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 superpriority over other administrative
expenses in the Chapter 11 case.
The BankBoston Facility requires that, as of the Plan Effective Date, in
partial exchange for the BankBoston claim on the Company's Chapter 11 estate and
in consideration for the guaranty of the Term Loan by the Surety, the Surety
will receive (i) 228,639 Class C Warrants exercisable for the purchase of an
aggregate of 3,429,588 shares of Common Stock, and (ii) 10 shares of Class B
Common Stock, representing all of the authorized and outstanding Class B Common
Stock. See "Description of Capital Stock--Class B Common Stock" for a
description of the special voting rights of the Class B Common Stock.
The Loan Agreement 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 Loan Agreement contains customary events of
default for credit facilities of its 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 Loan
Agreement.
50
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain Federal income tax considerations for
original purchasers of the Warrants and is for general information purposes
only. This summary is based on the Federal income tax law now in effect, which
is subject to change, possibly retroactively. This summary does not discuss all
aspects of Federal income taxation which may be important to particular holders
of the Warrants in light of their individual investment circumstances, including
holders subject to special tax rules (E.G., financial institutions,
broker-dealers, insurance companies, tax-exempt organizations, and foreign
taxpayers). In addition, this summary does not address state, local or foreign
tax consequences. This summary assumes that holders will hold their Warrants and
the Common Stock received upon the exercise of such Warrants, as "capital
assets" (generally, property held for investment) under the Code. Purchasers of
the Warrants are urged to consult their tax advisors regarding the specific
Federal, state, local, and foreign income and other tax consequences of
purchasing, exercising, and disposing of the Warrants.
CHARACTERIZATION OF THE WARRANTS. The Federal income tax consequences of
the purchase, exercise and disposition of the Warrants will depend, to some
extent, on whether or not they are viewed, for Federal income tax purposes, as
equivalent to common stock. There is no authority directly dealing with this
issue. Because of the nominal exercise price for the Class A Warrants and the
Class B Warrants, the Company believes that such Warrants should be treated as
issued and outstanding shares of Common Stock for Federal income tax purposes.
EXERCISE. Whether or not the Warrants are treated as stock for Federal
income tax purposes, upon the exercise of a Warrant, a holder will not recognize
gain or loss and will have a tax basis in the Common Stock received equal to the
tax basis in such holder's Warrant plus the exercise price thereof. A holder of
a Class C Warrant should consult his tax advisor regarding whether his tax basis
in such Warrant should be apportioned between the Initial Shares and the
Adjustment Shares upon the exercise of the Warrant for the Initial Shares or,
alternatively, upon the exercise of the Warrant for the Adjustment Shares. The
holding period for the Common Stock acquired pursuant to the exercise of a
Warrant will begin on the day following the date of exercise and will not
include the period that the holder held his Warrant.
DISPOSITION. Whether or not the Warrants are treated as stock for Federal
income tax purposes, upon a sale, exchange, or other disposition of a Warrant, a
holder will recognize a capital gain or loss in an amount equal to the
difference between the amount realized and the holder's adjusted tax basis in
the Warrant. Under recently-enacted legislation, net capital gain (generally,
capital gain in excess of capital loss) recognized by an individual holder upon
the disposition of Warrants that have been held for more than 18 months will
generally be subject to tax at a rate not to exceed 20%. Net capital gain
recognized by an individual holder upon the disposition of Warrants that have
been held for more than 12 months but for not more than 18 months will continue
to be subject to tax at a rate not to exceed 28%, and net capital gain
recognized upon the disposition of Warrants that have been held for 12 months or
less will continue to be subject to tax at ordinary income tax rates. In
addition, capital gain recognized by a corporate holder will continue to be
subject to tax at the ordinary income tax rates applicable to corporations.
LAPSE OF WARRANTS. Whether or not the Warrants are treated as stock for
Federal income tax purposes, in the event that a Warrant lapses unexercised, a
holder will recognize a capital loss in an amount equal to his tax basis in the
Warrant. Such loss will be long-term if the holding period of the Warrant is
more than 18 months.
ADJUSTMENT TO EXERCISE PRICE. If at any time the Company makes a
distribution of property to shareholders that would be taxable to such
shareholders as a dividend for Federal income tax purposes and, in accordance
with the antidilution provisions of the Warrants, the exercise price is
decreased, the amount of such decrease may be deemed to be the payment of a
taxable dividend to holders of the Warrants. For example, a decrease in the
exercise price in the event of distributions of cash or indebtedness
51
<PAGE>
of the Company will generally result in deemed dividend treatment to holders,
but generally a decrease in the event of stock dividends or the distribution of
rights to subscribe for shares of Common Stock will not.
EXPERTS
The consolidated balance sheets as of February 1, 1997, February 3, 1996 and
January 28, 1995 and the 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 included in this Prospectus have been included herein in
reliance on the report, which includes an explanatory paragraph that describes
an uncertainty regarding Lamonts Apparel, Inc.'s ability to continue as a going
concern and recover the carrying amounts of its assets, of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angels, California.
52
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FISCAL YEAR FINANCIAL STATEMENTS
Report of Independent Accountants.......................................................................... F-1
Consolidated Balance Sheets--February 1, 1997, February 3, 1996 and January 28, 1995....................... F-2
Consolidated Statements of Operations for the 52 weeks ended February 1, 1997, 53 weeks ended February 3,
1996, Quarter ended January 28, 1995 and 52 weeks ended October 29, 1994................................. F-3
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the 52 weeks ended February 1,
1997, 53 weeks ended February 3, 1996, Quarter ended January 28, 1995 and 52 Weeks Ended October 29,
1994..................................................................................................... F-4
Consolidated Statements of Cash Flows for the 52 weeks ended February 1, 1997, 53 weeks ended February 3,
1996, Quarter ended January 28, 1995 and the 52 weeks ended October 29, 1994............................. F-5
Notes to Consolidated Financial Statements................................................................. F-7
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Consolidated Balance Sheets--November 1, 1997 and November 2, 1996......................................... F-28
Consolidated Statements of Operations and Accumulated Deficit for the quarter ended November 1, 1997 and
November 2, 1996......................................................................................... F-29
Consolidated Statements of Operations and Accumulated Deficit for the nine months ended November 1, 1997
and November 2, 1996..................................................................................... F-30
Consolidated Statements of Cash Flows for the nine months ended November 1, 1997 and November 2, 1996...... F-31
Notes to the Consolidated Financial Statements............................................................. F-32
</TABLE>
53
<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.
/s/ Coopers & Lybrand L.L.P.
Seattle, Washington
March 28, 1997
F-1
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 29,
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.
F-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.
F-3
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL MINIMUM 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>
F-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, FEBRUARY 3, JANUARY 28, OCTOBER 29,
1997 1996 1995 1994
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (17,298) $ (24,875) $ (25,135) $ (44,525)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities before
reorganization items:
Depreciation and amortization.................... 7,999 9,232 2,666 11,441
Impairment of long-lived assets.................. 4,170 -- -- --
Store closure costs charged to operations........ -- -- -- 6,129
Non-cash interest, including interest
paid-in-kind and amortization of debt
discount....................................... -- -- 1,670 3,490
Income taxes..................................... -- -- -- (400)
Stock option expense............................. 51 78 66 636
Net realizable value adjustment to inventory..... -- 500 -- 10,000
Decrease (increase) in long term restricted cash
and deposits................................... 137 (1,022) -- --
Other............................................ (562) (1,425) (950) 473
Net change in current assets and liabilities..... (2,621) 4,895 31,186 7,342
Reorganization expenses.......................... 6,037 7,240 7,499 --
--------------- --------------- ------------- ---------------
Net cash provided (used) by operating
activities before reorganization expenses.... (2,087) (5,377) 17,002 (5,414)
Operating cash flows used by reorganization
expenses:
Payment for professional fees or other expenses
related to the Chapter 11 proceedings.......... (3,241) (2,475) (1,872) --
--------------- --------------- ------------- ---------------
Net cash provided (used) by operating
activities................................... (5,328) (7,852) 15,130 (5,414)
--------------- --------------- ------------- ---------------
Cash flows from investing activities:
Capital expenditures............................. (699) (1,343) (694) (3,889)
Proceeds from sale of assets..................... 4,459 -- -- --
Other............................................ 90 (448) (3) 228
--------------- --------------- ------------- ---------------
Net cash provided (used) by investing
activities................................... 3,850 (1,791) (697) (3,661)
--------------- --------------- ------------- ---------------
Cash flows from financing activities:
Pre-petition borrowings under working capital
facility....................................... -- -- 26,667 194,768
Pre-petition payments under working capital
facility....................................... -- -- (35,422) (183,875)
Post-petition borrowings under working capital
facility....................................... 255,174 244,178 -- --
Post-petition payments under working capital
facility....................................... (252,367) (239,682) -- --
Principal payments on obligations under capital
leases......................................... (778) (1,183) (373) (1,484)
Payments of financing costs...................... -- -- -- (805)
Proceeds from sale of preferred stock............ -- -- -- 13,399
Payment of long term debt........................ -- -- -- (13,000)
Other............................................ (66) (61) (27) (159)
--------------- --------------- ------------- ---------------
Net cash provided (used) by financing
activities................................... 1,963 3,252 (9,155) 8,844
--------------- --------------- ------------- ---------------
Net increase (decrease) in cash.................... 485 (6,391) 5,278 (231)
Cash, beginning of period.......................... 1,581 7,972 2,694 2,925
--------------- --------------- ------------- ---------------
Cash, end of period................................ $ 2,066 $ 1,581 $ 7,972 $ 2,694
--------------- --------------- ------------- ---------------
--------------- --------------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-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, FEBRUARY 3, JANUARY 28, OCTOBER 29,
1997 1996 1995 1994
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Reconciliation of net change in current assets and
liabilities:
(Increase) decrease in accounts receivable....... $ 818 $ 692 ($ 1,056) $ 1,144
(Increase) decrease in inventory (excluding
adjustment for net realizable value)........... (9,388) (2,692) 32,400 9,895
(Increase) decrease in prepaid expenses.......... (111) 2,018 992 (907)
Increase (decrease) in accounts payable.......... 5,161 6,663 (3,245) (1,012)
Increase (decrease) in accrued interest.......... 409 (103) (666) (3,982)
Increase (decrease) in other accrued expenses.... 490 (1,683) 2,761 2,149
Decrease in other working capital................ -- -- -- 55
--------------- --------------- ------------- ---------------
($ 2,621) $ 4,895 $ 31,186 $ 7,342
--------------- --------------- ------------- ---------------
--------------- --------------- ------------- ---------------
Supplemental Cash Flow Information:
Cash interest payments made...................... $ 4,783 $ 5,201 $ 1,401 $ 12,178
Non-cash transactions:
Capital lease relating to sale - leaseback of
Alderwood store.............................. 2,835 -- -- --
Issuance of debt in payment of interest........ -- -- -- 4,026
Issuance of warrants........................... -- -- -- 2,205
Conversion of Series A Preferred Stock into
Common Stock................................. -- -- -- 89
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-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.
