<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the thirteen weeks ended October 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-15542
LAMONTS APPAREL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware #75-2076160
(State of Incorporation) (I.R.S. Employer Identification Number)
12413 Willows Road N.E., Kirkland, Washington 98034
(Address of Principal Executive Offices)
(425) 814-5700
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /x/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: Indicate by check mark whether the Registrant has filed
all documents and reports required to be filed by Sections 12,13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by the court.
Yes /x/ No / /
As of November 30, 1998, there were 9,000,000 shares of the Registrant's Class A
Common Stock, par value $0.01 per share, outstanding and 10 shares of
Registrant's Class B Common Stock, par value $0.01 per share, outstanding.
Exhibit Index on Page 15
Page 1 of 16 pages
<PAGE>
LAMONTS APPAREL, INC.
FORM 10-Q
OCTOBER 31, 1998
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
-----
<S> <C> <C>
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets -
October 31, 1998 and January 31, 1998 3
Consolidated Statements of Operations
and Accumulated Deficit for the thirteen
weeks ended October 31, 1998 and
November 1, 1997 4
Consolidated Statements of Operations and
Accumulated Deficit for the thirty-nine weeks
ended October 31, 1998 and November 1, 1997 5
Consolidated Statements of Cash Flows for the
thirty-nine weeks ended October 31, 1998 and
November 1, 1997 6
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
LAMONTS APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, 1998 JANUARY 31, 1998
------------------ -------------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash $ 2,354 $ 1,301
Receivables 1,554 1,703
Inventories 61,034 38,617
Prepaid expenses and other 1,557 1,500
Restricted cash and deposits 21 1,543
------------------ -------------------
Total current assets 66,520 44,664
Property and equipment - net of accumulated depreciation and
amortization of $4,122 and $0, respectively 29,397 32,154
Leasehold interests 7,484 8,749
Excess reorganization value 8,948 9,296
Restricted cash and deposits 1,078 1,130
Other assets 682 899
------------------ -------------------
------------------ -------------------
Total assets $ 114,109 $ 96,892
------------------ -------------------
------------------ -------------------
Current Liabilities:
Borrowings under the Revolver $ 31,439 $ 18,967
Accounts payable 29,217 15,186
Accrued payroll and related costs 2,769 3,106
Accrued taxes 1,344 865
Accrued interest 374 1,007
Accrued reorganization expenses 65 2,497
Other accrued expenses 5,645 6,228
Current maturities of long-term debt 628 403
Current maturities of obligations under capital leases 1,482 1,454
------------------ -------------------
Total current liabilities 72,963 49,713
Long-term debt, net of current maturities 10,022 10,536
Obligations under capital leases, net of current maturities 12,767 13,835
Other 1,729 2,852
------------------ -------------------
Total liabilities 97,481 76,936
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.01 par value; 40,000,000 shares authorized;
Class A: 9,000,000 shares issued and outstanding 16,926 16,926
Class B: 10 shares issued and outstanding 1 1
Warrants - contributed capital 3,029 3,029
Accumulated deficit (3,328) -
------------------ -------------------
Total stockholders' equity 16,628 19,956
------------------ -------------------
------------------ -------------------
Total liabilities and stockholders' equity $ 114,109 $ 96,892
------------------ -------------------
------------------ -------------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
-------------------------------------------
OCTOBER 31, 1998 | NOVEMBER 1, 1997
------------------- | -------------------
<S> <C> | <C>
Revenues $ 50,862 | $ 50,263
Cost of merchandise sold 32,089 | 31,760
------------------- | -------------------
Gross profit 18,773 | 18,503
------------------- | -------------------
|
Operating and administrative expenses 15,730 | 16,508
Depreciation and amortization 2,234 | 1,723
------------------- | -------------------
Operating costs 17,964 | 18,231
------------------- | -------------------
|
Income from operations before other income (expense), |
and reorganization expenses 809 | 272
|
Other income (expense): |
Interest expense (1,513) | (1,415)
Other income 6 | 2
------------------- | -------------------
|
Loss before reorganization expenses (698) | (1,141)
|
Reorganization expenses - | (930)
------------------- | -------------------
|
Net loss (698) | (2,071)
|
Accumulated deficit, beginning of period (2,630) | (129,529)
------------------- | -------------------
|
Accumulated deficit, end of period ($3,328) | ($131,600)
------------------- | -------------------
------------------- | -------------------
|
|
|
Basic and Diluted Loss per Common Share ($ 0.08) | ($ 0.12)
------------------- | -------------------
------------------- | -------------------
|
Weighted Average Shares Used in Computing Loss per Common Share: |
Basic and Diluted 9,000,010 | 17,900,053