F-7
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 1--CHAPTER 11 PROCEEDINGS AND BASIS OF PRESENTATION (CONTINUED)
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." (Also see Note 3)
Pre-petition liabilities subject to settlement under reorganization
proceedings include the following (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Accounts payable and accrued liabilities............... $ 23,121 $ 23,511 $ 23,714
Capital lease obligations.............................. 11,216 12,321 15,560
10 1/4% Notes (including pre-petition accrued
interest)............................................ 67,600 67,576 67,576
13 1/2% Notes (including pre-petition accrued
interest)............................................ 838 838 838
Notes payable.......................................... 83 599 645
----------- ----------- -----------
$ 102,858 $ 104,845 $ 108,333
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
In accordance with the Bankruptcy Code, the Company can seek Court approval
for the rejection of pre-petition executory contracts, including real property
leases. Any such rejection may give rise to a pre-petition claim for breach of
contract. In connection with the Company's Chapter 11 proceedings, the Company
continues to review all of its obligations under its executory contracts. As of
March 31, 1997, the Company has rejected 14 real property leases and certain
executory contracts and assumed 5 leases (with certain conditions and
limitations).
As a result of the reorganization proceedings, the Company may sell or
otherwise realize assets and liquidate or settle liabilities for amounts other
than those reflected in the consolidated financial statements. Further, a plan
of reorganization could materially change the amounts currently recorded in the
consolidated financial statements, including amounts recorded for the excess of
cost over net assets
F-8
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 1--CHAPTER 11 PROCEEDINGS AND BASIS OF PRESENTATION (CONTINUED)
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):
<TABLE>
<CAPTION>
FISCAL FISCAL JANUARY
1996 1995 QUARTER
--------- --------- -----------
<S> <C> <C> <C>
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
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 2--CONSOLIDATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries. All
subsidiaries of the Company are inactive. All significant intercompany
transactions and account balances have been eliminated in consolidation.
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
F-9
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 3--BACKGROUND (CONTINUED)
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
F-10
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 3--BACKGROUND (CONTINUED)
affiliates, (iii) limit the Company's ability to incur additional indebtedness,
(iv) require the Company to repurchase a portion of the 10 1/4% Notes if it
fails to maintain a minimum net worth, (v) limit the Company's ability to create
or permit payment restrictions affecting its subsidiaries, (vi) prohibit the
Company from creating, incurring, assuming or suffering to exist any liens upon
its assets other than usual and customary permitted liens and liens in favor of
a working capital lender, (vii) require the Company to apply 100% of all net
asset sale proceeds to investment in assets directly related to the business of
the Company and its subsidiaries, to repay letter of credit or working capital
indebtedness or to repurchase the 10 1/4% Notes, (viii) require the Company to
offer to purchase all of the 10 1/4% Notes in the event of a post-
Recapitalization change of control and (ix) limit the Company's ability to
invest in unrestricted subsidiaries.
NOTE 4--SUMMARY OF ACCOUNTING POLICIES
CHANGE IN YEAR END
On March 9, 1995, the Company elected to change its fiscal year end from the
Saturday closest to October 31 to the Saturday closest to January 31 in order to
enhance comparability of the Company's results of operations with other apparel
retailers. Accordingly, the accompanying consolidated financial statements
include the results of operations of the Company for the 52 week period ended
February 1, 1997 ("Fiscal 1996"), the 53 week period ended February 3, 1996
("Fiscal 1995"), the quarter ended January 28, 1995, ("January Quarter") and the
52 weeks ended October 29, 1994 ("Fiscal 1994").
INVENTORIES
Inventories are valued at the lower of cost (using the retail last-in,
first-out ("LIFO") method) or net realizable value. At October 30, 1992, as a
result of the Recapitalization, the purchase price allocated to merchandise
inventories was computed based on the estimated selling prices of such
merchandise less the costs of disposal and a profit for the selling effort. As a
result of purchase accounting and the use of the LIFO method (the "Step-up"),
the carrying value of the Company's inventories at February 1, 1997, February 3,
1996, and January 28, 1995, exceeded the weighted average cost of inventories by
$1.8 million, $2.1 million and $2.6 million, respectively.
During the January Quarter, reductions in inventory quantities resulted in
the elimination of LIFO inventory layers which were carried at higher costs
(including the Step-up) as compared with the cost of merchandise purchased in
the January Quarter. The effect of these reductions increased cost of
merchandise sold by $3.2 million ($0.18 per share) in the January Quarter.
PRE-OPENING EXPENSES
Certain costs incurred in connection with the opening of new stores and
significant remodeling of existing stores are capitalized and amortized on a
straight-line basis over twelve months commencing the month following the store
opening.
F-11
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 4--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
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
F-12
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 4--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
F-13
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 4--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
During the first quarter of Fiscal 1996, the Company recognized a non-cash
impairment loss of $4.2 million. Of the total impairment loss, $2.3 million
represents impairment of property and equipment, $1.3 million relates to excess
of cost over net assets acquired and $0.6 million pertains to leasehold
interests. Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly from
such estimates.
As a result of the reduced carrying value of the impaired assets,
depreciation and amortization expense for Fiscal 1997 is expected to be reduced
by approximately $0.4 million.
OTHER
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". This statement encourages, but does not require, a fair value
based method of accounting for stock compensation plans. Companies may elect to
continue to apply current accounting requirements for employee stock
compensation awards. All companies are required to comply with the disclosure
requirements of the statement, and the Company has adopted the disclosure
requirements only in the fiscal year ended February 1, 1997. The Company is
continuing accounting for employee stock compensation awards under Accounting
Principle Board Opinion No. 25 "Accounting for Stock issued to Employees".
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share". All companies
are required to comply with the disclosure requirements of the statement and the
Company will adopt the policy in the fiscal year ending January 31, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior period amounts in the consolidated financial statements have
been reclassified to conform with the current year presentation.
NOTE 5--NET LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss by the
weighted average number of common shares outstanding. The common stock
equivalents, represented by stock options, warrants and Series A Preferred Stock
(outstanding from December 1, 1993 to March 13, 1994) were not considered in the
calculation as they either have an exercise price greater than the applicable
market price, or the effect of assuming their exercise or conversion would be
anti-dilutive. The weighted average number of shares
F-14
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 5--NET LOSS PER COMMON SHARE (CONTINUED)
outstanding was 17,899,906, 17,893,675, 17,883,135 and 14,583,038 for Fiscal
1996, Fiscal 1995, the January Quarter and Fiscal 1994, respectively.
NOTE 6--PROPERTY AND EQUIPMENT
Property and equipment consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
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
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
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
F-15
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 7--LEASES (CONTINUED)
excess of a stipulated minimum). The majority of lease agreements cover periods
from 20 to 30 years, including three to six renewal options of five years each.
Operating lease rental expense is summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL JANUARY FISCAL
1996 1995 QUARTER 1994
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
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
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
The Company had capital lease contingent rental expense of approximately
$0.1 million and received sublease rentals of approximately $0.4 million during
each of Fiscal 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):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
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
---------
---------
</TABLE>
F-16
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 7--LEASES (CONTINUED)
In addition, the Company guarantees an operating lease, expiring February
1998 with one option to renew the lease for a term of three years, of a third
party which operates a distribution center for the Company. At February 1, 1997,
annual future minimum rentals of the operating lease relating to the
distribution center are approximately $0.3 million per year.
NOTE 8--DEBT
WORKING CAPITAL FACILITY
In January 1994, the Company replaced its existing working capital facility
with a new loan and security agreement with an asset-based lender, Foothill
Capital Group ("Foothill"). Amounts borrowed bore interest payable monthly at
1.75%, increased to 2.25% on June 21, 1994, above the reference rate (the base
rate charged by major money center banks) with a minimum of 7.50% per annum.
On February 17, 1995, the Company received approval from the Court for a
Loan and Security Agreement with Foothill (the "Old DIP Facility"). The Old DIP
Facility provided for a borrowing capacity of up to $32.0 million in revolving
loans, including up to $15.0 million of letters of credit, subject to borrowing
base limitations based upon, among other things, the value of inventory and
certain real property. Effective October 17, 1995, the Old DIP Facility was
amended to increase the percentage of inventory value allowed in the borrowing
capacity from 60% to 70%. This increase in borrowing base was in effect for the
period October 17, 1995 through December 2, 1995. Effective November 28, 1995,
Foothill increased the Company's borrowing capacity from $32 million to $34
million to accommodate seasonal requirements. The additional $2 million in
borrowing capacity expired December 15, 1995.
The Old DIP Facility provided that interest would accrue at the rate of 3%
per annum in excess of the reference rate, payable monthly in arrears. The Old
DIP Facility also provided that in the event of a default in the payment of any
amount due thereunder, the interest rate on such defaulted amount would be 4.5%
per annum in excess of the reference rate, payable on demand. At February 3,
1996, the reference rate was 8.25%.
The Company paid Foothill $80,000 upon the closing of the Old DIP Facility
in February 1995 and the additional closing fees totaling $240,000, all of which
had been paid as of March 31, 1996. Fees payable under the Old DIP Facility
consisted primarily of monthly payments equal to 1/2% of the average unused
borrowing capacity and quarterly payments equal to 1/4% of the borrowing
capacity for each quarterly renewal period.
On June 4, 1996, the Company entered into a loan and security agreement (the
"FNBB Facility") with The First National Bank of Boston ("FNBB") replacing the
Old DIP Facility, after a hearing by the Court and the entering of an order
approving such financing. Although Foothill had taken no action to declare the
Company in default as of the date on which the Old DIP Facility was terminated,
the Company was in violation of the net worth maintenance covenant in the Old
DIP Facility at the time of termination.
Pursuant to the FNBB Facility, the Company is able to borrow up to $32
million in revolving loans (including $3 million of letters of credit), subject
to borrowing base limitations based upon, among other things, the value of
inventory and certain real property. The FNBB Facility will expire on the
effective date of the Company's Plan of Reorganization or June 30, 1997,
whichever is sooner. The Bank has informed
F-17
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 8--DEBT (CONTINUED)
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
F-18
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 8--DEBT (CONTINUED)
indebtedness (other than the FNBB Facility) since the date of filing. The
13 1/2% Notes were due February 15, 1995.
NOTE 9--STORE CLOSURE COSTS
In July 1994, the Company determined that three of its Portland, Oregon
stores and all five Lamonts For Kids children's stores should be closed because
of poor performance. These stores represented approximately 8.1% of the
Company's 1994 revenues. All store closures occurred by January 31, 1995, and a
$7.2 million charge against operations for these costs was recorded at October
29, 1994.
In connection with its operational restructuring, the Company received
permission from the Court to close six additional underperforming stores in
January 1995. A charge to reorganization expense of $2.2 million was recorded in
the January Quarter. In January 1996, the Company received permission from the
Court to close an underperforming store located in Eugene, Oregon, and the
Company conducted a going out of business sale at this store through March 1996.
The Company owned the building in Eugene subject to a ground lease and attempted
to market the building. A purchaser was not located and ownership of the
building reverted to the owner of the underlying land. The write off of the net
book value of the building and leasehold improvements was included in the $3.0
million charge to reorganization expense recorded in Fiscal 1995 in connection
with the closure of the Eugene store. In October 1996, the Company received
approval by the Court to close four additional underperforming stores, located
in Spokane, WA; Twin Falls, ID; Missoula, MT; and Hillsboro, OR. The Company
conducted going out of business sales at these stores through December 1996.
During Fiscal 1996, $3.1 million was charged to reorganization expense in
connection with the closure of these stores. Store closure costs for Fiscal
1996, Fiscal 1995, the January Quarter and Fiscal 1994 are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
STORE CLOSURE COSTS
--------------------------------------------
FISCAL FISCAL JANUARY FISCAL
1996 1995 QUARTER 1994
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Write-off of property and equipment, net of
obligations under capital leases..................... $ -- $ 2,362 $ 1,330 $ 2,972
Adjustments to inventory carrying values............... 1,866 450 400 1,748
Estimated operating losses through the dates
of closure........................................... -- -- -- 1,357
Lease Termination Costs................................ 1,036 -- -- --
Other.................................................. 186 238 470 1,123
--------- --------- ----------- ---------
$ 3,088 $ 3,050 $ 2,200 $ 7,200
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Amounts charged to reserve............................. $ 5,292 $ 3,247 $ 2,806 $ 3,843
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
Revenues associated with the closed stores totaled $13.9 million, $16.1
million, $12.5 million and $47.1 million in Fiscal 1996, Fiscal 1995, the
January Quarter and Fiscal 1994, respectively. Operating income (losses),
excluding the allocation of corporate expenses, interest and reorganization
expenses, incurred from these stores were $1.4 million, ($0.9) million, ($2.5)
million and ($5.4) million in Fiscal 1996, Fiscal 1995, the January Quarter and
Fiscal 1994, respectively.
F-19
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
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):
<TABLE>
<CAPTION>
FISCAL
1994
-------
<S> <C>
Current................................. $ (400 )
Deferred................................ --
-------
$ (400 )
-------
-------
</TABLE>
The Company has recorded a valuation allowance against net deferred tax
assets as the Company could not conclude that it was more likely than not that
the tax benefits from temporary differences and net operating loss carryforwards
would be realized.
The differences between the Company's effective income tax rate and the
Federal statutory rate for 1994 is summarized as follows:
<TABLE>
<CAPTION>
FISCAL
1994
---------
<S> <C>
Expected benefit.................................. (34.0 %)
Effect of current year net operating loss......... 34.0 %
Adjustment to tax provision....................... (0.9 %)
Other............................................. --
---------
(0.9 %)
---------
---------
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities are as follows (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY JANUARY
1, 1997 3, 1996 28, 1995
---------- ---------- ----------
<S> <C> <C> <C>
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
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-20
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 10--INCOME TAXES (CONTINUED)
As a result of the Recapitalization, the Company's ability to utilize its
Federal tax net operating loss carryforward of $14.7 million and its alternative
minimum tax net operating loss carryforward of $2.8 million at October 31, 1992,
which expire beginning in 2005, may be significantly limited under Internal
Revenue Code Section 382 in future years. The Federal tax net operating loss
carryforward and the alternative minimum tax net operating loss carryforward at
October 31, 1992 are shown net of a $9.5 million and $6.4 million, respectively,
reduction associated with the Company's agreement with the Internal Revenue
Service ("IRS") discussed below.
As of February 1, 1997, the Company had $101.0 million and $90.9 million of
regular tax and alternative minimum tax net operating losses, respectively,
which are available to offset future income, expiring in years beginning in
2005. Possible restructuring of the Company and cancellation of indebtedness
resulting from the reorganization of the Company under Chapter 11 could further
impact the Company's ability to utilize its net operating loss carryforwards.
The Company's Federal income tax returns for fiscal years 1988, 1989 and
1990 were examined by the IRS. An agreement, which was reviewed and accepted by
the Joint Committee of Taxation was reached with the IRS, whereby the Company
was given notice to pay the IRS approximately $504,000 for additional taxes and
interest. This amount is 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.
F-21
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LONG TERM DEBT INCLUDED IN LIABILITIES SUBJECT TO COMPROMISE
Management believes the carrying amount the Company's 10 1/4% Notes and the
13 1/2% Notes is in excess of fair value based on the Company's Chapter 11
filing. Until a plan of reorganization is approved by the Court, a fair value
can not be readily determined.
NOTE 12--COMMITMENTS, CONTINGENCIES AND OTHER
The Company is involved in various matters of litigation arising in the
ordinary course of business. In the opinion of management, the ultimate outcome
of all such matters should not have a material adverse effect on the financial
position of the Company, but, if decided adversely to the Company, could have a
material effect upon the Company's anticipated plan of reorganization or
operating results during the period in which the litigation is resolved.
CREDIT CARD PLAN AGREEMENT
The Company's proprietary charge card, administered and owned by Alliance
Data Systems (which purchased the charge accounts from National City Bank of
Columbus), provides for the option of paying in full within 30 days of the
billed date with no finance charge or with revolving credit terms. Terms of the
short-term revolving charge accounts require customers to make minimum monthly
payments in accordance with prescribed schedules. Through a contractual
arrangement, as amended (the "Agreement"), Alliance Data Systems owns the
receivables generated from purchases made by customers using the Lamonts charge
card. The Agreement provides that the Company will be charged a discount fee of
1.95% of Net Sales, as that term is defined in the Agreement.
Additionally, the Agreement provides for a supplemental discount fee equal
to one-tenth of one percent (0.1%) of Net Sales for each one million dollar
increment that Net Sales for a 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.
F-22
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 13--STOCKHOLDERS' EQUITY (CONTINUED)
Subject to rights of holders of Preferred Stock, if any, the holders of
shares of Common Stock are entitled to dividends when, and if declared by the
Board of Directors from funds legally available and, upon liquidation, to a pro
rata share in any distribution to stockholders.
PREFERRED STOCK
On December 1, 1993, 4,466,206 shares of the Company's Series A Preferred
Stock was issued pursuant to the Infusion. Each share of the Series A Preferred
Stock automatically converted into two shares of Common Stock on March 14, 1994,
concurrent with the stockholders approval of an increase in the number of
authorized shares of Common Stock of the Company from 15 million to 40 million
shares.
Pursuant to the Restated Certificate of Incorporation of the Company, the
Board of Directors has the authority, without further shareholder approval, to
provide for the issuance of up to 10 million shares of Preferred Stock in one or
more series and to determine the dividend rights, conversion rights, sinking
fund rights, voting rights, rights and terms of redemption, liquidation
preferences, the number of shares constituting any such series and the
designation of such series. Because the Board of Directors has the power to
establish the preferences and rights of each series, it may afford the holders
of any Preferred Stock preferences, powers and rights (including voting rights)
senior to the rights of the holders of Common Stock. No shares of Preferred
Stock are currently outstanding.
WARRANTS
On September 21, 1992, the Company distributed as a dividend to the holders
of Common Stock of record as of September 1, 1992, 1992 Warrants to purchase an
aggregate of 1,017,478 shares of Common Stock. The exercise price of the 1992
Warrants is $5.51 per share which shall increase on each September 28 by an
amount equal to 10% of the exercise price immediately prior to such increase. As
of February 1, 1997 none of the 1992 Warrants have been exercised.
On June 10, 1994, the Company issued 1994 Warrants to purchase up to an
aggregate of approximately 2.0 million shares of Common Stock (or approximately
10% of the Common Stock outstanding after giving effect to the exercise of such
1994 Warrants) to the holders of the 10 1/4% Notes. The 1994 Warrants may be
exercised on or prior to June 10, 1999, at an initial exercise price of $1.00
per share of Common Stock. As of February 1, 1997, none of the 1994 Warrants
have been exercised.
The exercise price per share of Common Stock subject to the 1992 and 1994
Warrants would be adjusted upon the occurrence of certain events, including
future distributions or issuances by the Company of: (i) Common Stock, (ii)
rights, options or warrants to purchase Common Stock or (iii) securities
convertible into or exchangeable for Common Stock, at a price per share less
than the then current market price per share of Common stock. Upon each such
adjustment to the exercise price, the number of shares of Common Stock subject
to the 1992 and 1994 Warrants will be proportionately adjusted.
STOCK OPTIONS
The Lamonts Apparel, Inc. 1992 Incentive and Nonstatutory Stock Option Plan
(the "1992 Stock Option Plan"), which was approved by the Board of Directors and
by the stockholders in 1992 and amended by the Board of Directors and by the
stockholders in 1994, provides for the issuance of options to
F-23
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 13--STOCKHOLDERS' EQUITY (CONTINUED)
purchase up to 1,972,845 shares of Common Stock, subject to certain
anti-dilution adjustments. Awards may be granted under the 1992 Stock Option
Plan to individuals, identified by the plan committee, who have or will have a
direct and significant effect on the performance or financial development of the
Company. The following table summarizes the 1992 Stock Option Plan activity:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
--------------
<S> <C>
Balance, October 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
--------------
--------------
</TABLE>
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
F-24
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 14--RELATED PARTY TRANSACTIONS (CONTINUED)
Agreement has exercised its right thereunder. Pursuant to the Plan, the
Company's obligations under the Voting Agreement will be rejected upon the
effective date of the Plan.
A former director of the Company is an affiliate of Morgens Waterfall
Vintiadis & Co. Inc. ("Morgens Waterfall"). Pursuant to the Recapitalization,
certain affiliates of Morgens Waterfall received an aggregate of approximately
16.7% (1,482,906 shares) of Common Stock outstanding immediately following the
Recapitalization in exchange for approximately $12.5 million in principal amount
of 13 1/2% Notes.
A former director of the Company was an officer of one of the banks which
extended a line of credit to the Company prior to its replacement with the
Foothill working capital facility in January 1994 (see Note 8).
Pursuant to the Recapitalization, Executive Life Insurance Company of New
York ("ELICNY") received 898,406 shares of the Company's Common Stock and $7.8
million ($6.4 million after adjustment for the Infusion) in principal amount of
the 10 1/4% Notes. During Fiscal 1994, the Company paid ELICNY $0.8 million of
cash interest on the 10 1/4% Notes. In addition, at October 29, 1994 the Company
had accrued $0.4 million of interest on the 10 1/4% Notes, which was
subsequently issued to ELICNY in additional securities of the Company as
interest paid in kind.
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.
F-25
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 15--BENEFIT PLANS (CONTINUED)
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>
JANUARY
FEBRUARY FEBRUARY 28,
1, 1997 3, 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 4,642
------- ------- -------
Projected benefit obligation in excess of
Retirement Plan assets.......................... 468 1,496 847
Unrecognized net loss from past experience
different from that assumed..................... (347 ) (1,238 ) (1,162 )
------- ------- -------
Accrued (prepaid) pension cost.................... 121 258 (315 )
Additional liability charge to equity to recognize
minimum liability............................... -- 250 --
------- ------- -------
Total accrued (prepaid) pension cost.............. $ 121 $ 508 ($ 315 )
------- ------- -------
------- ------- -------
Discount rate..................................... 7.75% 7.25% 8.5%
Rate of increase in future compensation levels.... 3.5% 3.5% 4.5%
Expected long term rate of return on assets....... 9.0% 9.0% 9.0%
</TABLE>
Amounts charged to expense under the Retirement Plan were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL JANUARY FISCAL
1996 1995 QUARTER 1994
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Service cost, benefits earned during the period... $ 404 $ 414 $ 108 $ 536
Interest cost on projected benefit obligation..... 461 483 113 407
Actual return on assets........................... (635) (883) 39 11
Other, including deferred recognition of asset
gain/(loss)..................................... 213 559 (129 ) (444)
------- ------- ------- ---------
Net pension cost.................................. $ 443 $ 573 $ 131 $ 510
------- ------- ------- ---------
------- ------- ------- ---------
</TABLE>
During Fiscal 1995, a claim was filed against the Company by the Pension
Benefit Guaranty Corporation ("PBGC") in the amount of $2.8 million based upon
PBGC's assumption that one of the Company's qualified employee retirement plans
would be terminated. The Company believes that even if the plan was terminated,
unfunded plan benefit liabilities would not be material. The Company disputed
the claim. PBGC has withdrawn its claim without prejudice to its right to refile
at a future date if the PBGC determines it is appropriate to do so.