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
ENDED
------------------------------------------
OCTOBER 31, 1998 | NOVEMBER 1, 1997
------------------- | -------------------
<S> <C> | <C>
Revenues $ 140,924 | $ 137,394
Cost of merchandise sold 89,437 | 87,798
------------------- | -------------------
Gross profit 51,487 | 49,596
------------------- | -------------------
|
Operating and administrative expenses 45,162 | 47,235
Depreciation and amortization 6,008 | 5,484
------------------- | -------------------
Operating costs 51,170 | 52,719
------------------- | -------------------
|
Income (loss) from operations before other income (expense), |
and reorganization expenses 317 | (3,123)
|
Other income (expense): |
Interest expense (3,658) | (3,855)
Other income 13 | 6
------------------- | -------------------
|
Loss before reorganization expenses (3,328) | (6,972)
|
Reorganization expenses - | (1,924)
------------------- | -------------------
|
Net loss (3,328) | (8,896)
|
Accumulated deficit, beginning of period - | (122,704)
------------------- | -------------------
|
Accumulated deficit, end of period ($3,328) | ($131,600)
------------------- | -------------------
------------------- | -------------------
|
|
|
Basic and Diluted Loss per Common Share ($ 0.37) | ($ 0.50)
------------------- | -------------------
------------------- | -------------------
|
Weighted Average Shares Used in Computing Loss per Common Share: |
Basic and Diluted 9,000,010 | 17,900,053
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
ENDED
------------------------------------------
OCTOBER 31, 1998 | NOVEMBER 1, 1997
------------------- | ------------------
<S> <C> | <C>
Cash flows from operating activities: |
Net loss ($ 3,328) | ($ 8,896)
Adjustments to reconcile net loss to net cash used |
by operating activities: |
Depreciation and amortization 6,008 | 5,484
Gain on sale of fixed asset - | (123)
Curtailment gain from pension plan (1,001) | -
Reorganization expenses - | 1,924
Non-cash interest, including amortization of debt discount 590 | 134
Stock option expense - | 36
Net change in current assets and liabilities (10,372) | (9,177)
Other (546) | 1,088
------------------- | ------------------
|
Net cash used by operating activities (8,649) | (9,530)
------------------- | ------------------
|
Cash flows from investing activities: |
Capital expenditures (1,217) | (1,050)
Proceeds from sale of assets - | 4
Other (75) | 257
------------------- | ------------------
|
Net cash used by investing activities (1,292) | (789)
------------------- | ------------------
|
Cash flows from financing activities: |
Borrowings under Revolver 169,075 | 154,168
Payments under Revolver (156,603) | (152,909)
Proceeds from term loan - | 10,000
Payments on long-term debt (289) | -
Principal payments on obligations under capital leases (1,189) | (666)
Other - | (42)
------------------- | ------------------
|
Net cash provided by financing activities 10,994 | 10,551
------------------- | ------------------
|
Net increase in cash 1,053 | 232
Cash, beginning of period 1,301 | 2,066
------------------- | ------------------
|
Cash, end of period $ 2,354 | $ 2,298
------------------- | ------------------
------------------- | ------------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
6
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
ENDED
------------------------------------------
OCTOBER 31, 1998 | NOVEMBER 1, 1997
------------------- | ------------------
<S> <C> | <C>
Reconciliation of net change in current assets and liabilities: |
(Increase) decrease in: |
Receivables $ 150 | ($ 721)
Inventories (22,417) | (18,153)
Prepaid expenses and other (204) | (703)
Restricted cash and deposits 1,574 | (989)
Increase (decrease) in: |
Accounts payable 14,031 | 11,857
Accrued payroll and related costs (337) | 240
Accrued taxes 479 | 588
Accrued interest (633) | 516
Accrued reorganization expenses (2,432) | (2,591)
Accrued store closure costs - | (1,050)
Other accrued expenses (583) | 1,829
------------------- | ------------------
|
($ 10,372) | ($ 9,177)
------------------- | ------------------
------------------- | ------------------
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
Cash interest payments made $ 3,657 | $ 3,876
Capital lease obligations incurred 148 | 511
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
7
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1998
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position, results of operations, and cash flows 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 have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Accordingly, certain information and footnote
disclosures normally included in the consolidated financial statements
prepared in accordance with generally accepted accounting principles have
been omitted pursuant to such rules and regulations. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The
consolidated financial statements included herein, and related notes, should
be read in conjunction with the audited, annual consolidated financial
statements, and notes thereto, for the 52 weeks ended January 31, 1998
("Fiscal 1997"), included in the Company's Annual Report on Form 10-K, as
amended.