F-26
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 15--BENEFIT PLANS (CONTINUED)
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.
F-27
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash................................................................................. $ 2,298 $ 2,694
Receivables--net..................................................................... 2,271 2,478
Inventories.......................................................................... 55,712 52,770
Prepaid expenses and other........................................................... 2,365 2,315
Restricted cash and deposits......................................................... 1,703 1,217
----------- -----------
Total current assets............................................................... 64,349 61,474
Property and equipment--net of accumulated depreciation and amortization of $30,994 and
$26,061 respectively................................................................. 27,765 31,924
Leasehold interests.................................................................... 3,156 3,595
Excess of cost over net assets acquired--net........................................... 11,347 11,681
Deferred financing costs--net.......................................................... 1,447 2,170
Restricted cash and deposits........................................................... 1,142 1,139
Other assets........................................................................... 787 981
----------- -----------
Total assets....................................................................... $ 109,993 $ 112,964
----------- -----------
----------- -----------
Liabilities not subject to settlement under reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility........................................................ $ 24,401 $ 29,565
Accounts payable..................................................................... 25,435 24,400
Accrued payroll and related costs.................................................... 2,525 2,564
Accrued taxes........................................................................ 1,400 1,187
Accrued interest..................................................................... 1,132 526
Accrued store closure costs.......................................................... -- 2,695
Other accrued expenses............................................................... 6,487 6,159
Current maturities of obligations under capital leases............................... 122 --
----------- -----------
Total current liabilities.......................................................... 61,502 67,096
Long-term debt......................................................................... 10,000 --
Obligations under capital leases....................................................... 3,246 2,808
Other.................................................................................. 167 547
----------- -----------
Total liabilities not subject to settlement under reorganization proceedings....... 74,915 70,451
----------- -----------
Liabilities subject to settlement under reorganization proceedings..................... 103,489 103,538
----------- -----------
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 62,963
Minimum pension liability adjustment................................................... -- (250)
Accumulated deficit.................................................................... (131,600) (123,917)
----------- -----------
Total stockholders' equity (deficit)............................................... (68,411) (61,025)
----------- -----------
Total liabilities and stockholders' equity (deficit)............................... $ 109,993 $ 112,964
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consoldated financial
statements.
F-28
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
<S> <C> <C>
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)
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consoldated financial
statements.
F-29
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
<S> <C> <C>
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)
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consoldated financial
statements.
F-30
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
<S> <C> <C>
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
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consoldated financial
statements.
F-31
<PAGE>
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.
F-32
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 1--PETITION FOR RELIEF UNDER CHAPTER 11 (CONTINUED)
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."
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.
F-33
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 1--PETITION FOR RELIEF UNDER CHAPTER 11 (CONTINUED)
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.
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.
F-34
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 2--BASIS OF PRESENTATION (CONTINUED)
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.
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,
F-35
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 2--BASIS OF PRESENTATION (CONTINUED)
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.
F-36
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 3--LOAN AND SECURITY AGREEMENTS (CONTINUED)
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 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
F-37
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 3--LOAN AND SECURITY AGREEMENTS (CONTINUED)
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.)
F-38
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses other than the Securities and Exchange Commission filing fees
are estimated.
<TABLE>
<S> <C>
SEC registration fee........................................... $ 1,639.68
Accountants' fees and expenses................................. $100,000.00
Legal fees and expenses........................................ $150,000.00
Blue Sky fees and expenses..................................... 0
Printing and engraving expenses................................ $25,000.00
Rating agencies' fees.......................................... 0
Trustee's and registrar's fees and expenses.................... $10,000.00
Miscellaneous.................................................. $50,000.00
----------
Total:..................................................... $336,639.68
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporation Law of the State of Delaware, a
Delaware corporation has the power, under specified circumstances, to indemnify
its directors, officers, employees and agents in connection with actions, suits
or proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against liabilities and expenses incurred in any
such action, suit or proceeding. Article VIII of the Company's Amended and
Restated Bylaws provides that the Company shall indemnify all persons that are
officers and directors of the Company on or after the Plan Effective Date to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware.
The officers and directors of the Company will each enter into
indemnification agreements (the "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 certain other circumstances. The Indemnification Agreements are 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. Individuals not entering into indemnification agreements will
remain entitled to the indemnification provisions of the Company's Amended and
Restated Bylaws and as otherwise provided by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM
REGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <S>
3.1 Form of Second Restated Certificate of Incorporation of the Registrant.
3.2 Form of Amended and Restated By-laws of the Registrant.
4.1 Specimen Class A Common Stock certificate.
4.2 Specimen Class B Common Stock certificate.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
4.3 Form of Warrant Agreement dated , 1998 between the Registrant
and , as Warrant Agent.
4.4 Form of Warrant Agreement dated , 1998 between the Registrant
and Specialty Investment I LLC.
4.5 Form of Warrant Agreement dated , 1998 between the
Registrant and Gordian Group, L.P.
*5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality of
the Common Stock and Warrants.
10.1 Standard Service Agreement dated February 13, 1989 between Frederick
Atkins, Incorporated and the Registrant, as amended October 3, 1989 and
February 5, 1990.
10.2 Credit Card Plan Agreement dated June 20, 1988, as amended September 30,
1992, between the Registrant and Alliance Data Systems (successor in
interest to National City Bank, Columbus, f/k/a BancOhio National Bank)
(the "Credit Card Plan Agreement").(1)
10.3 Form of Indemnification Agreement dated October 30, 1992 between the
Registrant and each of Alan R. Schlesinger, Loren R. Rothschild and
Debbie A. Brownfield.(2)
10.4 Amendment No. 2 dated March 30, 1994 to the Credit Card Plan Agreement.(3)
10.5 Letter Agreement dated November 2, 1994 to the Credit Card Plan
Agreement.(4)
10.6 Employment Agreement dated April 18, 1995 between the Registrant and Alan
R. Schlesinger.(5)
10.7 Employment Agreement dated April 18, 1995 between the Registrant and Loren
R. Rothschild.(5)
10.8 License Agreement dated May 25, 1995 between the Registrant and Shoe
Corporation of America.(6)
10.9 Computer Services Agreement dated February 1, 1996 between the Registrant
and Infotech Corporation.(7)
10.10 Loan and Security Agreement dated June 4, 1996 between First National Bank
of Boston and the Registrant.(8)
10.11 Depository Account Agreement dated June 4, 1996 among the Registrant,
BankBoston and Bank of America, N.W. N.A. (d/b/a Seafirst Bank).
10.12 Waiver dated August 3, 1996 between First National Bank of Boston and the
Registrant.(9)
10.13 First Amendment dated November 8, 1996 to Loan and Security Agreement
dated June 4, 1996 between First National Bank of Boston and the
Registrant.(10)
10.14 Amendment dated December 9, 1996 to the Credit Card Plan Agreement.(11)
10.15 Computer Services Agreement dated February 4, 1997 between the Registrant
and Affiliated Computer Services, Inc.(11)
10.16 Second Amendment dated May 23, 1997 to Loan and Security Agreement dated
June 4, 1996 between the Registrant and Bank Boston, N.A. (f/k/a The
First National Bank of Boston) ("BankBoston").(12)
10.17 Form of Non-Qualified Employee Stock Option Agreement dated ,
1998 between the Registrant and each of Alan R. Schlesinger, Loren R.
Rothschild, Debbie A Brownfield, E.H. Bulen and Gary A. Grossblatt.
10.18 Form of Lamonts Apparel, Inc. 1998 Stock Option Plan.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.19 Form of Amended and Restated Employment Agreement dated , 1998
between the Registrant and Alan R. Schlesinger.
10.20 Form of Amended and Restated Employment Agreement dated , 1998
between the Registrant and Loren R. Rothschild.
10.21 Amended and Restated Debtor in Possession and Exit Financing Loan
Agreement dated September 26, 1997 among the Registrant, certain
financial institutions and Bank Boston, as agent.(13)
10.22 Form of Grant of Registration Rights dated , 1998 among the
Company and the parties listed on the signature pages thereto.
*10.23 Form of Indemnification Agreement dated , 1998 between the
Registrant and each director and officer of the Registrant as of the
Plan Effective Date.
*11.1 Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.(14)
23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in their
opinion filed as Exhibit 5.1).
24.1 Power of Attorney (included on page II-4).
99.1 Modified and Restated Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code.(13)
99.2 Supplemented and Restated Disclosure Statement (As Amended) re Debtor's
Plan of Reorganization Under Chapter 11 of the Bankruptcy Code.(13)
</TABLE>
All other exhibits have been omitted since the required information is not
present or not present in amounts sufficient to require submission of schedules,
or because the information required is included in the financial statements and
Notes thereto.
- ------------------------
* To be filed by amendment
(1) Incorporated by reference from Registration Statement No. 33-56038 of the
Registrant, initially filed with the Commission on December 22, 1992.
(2) Incorporated by reference from Current Report on Form 8-K of the Registrant
as filed with the Commission on November 13, 1992.
(3) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on June 14, 1994.
(4) Incorporated by reference from Annual Report on Form 10-K of the Registrant
as filed with the Commission on January 27, 1995.
(5) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on April 21, 1995.
(6) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on June 12, 1995.
(7) Incorporated by reference from Annual Report on Form 10-K of the Registrant
as filed with the Commission on May 3, 1996.
(8) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on June 18, 1996.
(9) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on September 16, 1996.
II-3
<PAGE>
(10) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on December 17, 1996.
(11) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with the Commission on May 2, 1997.
(12) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on September 12, 1997.
(13) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on December 16, 1997.
(14) Incorporated by reference from Registration Statement No. 33-68720 of the
Registrant, initially filed with the Commission on September 14, 1993.
ITEM 17. UNDERTAKINGS
The Undersigned Registrant hereby undertakes:
(1) To file, during the period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in the volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of the Registration Fee" table in the effective
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new Registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from Registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Loren R.
Rothschild his or her true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, there unto duly authorized, in the City of Kirkland,
State of Washington, on January 15, 1998.
<TABLE>
<S> <C> <C>
LAMONTS APPAREL, INC.
By: /s/ ALAN R. SCHLESINGER
------------------------------------------
Alan R. Schlesinger
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ -------------------
<C> <S> <C>
Chairman of the Board, Chief
/s/ ALAN R. SCHLESINGER Executive Officer and
- ------------------------------ Director (Principal January 15, 1998
Alan R. Schlesinger Executive Officer)
/s/ LOREN R. ROTHSCHILD
- ------------------------------ Vice Chairman of the Board and January 15, 1998
Loren R. Rothschild Director
Executive Vice President,
Chief Financial Officer
/s/ DEBBIE A. BROWNFIELD and Secretary (Principal
- ------------------------------ Financial Officer and January 15, 1998
Debbie A. Brownfield Principal Accounting
Officer)
</TABLE>
II-5
<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>
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
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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-
9
<PAGE>
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,
10
<PAGE>
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-
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
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
<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>
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>
- -------------------------------------------------------------------------------
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.
3
<PAGE>
"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
4
<PAGE>
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.
5
<PAGE>
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.
6
<PAGE>
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.
7
<PAGE>
(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
8
<PAGE>
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.
9
<PAGE>
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
10
<PAGE>
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
11
<PAGE>
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,
12
<PAGE>
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
13
<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
16
<PAGE>
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,
17
<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.
21
<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:
23
<PAGE>
EXHIBIT A
FORM OF
CLASS [A] [B] WARRANT CERTIFICATE
NEITHER THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE ISSUANCE OF ANY SECURITIES ISSUABLE UPON EXERCISE HEREOF HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES MAY
NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE
SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER OR (ii) AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
NO. W [A][B]-_____
CERTIFICATE FOR____________CLASS [A][B] WARRANTS
NOT EXERCISABLE AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON ______, 200_ [10 YEARS FOLLOWING EFFECTIVE DATE]
LAMONTS APPAREL, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES that ________________ or its registered assigns is the
registered holder (the "Registered Holder") of ___________ Class [A][B]
Warrants, each of which represents the right to purchase one fully paid and
non-assessable share of Common Stock, par value $.01 per share (the "Common
Stock"), of Lamonts Apparel, Inc., a Delaware corporation (the "Company"), at
an initial exercise price (the "Exercise Price") equal to $.01 per share, at
the times provided in the Warrant Agreement (as hereinafter defined), by
surrendering this Warrant Certificate, with the ELECTION TO PURCHASE on the
reverse hereof duly executed, at the principal office of _____________ or its
successor as warrant agent (any such warrant agent being herein called the
"Warrant Agent"), at ______________________, and by paying in full the
Exercise Price, plus transfer taxes, if any. Payment of the Exercise Price
may be made at the option of the holder hereof by (i) cash, certified check
or a wire transfer in same day funds in an amount equal to the then
applicable Exercise Price multiplied by the number of Warrant Shares then
being purchased, (ii) delivery to the Company of that number of shares of
Common Stock having an aggregate Fair Market Value equal to the then
applicable Exercise Price multiplied by the number of Warrant Shares then
being purchased or (iii) by any combination of (i) and (ii). In the
alternative, the Registered Holder may exercise its right to purchase some or
all of the Warrant Shares subject to Warrant Certificate, on a net basis,
such that, without the exchange of any funds, the Registered Holder receives
that number of Warrant Shares subscribed to pursuant to this Warrant
Certificate less that number of shares of Common Stock having an aggregate
Fair Market Value at the time of exercise equal to the aggregate Exercise
Price that would otherwise have been paid by such holder for the number of
Warrant Shares subscribed to pursuant to this Warrant Certificate.
No Warrant may be exercised after 5:00 P.M., New York City time, on
_________, 200_ (the "Expiration Date"). All Warrants evidenced hereby shall
thereafter become void, subject to the terms of the Warrant Agreement.
Prior to the Expiration Date, subject to any applicable laws, rules or
regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate and in accordance
with the
<PAGE>
terms of the Warrant Agreement, the Registered Holder shall be entitled
to transfer this Warrant Certificate, in whole or in part, upon surrender of
this Warrant Certificate at the Warrant Agent's Office with the ASSIGNMENT on
the reverse hereof. Upon any such transfer, a new Warrant Certificate or
Warrant Certificates representing the same aggregate number of Warrants will be
issued in accordance with instructions in the form of assignment.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled to
exchange this Warrant Certificate, with or without other Warrant Certificates,
for another Warrant Certificate or Warrant Certificates for the same aggregate
number of Warrants, upon surrender of this Warrant Certificate at the Warrant
Agent's Office as set forth in the Warrant Agreement. Upon certain events
provided for in the Warrant Agreement, the Exercise Price and the number of
shares of Common Stock issuable upon the exercise of each Warrant are required
to be adjusted. No fractional shares will be issued upon the exercise of
Warrants. As to any final fraction of a share which the Registered Holder of
one or more Warrant Certificates, the rights under which are exercised in the
same transaction, would otherwise be entitled to purchase upon such exercise,
the Company shall pay the cash value thereof determined as provided in the
Warrant Agreement.
This Warrant Certificate is issued under and in accordance with the Warrant
Agreement dated as of ______, 199_ between the Company and the Warrant Agent
(the "Warrant Agreement") and is subject to the terms and provisions contained
in said Warrant Agreement, to all of which terms and provisions the Registered
Holder consents by acceptance hereof. All capitalized terms not defined herein
shall have the meaning set forth in the Warrant Agreement.
This Warrant Certificate shall not entitle the Registered Holder to any of
the rights of a stockholder of the Company, including, without limitation, the
right to vote, to receive dividends and other distributions, or to attend or
receive any notice of meetings of stockholders or any other proceedings of the
Company.
This Warrant Certificate shall not be valid for any purpose until it shall
have been countersigned by the Warrant Agent.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its facsimile Corporate Seal.
LAMONTS APPAREL, INC.
By:
----------------------------
Name:
Title:
Seal Attest:
-------------------------------
Assistant Secretary
Countersigned: -------------------------------,
as Warrant Agent
Dated: By:
----------------------------
Authorized Signature
3
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise ________________
of the Warrants represented by this Warrant Certificate and to purchase the
shares of Common Stock issuable upon the exercise of said Warrants, and requests
that Certificates for such shares be issued and delivered as follows:
ISSUE TO:_________________________________________________________________
(NAME)
__________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
__________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:_______________________________________________________________
(NAME)
at________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby exercised is less than all the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the number of full Warrants not exercised be
issued and delivered as set forth above.
In full payment of the exercise price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$ by (i) $______ in cash, certified check or wire transfer in same day
funds, (ii) surrender to the Warrant Agent of certificate no(s) ____________
representing ______ shares of Common Stock duly endorsed to the Warrant Agent,
(iii) a combination of (i) an (ii) or (iv) exercising the Warrants exercised on
a net basis such that the number of shares of Common Stock otherwise receivable
by the Registered Holder pursuant to the Warrants exercised shall be reduced by
the number of shares of Common Stock having an aggregate Fair Market Value equal
to the exercise price with respect to the Warrants exercised.
Date: ______________, 19__ _____________________________________
Signature
(Signature must conform in all
respects to name of holder
as specified on the face of
the Warrant Certificate.)
4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant Certificate, with respect to the number of
Warrants set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF WARRANTS
- ---------------- ------- ---------------
and does hereby irrevocably constitute and appoint_____________________________,
Attorney, to make such transfer on the books of Lamonts Apparel, Inc. maintained
for that purpose, with full power of substitution in the premises.
Date: ______________, 19__ ___________________________________________
Signature
(Signature must conform in all
respects to name of holder
as specified on the face of
the Warrant Certificate.)
5
<PAGE>
FORM OF
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of _________, 1998 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 Specialty Investment I LLC ("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 26, 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 26, 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.
(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
- ----------------------------
* Bracketed language does not go in Warrant Agreement executed by management.
* Bracketed language does not go in Warrant Agreement executed by management.
1
<PAGE>
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.
"DATE OF ISSUANCE" shall have the meaning assigned to such term in the
form of Warrant Certificate attached as Annex 1 hereto.
"EXPIRATION DATE" shall have the meaning assigned to such term in the
form of Warrant Certificate 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
2
<PAGE>
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 Certificate or any
Warrant Certificate issued upon transfer division, combination, partial
exercise of Warrants or in replacement or substitution therefor or who
acquires 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 2 hereto, as said Registration Rights Agreement
shall be modified and supplemented and in effect from time to time.
"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
3
<PAGE>
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 Warrant
Certificate.
"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 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.
4
<PAGE>
"WARRANT CERTIFICATE(S)" shall have the meaning assigned to such term in
SECTION 2.01.
"WARRANT(S)" 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.
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 substantially in the form of ANNEX 1 to this Agreement ("Warrant
Certificate" or "Warrant Certificates") evidencing warrants to purchase Stock
Units representing shares of Stock (such Warrant Certificate(s), Warrant
Certificates issued upon transfer, partial exercise, division or combination
of, or in substitution or replacement for any Warrant Certificate or the
rights to purchase Stock evidenced by each of the foregoing, is, as the
context requires, sometimes referred to herein as a "Warrant" or "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
5
<PAGE>
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 Warrants 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 Warrant Certificate 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.
2.03 TRANSFER AND EXCHANGE OF WARRANTS.
(a) Warrant Certificates evidencing Restricted Securities and
only such Warrant Certificates will bear a legend in substantially the
following form:
NEITHER THE EXERCISE OF THE WARRANTS EVIDENCED BY THIS CERTIFICATE
NOR THE ISSUANCE OF SECURITIES ISSUABLE UPON EXERCISE THEREOF 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
6
<PAGE>
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 Holder thereof, upon surrender, properly endorsed by the registered
Holders, at the Company, with written instructions, for other Warrant
Certificates evidencing 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.
7
<PAGE>
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.
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
8
<PAGE>
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.
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.
9
<PAGE>
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.
SECTION 5. HOLDERS, RIGHTS.
5.01 DELIVERY EXPENSES. If any Holder surrenders any Warrant
Certificate 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 a 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
10
<PAGE>
(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 evidencing
the right to purchase) an equal number of Warrants or Warrant Shares.
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 Brownfield
11
<PAGE>
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, CA 90071
Attention: Michael A. Woronoff, Esq.
(ii) if to Holder:
Specialty Investment I LLC
40 Broad Street
Boston, MA 02109
Attn: Mitchell H. Cohen, Esq.
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 reasonable legal fees and expenses), in connection with
this Agreement but only to the extent provided in the Amended Loan Agreement.
12
<PAGE>
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.
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
13
<PAGE>
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.
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.
14
<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:
SPECIALTY INVESTMENT I LLC
By____________________________________
Name:
Title:
15
<PAGE>
Annex 1
to
Warrant Agreement
[Form of Warrant Certificate]
WARRANT CERTIFICATE
NEITHER THE EXERCISE OF THE WARRANTS EVIDENCED BY THIS CERTIFICATE NOR
THE ISSUANCE OF SECURITIES ISSUABLE UPON EXERCISE THEREOF 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 Warrants: 228,639 Warrant Certificate No. 1
WARRANT CERTIFICATE
to Purchase Stock of
LAMONTS APPAREL, INC.
Expiring as set forth in the first paragraph hereof
THIS IS TO CERTIFY THAT Specialty Investment I LLC or its assigns, is
the holder of the above number of Warrants. Each such Warrant entitles the
holder thereof to purchase from time to time from LAMONTS APPAREL, INC., a
Delaware corporation (the "Company") on the terms of this Warrant
Certificate, (i) at any time on or after the Date of Issuance, but not later
than 5:00 p.m., New York time, on ____________, 2002
16
<PAGE>
(the "Stock Unit Expiration Date"), 14 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
____________, 2008 (the "Adjustment Unit Expiration Date"), 1 Stock Unit at a
purchase price of $.01 per Stock Unit (the "Adjustment Unit Exercise Price");
provided that the portion of each Warrant described in this clause (ii) shall
not be exercisable unless and until the portion of such Warrant 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 Certificate, 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 Gordian 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 Gordian Warrants or
shares of Stock issuable or issued upon the exercise thereof);
(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);
17
<PAGE>
(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 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
Certificate.
18
<PAGE>
"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 _________, 1998.
"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.
"GORDIAN 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 Gordian 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.