Certain prior period amounts have been reclassified to conform with the
current year presentation.
NOTE 2 - REORGANIZATION, EMERGENCE FROM CHAPTER 11 AND FRESH-START REPORTING
On January 6, 1995, 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 for the Western District of Washington at Seattle.
The Company's Modified and Restated Plan of Reorganization (the "Plan") was
confirmed by the Bankruptcy Court on December 18, 1997 and the Company
emerged from bankruptcy on January 31, 1998 ("Plan Effective Date").
Pursuant to the guidance provided by the American Institute of Certified
Public Accountants in Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" (also referred to as
"Fresh-Start Reporting"), the Company adopted Fresh-Start Reporting for
financial reporting purposes as of January 31, 1998. Therefore, the
consolidated results of operations for the thirteen weeks and thirty-nine
weeks ended October 31, 1998 are not comparable to the consolidated results
of operations for the thirteen and thirty-nine weeks ended November 1, 1997.
Accordingly, a vertical black line is shown to separate post-emergence
operations from those ended prior to January 31, 1998 in the consolidated
results of operations.
8
<PAGE>
NOTE 3 - PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
The following unaudited pro forma summary information reflects the financial
results of the Company for the thirteen weeks and thirty-nine weeks ended
November 1, 1997 as if the Plan had been consummated on February 2, 1997.
The pro forma information 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 date or of the results of operations that
may be reported by the Company in the future.
<TABLE>
<CAPTION>
Pro forma Summary Information
November 1, 1997 (unaudited)
-------------------------------------------
(dollars in thousands, except per share data)
THIRTEEN WEEKS THIRTY-NINE WEEKS
ENDED ENDED
<S> <C> <C>
Total Revenue $50,263 $137,394
Net Loss (1,024) (6,621)
Basic and diluted
loss per common share ($0.11) ($0.74)
</TABLE>
The adjustments reflected in the unaudited pro forma summary information above
include:
i) An adjustment to depreciation and amortization expense due to the change
in the fair value of identifiable assets, property and equipment and
leasehold interests.
ii) The elimination of historical reorganization costs.
iii) The elimination of the historical amortization of excess of cost over
net assets acquired.
iv) The elimination of historical amortization of deferred financing fees
associated with outstanding warrants to purchase common stock which were
canceled on the Plan Effective Date.
v) The elimination of historical interest expense, recording of interest
expense related to facility fees on the working capital facility, and an
incremental increase in interest expense associated with debt arising
from deferred priority tax claims and deferred cure payments.
vi) The elimination of historical rent expense for several stores where the
landlord has agreed to concessions upon assumption of the lease.
vii) The adjustment to the loss per common share based on the new common
stock issued under the Plan.
NOTE 4 - INCOME (LOSS) PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" beginning with the thirteen weeks ended January 31,
1998. All prior period loss per common share data have been restated to
conform to the provisions of this statement.
For the thirteen and thirty-nine weeks ended October 31, 1998 and November 1,
1997, options and warrants to purchase common stock were not included in the
computation of diluted loss per common share since the effect of assuming
their exercise would be anti-dilutive.
9
<PAGE>
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 operating results during the
period in which the litigation is resolved.
In March 1995, the Company brought an action against one of its landlords,
Hickel Investment Company ("Hickel"), to recover overpayments of common area
maintenance and other charges made to Hickel. The United States District
Court for the District of Alaska has entered a judgment against Hickel for an
amount in excess of $1.9 million. Hickel has since appealed the judgment and
posted a bond to obtain a stay pending appeal. There can be no assurance
that the Company will be successful on such appeal. As a result, no amounts
related to this judgment have been recorded in the consolidated financial
statements.