"WARRANT AGREEMENT" shall mean the Warrant Agreement dated as of
_____________, 1998, between the Company and Specialty Investment I LLC, as
such Warrant Agreement shall be modified and supplemented and in effect from
time to time.
"WARRANTS" shall mean: (i) the Warrants evidenced by this Warrant
Certificate originally issued by the Company pursuant to the Warrant
Agreement on the Date of Issuance, evidencing rights to purchase up to an
aggregate of 3,429,588 Stock Units, (ii)
19
<PAGE>
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 or replacement for, any
Warrants described in clause (i) or (ii).
(c) References in this Warrant Certificate 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 Warrants.
SECTION 2. EXERCISE AND ISSUANCE.
2.01 EXERCISE OF WARRANTS. To exercise some or all or the Warrants
evidenced by this Warrant Certificate, 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 Warrants (or any portion thereof), which notice shall specify the
number of Warrants being exercised and the number of Stock Units to be
purchased pursuant to such exercise, (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 specified in clause
(a) above or a written request from the Holder that the exercise be made
pursuant to the provisions of SECTION 2.02, and (c) this Warrant Certificate.
Such notice may be in substantially the form of exercise set out at the end
of this Warrant Certificate. 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. Notwithstanding anything herein to the contrary, any
partial exercise of a Warrant shall conform to the provisions of the proviso
at the end of the first paragraph of this Warrant Certificate.
2.02 OPTIONAL EXERCISE. In addition to and without limiting the rights of
the Holder hereof under the terms of this Warrant Certificate and the Warrant
Agreement, the Holder may exercise some or all of the Warrants evidenced by this
Warrant Certificate 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 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
20
<PAGE>
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 in connection with any optional exercise of the
Warrants evidenced by this Warrant Certificate pursuant to this SECTION 2.02.
Such exercise shall be effective upon the date of receipt by the Company of
the original of this Warrant Certificate 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 less than all of the Warrants evidenced by this
Warrant Certificate shall have been exercised or any 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 Certificate, dated the Date of Issuance, evidencing the balance of
the Warrants (and/or portion of Warrants) held by such Holder following such
partial exercise and the rights of such Holder to purchase the remaining
Stock Units called for by this Warrant Certificate, which new Warrant
Certificate shall in all other respects be identical with this Warrant
Certificate, or, at the request of such Holder, appropriate notation may be
made on this Warrant Certificate and the same returned to such Holder.
All shares of Stock issuable upon the exercise of the Warrants evidenced
hereby shall, upon payment therefor in accordance herewith, be duly and
validly issued, fully paid and nonassessable and free and clear of any Liens.
21
<PAGE>
The Company shall not issue fractional shares of Stock upon any exercise
of the Warrants evidenced by this Warrant Certificate.
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 Certificate, the Warrants evidenced hereby 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 Certificate
at the office of the Company maintained for such purpose pursuant to SECTION
11.01, together with a written assignment of this Warrant Certificate (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 one
or more new Warrant Certificates in the name of the assignee or assignees and
in the denominations specified in such instrument of assignment, and this
Warrant Certificate shall promptly be canceled. If and when this Warrant
Certificate 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 Certificate for all purposes and the Company shall not be
affected by any notice to the contrary. This Warrant Certificate, 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 Certificate or Warrants issued. Each assignee, by accepting a
new Warrant Certificate issued to such assignee or this Warrant Certificate
assigned in blank, agrees to be bound by the restrictions on the
transferability of the Warrants evidenced hereby set forth in this Warrant
Certificate 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 Certificate 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.
The Warrants evidenced hereby may, subject to SECTION 11.04, be divided or
combined with other Warrants upon presentation of this Warrant Certificate 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
22
<PAGE>
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 the exercise of the Warrants evidenced by this Warrant
Certificate, 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 all Warrants evidenced by
this Warrant Certificate are 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 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 as of September 26, 1997 between the Company and
Specialty Investment I LLC (or in connection with a financing related to any
such transaction), the
23
<PAGE>
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 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
24
<PAGE>
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,
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
25
<PAGE>
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 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
26
<PAGE>
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 Warrants evidenced
by this Warrant Certificate to issue fractional Warrant Shares (it being
agreed that the number of Warrant Shares issuable upon any such exercise
shall be rounded to the nearest whole number).
(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.
27
<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 Certificate 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 evidenced hereby, 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 the aggregate of all Stock Units immediately prior
to such event if all Warrants evidenced by this Warrant Certificate were
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 Certificate 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 evidenced by this Warrant Certificate. 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 as of September 26, 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.
28
<PAGE>
SECTION 6. NOTICE TO WARRANT CERTIFICATE 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 of 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 the Holder of this Warrant Certificate 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 this Warrant Certificate or any prospective permitted purchaser
of Warrants designated by any such Holder.
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
the Holder of this Warrant Certificate, 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 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
29
<PAGE>
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 upon exercise of any Warrant evidenced by
this Warrant Certificate 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 any Warrant evidenced by
this Warrant Certificate, 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 any Warrant evidenced by this Warrant Certificate 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 upon exercise of any Warrant evidenced by
this Warrant Certificate 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 any Warrant evidenced by this Certificate 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.
30
<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
Warrants 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 Certificate 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, the Warrants evidenced by this Warrant Certificate
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 evidenced
by this Warrant Certificate remain outstanding, the Company shall maintain an
office in the continental United States of America where this Warrant
Certificate may be presented for exercise, transfer, division or combination
of the Warrants evidenced hereby as herein 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 Holder of this Warrant Certificate.
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.
31
<PAGE>
11.03 AMENDMENTS. The terms of the Warrants evidenced by this Warrant
Certificate 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 Certificate, 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 evidenced by this
Warrant Certificate 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 such Warrants or any Warrant
Shares, and any Holder of this Warrant Certificate 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 Certificate and the Warrants
evidenced hereby 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. The Warrants evidenced by
this Warrant Certificate are being acquired and, if such Warrants are
exercised, the Stock issuable upon such exercise will be acquired, for
investment for such Holder's own account, not as a nominee or agent, and not
with a 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
32
<PAGE>
the Warrants evidenced by this Warrant Certificate and the Stock issuable
upon exercise thereof. The Holder also represents it has not been organized
solely for the purpose of acquiring Warrants evidenced by this Warrant
Certificate or the Stock issuable upon exercise thereof.
12.03 RESTRICTED SECURITIES. The Holder understands that the Warrants
evidenced by this Warrant Certificate and the Stock issuable upon exercise of
such Warrants 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
Certificate.
Dated:________________________ LAMONTS APPAREL, INC.
By:_________________________________
Name:
Title:
33
<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 Warrants evidenced thereby set forth hereinbelow unto:
Name of Assignee Address Number of Warrants
- ---------------- ------- ------------------
Dated:_________________ __________________________________
34
<PAGE>
FORM OF EXERCISE
(To be executed by the registered Holder hereof)
The undersigned hereby exercises _________Warrants evidenced by the
within certificate to subscribe for and purchase:
_____ Stock Units of Lamonts Apparel, Inc. at the Stock Unit Exercise
Price
_____ Stock Units of Lamonts Apparel, Inc. at the Adjustment Unit Exercise
Price
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 Certificate for the unexercised
balance of the Warrants (including any unexercised portion of any Warrant)
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 that it will not sell or transfer such Stock unless such transfer is
pursuant to (i) a registration statement in effect with respect to such
securities under the Securities Act of 1933, as amended (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.
Dated:________________ __________________________________
Instructions for registration of Stock Units
___________________________
Name (please print)
Social Security or Other Identifying Number: ___________________
Address:
___________________________
___________________________
___________________________
35
<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
___________, 1998 (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
of the date written above:
LAMONTS APPAREL, INC.
By_________________________
Name:
Title:
36
<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: _____________________________
<PAGE>
As Amended
March, 1986
Standard Service Agreement, dated February 13, 1989, between FREDERICK
ATKINS, INCORPORATED, a New York corporation, located at 1515 Broadway, New
York, NY 10036, as Merchandising Counsel, herein called "Atkins," and LAMONTS,
located at 3150 Richards Road, Bellevue, Washington 98007, as Client.
W I T N E S S E T H :
WHEREAS, Atkins offers and the Client desires to subscribe to services
of Atkins as Merchandising Counsel upon the terms hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. SERVICES TO BE RENDERED: Atkins agrees to furnish to the Client
all or such of the following available services as the Client may desire:
(a) A broad range of information, including market coverage, fashion
reporting, advertising and sales promotion, marketing and research, direct mail,
personnel and training;
(b) Office space assigned to the Client in the Atkins office for
purposes of meetings, displays and buying needs of the Client, together with
access to Atkins general office space and facilities;
(c) Accompanying the Client's buyers in the New York market and
advising them regarding buying plans and programs;
(d) Upon the Client's request, placing individual purchase orders for
the account of the Client and reporting on the status thereof;
(e) Access to the full range of programs, services and functions
carried on from time to time by Atkins and its related companies, including (i)
all programs of Frederick Wholesale Corporation, a wholesale subsidiary of
Atkins; (ii) direct store import activities through Atkins; (iii) exchange of
operating information with participating Clients through performance measurement
statistics programs; (iv) United States or overseas offices or agents operated
or used by Atkins: (v) catalogue and statement enclosure projects; (vi) private
label programs and use of Atkins' trademarks in this connection.
EXHIBIT A
<PAGE>
2. AVAILABILITY OF SERVICES: During the term of the Agreement,
Atkins will make available its full services to all Clients on the same basis,
or an equivalent alternative thereof.
3. CHARGES: (a) The Client, in addition to the fee hereinafter
provided for, will be charged for the office space assigned to it, the amount
of such charge to be based on the current rate per square foot, plus electricity
and yearly escalation charges for building operating costs and real estate
taxes.
(b) Atkins may render to the Client and to other Atkins' Clients at
their request certain services, including some of those referred to in paragraph
1(e), of such kind and nature as may require an additional charge. The cost of
such services shall be allocated and charged in whole or in part to the Client
and other participating Clients, the manner of such allocation to be determined
on an equitable basis by the Atkins Board of Directors or Executive Committee,
herein called "Atkins Board."
(c) All expenses and charges incurred by Atkins for account of the
Client, including telephone calls and any other expenses incurred on the request
of the Client, shall be paid by the Client.
4. FEES FOR SERVICES: The Client will pay a fee to Atkins in full
payment of the services to be rendered to the Client (and without regard to the
extent to which the Client calls upon Atkins for such services or any of them)
based on the estimated net sales, adjusted for the actual current net sales of
the Client, as more particularly provided below. (See Schedule A)
(a) Not later than February 15th of each year during the continuance
of this Agreement, the Client shall notify Atkins of the Client's estimated net
sales for the annual period ending nearest to the 31st of the following January
and of the Client's actual net sales for the annual period ending nearest to the
31st of the immediately preceding January. "Net sales" shall be deemed to
include all sales derived from any sources whatsoever, including owned
departments, leased departments, cost departments, alterations, work rooms,
contract departments, restaurants, employees' cafeterias, soda fountains, etc.;
provided, however, that no net sales from leased departments aggregating more
than 10% of the Client's total net sales for the annual period shall be included
in net sales for fee determination purposes.
2
<PAGE>
(b) Commencing in April of each year, the Client shall pay a fee
based on its current estimated net sales as determined in (a) above. In the
succeeding March, Atkins shall credit or charge the Client for any amount
required to conform the fee to the Client's actual net sales for the preceding
annual period.
(c) The Client shall pay such fee, computed as above provided, on or
before the 10th day of each month, in equal installments (or, if the Client is
on a 4-5-4 calendar, on or before the 10th day after the end of each monthly
period, in adjusted installments).
(d) The Atkins Board may in its discretion at any time or from time
to time increase or decrease the rate of fee, either on a fixed basis or on a
sliding scale for all or such part of a fiscal year as it deems advisable, and
Atkins shall in such event immediately notify each Client of such change and the
effective date thereof.
(e) If a new rate of fee becomes effective, a Client dissenting to
the change shall be entitled to terminate this Agreement as provided, in
paragraph 6. In such case the Client shall continue to pay the fee at the rate
in force prior to the new rate during the period provided in paragraph 6.
(f) When separate stores, if any, of the Client are operated in a
sufficiently autonomous manner so as to require, in the judgment of the Atkins
Board, the performing of substantial separate services by Atkins for such
stores, the Client may be required by the Atkins Board to pay an amount,
determined by such Board on an equitable basis, for any or all of such separate
stores.
5. DEPOSITS: (a) The Client agrees to participate in the Import
Deposit system and to make its full share of import deposits as determined
periodically by Atkins, based on the ratio of the Client's prior year import
purchases through Atkins and its subsidiaries to the total import purchases
therefrom of all Clients, and, in the case of Client's first year, based on
current year's projection of import purchases.
(b) The Client agrees to pay all invoices of Atkins and its
subsidiaries according to the terms shown on such invoices. If the Client has
an unpaid balance
3
<PAGE>
over 30 days old at the end of any month due Atkins or a subsidiary, the Client
agrees to make a Past Due Deposit with such company for the full amount of the
over-30-day balance, such deposit to be adjusted monthly based on the current
over-30-day balance. Interest at prime plus 1% will be assessed if the Past Due
Deposit is not paid.
(c) Deposits may not be used by the Client to offset amounts owed by
the Client to Atkins or a subsidiary, but, subject to subparagraph (d), will be
returned to the Client to the extent of a reduction in the Client's import
purchases or over-30-day unpaid balances only after such reduction occurs.
(d) Atkins and its subsidiary with which such deposit was made shall
have a security interest in any such deposit and shall have the right to set off
any such deposit at any time against a debt owed by the Client to either Atkins
or a subsidiary.
6. PERIOD OF AGREEMENT: (a) Either party may terminate this
agreement at the end of any calendar month by giving at least 18 months prior
written notice to the other, such notice to be deemed given only when delivered
in person to an officer of the other party or mailed by registered mail to such
party. Atkins may give such notice only: (a) by consent, whether or not given
at a meeting, of at least 3/4ths of its entire Board of Directors; or (b) if
authorized by a vote of 2/3rds of its outstanding stock entitled to vote. In
case of notice of termination by either party, the monthly fee of the Client
shall from the date of such notice be based on the actual net sales of the
Client for the 12-month period immediately prior to the date of such notice and
shall continue to be due and payable for all months to and including the
termination date, subject to subparagraph (b).
(b) If the Atkins Board decides to discontinue availability of
full services theretofore available to the Client during the period between
the giving of notice and the termination date, and the Client is in a
position to utilize such services, the Client's continuing obligation to pay
the monthly fees shall cease with the month in which the availability of such
services is actually discontinued by Atkins.
4
<PAGE>
(c) Failure to pay such fee on or before the tenth day of any month
during the period between the date of notice of termination and the termination
date shall make the remaining monthly fee payments become immediately due and
payable without notice.
7. PURCHASE OF STOCK: (a) (For new Clients) The Client hereby
agrees to purchase: (1) 950 shares of Class A stock of Atkins at $449.12 per
share, on the following basis: Five shares for each full $1,000,000 of the
Client's net sales, as defined in paragraph 4, for the year ending on the
January 31 immediately prior to the date of this Agreement, the purchase price
per share being the book value thereof as determined by Atkins' auditors on the
basis of assets represented by capital and surplus, excluding any goodwill that
may be on the books, as of the close of Atkins' fiscal year preceding that in
which this Agreement is executed; and (2) 380 shares of Class B stock of Atkins
at $1.00 per share, on the basis of one share of Class B stock for each full
$500,000 of the Client's net sales for the year ending on the January 31
immediately prior to the date of this Agreement. (See Schedule A)
or
(b) (For existing Clients) The Client has previously purchased ____
shares of Class A stock of Atkins at a price previously agreed upon and ____
shares of Class B stock of Atkins at $1.00 per share.
(c) The Client also agrees to purchase 50 additional shares of Class
A stock and 20 additional shares of Class B stock of Atkins if and when the
Client's annual net sales, as defined in paragraph 4, increase to a level which
is $25 million per year in excess of the annual net sales for the year ended
January 1984; and to purchase 50 additional shares of Class A stock and 20
additional shares of Class B stock of Atkins at the end of each year during
which the Client's net sales have cumulatively increased another $25 million.
Such additional purchase or purchases of Atkins Class A stock shall be made at a
price per share based on the book value of Atkins Class A stock, determined as
aforesaid, as of the close of Atkins' fiscal year immediately preceding the
January 31 of the
5
<PAGE>
year in which such increase in the Client's annual net sales occurs. The Class
B stock shall be at a price of $1.00 per share. The price for such additional
Atkins Class A and Class B stock shall be paid to Atkins not later than March
31.
(d) When the Client has purchased a total of 1,200 shares of Class A
Stock and 480 shares of Class B stock of Atkins, no additional purchases will be
required.
8. REPURCHASE OF STOCK: The Client agrees that during the
continuance of this Agreement it will not voluntarily sell, pledge or otherwise
dispose of any of such shares of stock referred to in paragraph 7 (other than by
reorganization) without the written consent of Atkins given pursuant to a
resolution adopted by the Atkins Board. Atkins and the Client further agree
that in the event of termination of this Agreement, the Client will sell and
Atkins, if and to the extent it may lawfully do so within the limitations
imposed by the laws of the State of New York upon the impairment of its capital,
will purchase the shares of Atkins stock held by the Client, in the case of
Class B stock at $1.00 per share, and in the case of Class A stock at the book
value as determined by Atkins' auditors on the basis of assets represented by
capital and surplus, excluding any goodwill that may be on the books, as of the
close of the fiscal year within which the notice of termination has been given,
less the amount of any indebtedness of the Client to Atkins or any of its
subsidiaries. The stock will be tendered to Atkins duly endorsed at Atkins'
office against payment therefor at any time after notice of termination is given
under paragraph 6, but not later than one year after the effective termination
of this Agreement, on such date as may be specified by Atkins by written notice
to the Client given at least five days in advance of the date so specified, and
upon failure of Atkins to specify another date it will be transferred and paid
for upon the last business day of the fiscal year following the termination of
this Agreement. In case by reason of legal limitations Atkins should be unable
to purchase any of the shares of Atkins stock from the Client, Atkins shall
notify all Clients to that effect and endeavor to procure among such Clients,
pro rata among those who desire to purchase the same, purchasers for such stock
within one year after such termination.
All certificates for shares of Atkins stock purchased or subscribed
for by Atkins Clients shall bear endorsed thereon a reference to the
restrictions upon transfer
6
<PAGE>
and the agreement to sell set forth in this and other Standard Service
Agreements.
The Client agrees, so long as it remains a stockholder in Atkins, to
take such action as a stockholder by vote, consent or otherwise for reduction of
the capital of the corporation or other measures which may be recommended by the
Atkins Board on advice of counsel in order to enable Atkins legally to purchase
or retire, upon the terms of the Standard Service Agreement, the stock held by
any Client whose Standard Service Agreement is terminated.
9. OVERSEAS PURCHASES: (a) The Client agrees to make use of Atkins
overseas offices, and, if a new Client, to make such use of these offices within
one year after becoming a Client.
(b) The Client agrees that when Client's own direct imports are
handled through Atkins letters of credit, with Atkins acting as agent even
though importer of record, Client will indemnify Atkins from any liability,
loss, costs, damages, penalties and expenses of any kind, including reasonable
attorneys' fees, incurred by Atkins arising out of such import transaction or
the use by anyone of such imported merchandise. Atkins will file insurance
claims for goods that are lost or damaged while in transit from overseas.
10. POLICIES AND AMENDMENTS: (a) The Client in its relationship with
Atkins and with other Clients of Atkins agrees to abide by Atkins' policies and
procedures and to participate in Atkins' service-functions and activities
consistent with loyal membership.
(b) Except as to the paragraphs hereinafter specified, any provision
of this Agreement may be amended or revised by vote of a majority of the full
Board of Directors of Atkins, but only if any such amendment or revision by its
terms is made effective as to all Clients of Atkins covered by a Standard
Service Agreement substantially similar to this Agreement. However, no
amendment or revision conflicting with or superseding (1) paragraph 6 (Period of
Agreement); (2) paragraph 7 (Purchase of Stock); or (3) paragraph 8 (Repurchase
of Stock) shall become effective without the written consent of the Client.
11. This Agreement supersedes any Standard Service Agreement and any
amendment thereto previously executed by the parties hereto.
7
<PAGE>
12. All notices to Atkins and to the Client shall be sent to them at
their respective addresses set forth at the beginning of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their officers or representatives thereunto duly authorized as of
the date and year first above written.
FREDERICK ATKINS, INCORPORATED:
BY: /s/ F.O. Lawson, Jr.
--------------------------------
CLIENT:
LAMONTS /s/ Frank E. Kulp, III
-------------------------------------
BY:
--------------------------------
8
<PAGE>
STANDARD SERVICE AGREEMENT
SCHEDULE A
PARAGRAPH 4
By special arrangement, the service fee will be modified as follows:
1. The annual fee will be based upon Lamonts fiscal year sales (November -
October) rather than February-January as outlined in paragraph 4(a).
2. For the first year of the contract only, Lamonts annual fee shall be
calculated net of leased department sales. Commencing with the second year
and each succeeding year, Lamonts annual fee shall be based on total sales
inclusive of leased sales as outlined in paragraph 4(a).
3. Lamonts first year service fee shall be reduced by the actual cost of fees
up to a maximum of $75,000 paid by Lamonts to its existing buying offices
(Felix Lilienthal and Barbara Fields) from March 1, 1989 through the end of
those contracts.
PARAGRAPH 7
By special arrangement, Lamonts purchase of Atkins Class A and Class B stock
shall be based on Lamonts Fiscal 1988 (November 1987 - October 1988) sales of
$190,000,000. The aggregate purchase price of Atkins Class A and Class B stock
on this sales volume amounts to $427,044.00 and will be paid in four (4) equal
installments according to the following schedule.
Date Amount Due
---- ----------
March 1, 1989 $106,761.00
March 1, 1990 106,761.00
March 1, 1991 106,761.00
March 1, 1992 106,761.00
-----------
$427,044.00
-----------
-----------
CLIENT: FREDERICK ATKINS, INCORPORATED:
LAMONTS By: /s/ F.O. Lawson, Jr.
--------------------------------
By: /s/ Frank E. Kulp, III
-----------------------
Date: Date: February 13, 1989
---------------------- -----------------
<PAGE>
AMENDMENT TO STANDARD SERVICE AGREEMENT
The undersigned, a Client of Frederick Atkins, Incorporated and party to its
Standard Service Agreement, pursuant to the recommendation of the Executive
Committee of the Board of Directors at its meeting held on September 28, 1989,
hereby agrees to Amendments to the Standard Service Agreement between it and
Frederick Atkins, Incorporated, as follows:
1. To change the fourth line of paragraph 1(e) to read: "Frederick Worldwide
Company, ad division of," and to remove the references to "subsidiary" of
Atkins in paragraph 5.
2. In paragraph 6(b) to insert at the beginning of the first sentence:
"Except as hereinafter provided," and to add a new sentence at the end thereof
as follows:
"However, Atkins shall have no obligation to provide to a Client which has given
notice of termination any performance measurement, expense, merchandise, sales,
or other reports or statistics regarding the operations of Atkins, its clients
or its vendors, and the discontinuance of the furnishing of such information
shall not terminate the obligation of the Client to pay monthly fees as above
provided for the 18 month period, nor shall the Client have any obligation to
furnish to Atkins during this period any reports regarding its operations."
Dated: October 3, 1989
---------------
FREDERICK ATKINS, INCORPORATED
BY:
--------------------------
CLIENT: /s/ Lamonts
----------------------
BY: /s/ Leonard Synder
--------------------------
<PAGE>
AMENDMENT TO STANDARD SERVICE AGREEMENT
The undersigned, Client of Frederick Atkins, Inc. and party to the Standard
Service Agreement, pursuant to the recommendation of the Executive Committee at
its meeting held on January 15, 1990, hereby agrees to an Amendment to the
Standard Service Agreement between it and Frederick Atkins, Inc. as follows:
1. To add a new sub-paragraph 6(d) as follows:
"(d) In the event that the Client merges, consolidates, or is
otherwise combined with one or more other Clients, the 18-month termination
fee, whether paid over such 18-month period or earlier, shall continue to
be due and payable until paid in full. In connection with the calculation
of Fees for Services under paragraph 4, the net sales of the Client which
is terminating shall not be added to the net sales of the Client which is
not terminating until the 18-month period has expired. The shares of stock
of Atkins issued to the Client which is terminating shall not be required
to be repurchased by Atkins until such termination fee has been so paid."
Dated: February 5, 1990
-----------------
FREDERICK ATKINS, INCORPORATED
By: /s/ F.O. Lawson, Jr.
--------------------------
CLIENT: LAMONTS
By: /s/ Leonard Snyder
--------------------------
<PAGE>
DEPOSITORY ACCOUNT AGREEMENT
This document, executed and effective as of June 4, 1996, will confirm our
arrangements regarding the special account, Account No 68443118 (the "FNBB
ACCOUNT"), which BANK OF AMERICA, N.W. N.A. d/b/a Seafirst Bank, 800 Fifth
Avenue, 21st Floor, Seattle, Washington 98104 ("BANK") has opened for THE FIRST
NATIONAL BANK OF BOSTON, 100 Federal Street, Boston, Massachusetts 02110, as
Agent (as hereinafter defined), and LAMONTS APPAREL, INC., Debtor-In-Possession,
12413 Willows Road, N.E., Kirkland, Washington 98034, a Delaware corporation
(the "COMPANY"). These arrangements relate a Debtor in Possession and Exit
Financing Loan Agreement dated as of June 4, 1996 (as amended and in effect from
time to time, the "LOAN AGREEMENT"), among the Company, certain lenders from
time to time party thereto (the "LENDERS") and The First National Bank of Boston
as agent (the "AGENT") for the Lenders.
1. The FNBB Account is to be entitled "The First National Bank of Boston"
for deposits of Collateral (as defined in the Security Agreement referred to in
the Loan Agreement) made by or on behalf of Company and is subject to signing
authority in the Agent's record of authorized signatures. The FNBB Account will
receive transfers of funds from a concentration account at Bank which is in the
name of Company (the "CONCENTRATION ACCOUNT"). Company maintains six deposit
accounts (the "DEPOSIT ACCOUNTS") at Bank. Each day, funds in the Deposit
Accounts will zero balance into the Concentration Account. Each day Company
will transfer the available current collected balance in the Concentration
Account into the FNBB Account. It is understood by Company and Bank that
electronic transfers of funds may be sent to the FNBB Account with instructions
to credit Company and that Bank will use its best efforts to ensure that these
items be credited to the FNBB Account. Any collected cash, checks, credit card
receipts, and electronic transfers of funds that constitute collateral are the
sole and exclusive property of the Agent and will be credited to the FNBB
Account.
The FNBB Account will be set up on Account Analysis and maintenance charges
and fees relating to the arrangements under this agreement will be offset
against earnings. Should a net deficit occur as, as a result of returned items,
maintenance charges or fees, Bank will charge the Company's Account No. 68320605
(the "COMPANY ACCOUNT") directly for such deficit. In the event there are
insufficient funds in the Company Account to cover the net deficit, the Agent
agrees that Bank may charge the FNBB Account for the amount of the net deficit.
If there are insufficient funds in the FNBB Account, upon receipt of physical
evidence, via facsimile number (617) 434-
<PAGE>
2309 or (617) 434-6241 sent to the attention of Robin Cruz at the Agent, Company
and the Agent agree to pay the amount of the net deficit to the FNBB Account, in
immediately available funds, within one business day after receipt of said
physical evidence. The Agent's indemnification to pay the net deficit is
limited to the current or immediately preceding month's net deficit.
2. So long as this Agreement is in full force and effect, all monies in
the FNBB Account that constitute collateral will become the property of the
Agent upon deposit therein and Company will have no interest in or any control
thereof. The FNBB Account will not be subject to deductions, setoff, banker's
lien, or any other right in favor of any person other than the Agent, except as
otherwise provided in paragraph 2 of this Agreement.
3. In the event that Bank is served with a court order which affects the
FNBB Account, Bank will act in accordance with such court order. Until a court
order is received by Bank, whether such order is issued by the United States
Bankruptcy Court for the Western District of Washington in which the Company's
Bankruptcy Case is pending (the "BANKRUPTCY COURT") or any other court of
competent jurisdiction, Bank shall not have the right nor will it place a hold
on funds in, or in the process of being deposited to, the FNBB Account and will
process funds in strict accordance with the terms and conditions of this
Agreement. The Agent represents, warrants, and agrees that the Agent shall at
all times comply in all material respects with applicable bankruptcy statutes,
rules, and other laws as they may relate to funds deposited to the FNBB Account.
Notwithstanding anything in this Agreement to the contrary, Bank may interplead
the funds in, and the funds in the process of being deposited into, the FNBB
Account in an action commenced in the Bankruptcy Court, naming the Agent and
Company as defendants, provided that Bank reasonably believes compliance with
this paragraph will result in liability to Bank. Following such interpleader,
Bank shall be released from all further liability with respect to the funds
interpleaded.
4. So long as this Agreement is in effect, Company will each day effect a
wire transfer of the available current collected balance in the FNBB Account to
The Agent's operating account as follows:
The First National Bank of Boston
Boston, Massachusetts
ABA# 011-000-390
Attention: Patricia M. Gaine
Credit: CFL Loan Operations
2
<PAGE>
Re: Lamonts Apparel, Inc., Debtor-In-Possession
or any other account as the Agent may instruct the Bank and Company from time to
time, in writing, in advance of the wire being sent. This wire transfer will be
a restricted, repetitive transfer and the Company will not be authorized to make
any other transfers from the FNBB Account.
6. Company hereby authorizes Bank to orally request information from the
Agent from time to time regarding its borrowing availability and/or wire
transfer of funds to the Company or to Company's accounts at Bank, and Company
authorizes the Agent to orally provide such information as Bank may reasonably
request.
7. At the end of each month, Bank's regular statement covering the
deposits to and withdrawals from the FNBB Account is to be sent to The First
National Bank of Boston, 100 Federal Street, Mail Stop 01-09-06, Boston,
Massachusetts 02110. Attention: Robin Cruz and a copy of said statement to
Company, 12413 Willows Road, N.E., Kirkland, Washington 98034, Attention: Tom
Gaisser.
8. Any contact with Bank regarding operational matters should be directed
to Betty Batayola, telephone number (206) 358-2915 or in her absence, Emily
Rosian, telephone number (206)358-7309.
9. Any contact with Company regarding operational matters should be
directed to Tom Gaisser, telephone number (206) 814-5463.
10. Any contact with the Agent regarding operational matters should be
directed to Robin Cruz, telephone number (617) 434-3994, or in her absence,
Carmen Rosado-Barros, telephone number (617) 434-8298.
11. The Agent or Bank may terminate this agreement at any time upon ten
(10) days prior written notice delivered to the Agent, Bank and Company, as
applicable. Such notice shall be effective when transmitted and received by
Certified Mail, Return Receipt Requested or by personal delivery to the
addresses herein designated. No such termination shall impair the rights of any
party to this Agreement with respect to items processed prior to the effective
date and time of termination. Company may not terminate this Agreement without
prior written consent of the Agent. At such time as Company has repaid all of
its obligations to the Agent and the lenders in respect of the Loan Agreement,
and all credit commitments under the Loan Agreement have terminated, the Agent
will terminate this Agreement.
3
<PAGE>
12. The Agent and Company, jointly and severally, agree to hold Bank
harmless from and against any and all losses, costs, expenses and liabilities
that Bank my incur with respect to this Agreement, including but without
limitation any net deficit and all costs and reasonable attorneys' fees
(including the allocated cost of in-house counsel) incurred by Bank to enforce
any provision of this Agreement. This indemnification shall not apply to
losses, costs, expenses or liabilities resulting from Bank's gross negligence or
willful misconduct. This indemnification shall survive the termination of this
Agreement.
13. This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and same Agreement.
[Remainder of Page Intentionally Left Blank]
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers, all as of the day and year first above
written.
THE FIRST NATIONAL BANK BANK OF AMERICA, N.W.
OF BOSTON, as Agent N.A. d/b/a Seafirst Bank
By: /s/ Steve Atwater By: /s/ Mike Collum
------------------------- -------------------------
Its: Vice President Its: Vice President
------------------------- -------------------------
LAMONTS APPAREL, INC.
Debtor-In-Possession
By: /s/ Debbie Brownfield
-------------------------
Its: Chief Financial Officer
-------------------------
5
<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>
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.
1
<PAGE>
(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>
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
<PAGE>
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
7
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
12
<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
13
<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.
15
<PAGE>
(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.
16
<PAGE>
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:
-----------------------------
17
<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 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
2
<PAGE>
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
4
<PAGE>
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
5
<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
6
<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
10
<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).
11
<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
<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.
4
<PAGE>
"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
5
<PAGE>
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)
6
<PAGE>
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.
7
<PAGE>
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
8
<PAGE>
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-
9
<PAGE>
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.
10
<PAGE>
(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
11
<PAGE>
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.
12
<PAGE>
(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-
13
<PAGE>
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").
14
<PAGE>
(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
15
<PAGE>
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
16
<PAGE>
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
17
<PAGE>
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]
24
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 33- ________) of our report, which includes an explanatory paragraph that
describes an uncertainty regarding Lamonts Apparel, Inc.'s ability to
continue as a going concern and recover the carrying amounts of its assets,
dated March 28, 1997, on our audits of the consolidated financial statements
of Lamonts Apparel, Inc. We also consent to the reference to our firm under
the caption "Experts."
Coopers & Lybrand L.L.P.
Seattle, Washington
January 9, 1998