NOTE 6 - PENSION PLAN
On February 26, 1998, the Board approved an amendment to the Lamonts Apparel,
Inc. Employees Retirement Trust which provided that, effective April 1, 1998,
benefits to participants would cease to accrue. In addition, the entry of
new participants would be prohibited. Participants not vested as of April 1,
1998 will continue to accrue vesting service after April 1, 1998. In
accordance with Statement of Financial Accounting Standards No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," the projected benefit obligation
decreased, and a curtailment gain of $1.0 million was recognized during the
first quarter ended May 2, 1998. This curtailment gain is included in
operating and administrative expenses in the consolidated statements of
operations and accumulated deficit.
NOTE 7 - STOCKHOLDERS' EQUITY
On June 1, 1998, as compensation to Gordian Group, L.P. for investment
banking services rendered to the Company during the Company's Chapter 11
case, the Company issued warrants exercisable for the purchase of 161,937
shares of Class A Common Stock ("Common Stock") with an exercise price of
$1.24 per share.
The Compensation Committee of the Board of Directors granted options, as
shown below, to purchase shares of Common Stock. The options were granted to
certain executive officers of the Company and certain other senior and middle
level managers pursuant to the Lamonts Apparel, Inc. 1998 Stock Option Plan.
The options have a per share exercise price of $1.00, a term of 10 years and
vest as follows: 25% on the date of grant; and 25% on each annual anniversary
of the date of grant.
<TABLE>
<CAPTION>
Date Granted Options Granted
------------ ---------------
<S> <C>
May 26, 1998 35,000
August 24, 1998 15,500
December 1, 1998 2,000
</TABLE>
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this report containing the words "believes," "anticipates,"
"expects," and words of similar import, and any other statements which may be
construed as a prediction of future performance or events, 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. Although it is not
possible to itemize all factors that could affect actual results, 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 a significant
number of customers or suppliers, (vi) fluctuations in operating results,
(vii) changes in business strategy or development plans, (viii) business
disruptions, (ix) the ability to attract and retain qualified personnel, (x)
ownership of Common Stock, (xi) volatility of stock price, and (xii) the
additional risk factors identified in the Company's Registration Statement on
Form S-1 (No. 333-44311) initially filed with the SEC on January 15, 1998,
and those described from time to time in the Company's other filings with the
SEC, press releases and other communications. 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 future events or developments.
RESULTS OF OPERATIONS
FRESH-START REVALUATION
Because Fresh-Start Reporting was adopted as of January 31, 1998, the
consolidated results of operations for the thirteen weeks and thirty-nine
weeks ended October 31, 1998 are not comparable to the consolidated results
of operations for the thirteen weeks and thirty-nine weeks ended November 1,
1997 due to the inclusion of reorganization expenses prior to January 31,
1998 and the change in depreciation and amortization expense related to the
revaluation of assets. Accordingly, a vertical black line is shown to
separate post-emergence operations from those ended prior to January 31, 1998
in the consolidated results of operations.
The following discussion and analysis provides information with respect to
the results of operations for the thirteen weeks ("3rd Quarter 1998") and
thirty-nine weeks ("YTD 1998") ended October 31, 1998 compared to the
thirteen weeks ("3rd Quarter 1997") and thirty-nine weeks ("YTD 1997") ended
November 1, 1997.
REVENUES. Comparable store revenues (i.e., stores open since the beginning
of each of the periods presented) of $50.9 million for the 3rd Quarter 1998
increased $0.6 million or 1.2% from $50.3 million for the 3rd Quarter 1997.
Comparable store revenues of $140.9 million for YTD 1998 increased $3.5
million or 2.6% as compared to $137.4 million for YTD 1997. Comparable store
revenues were equal to total store revenues for all periods presented.
Management believes that revenues have increased due to higher average
inventory levels, continued improvement in the quality of the merchandise
offered in the stores compared to the prior period, and strong sales in the
Alaska market, which more than offset a decline of revenue in other markets.
There can be no assurance that revenues will increase in future periods.
GROSS PROFIT. Gross profit, as a percentage of revenues, was 36.9% for the
3rd Quarter 1998, compared to 36.8% for the 3rd Quarter 1997. Gross profit,
as a percentage of revenues, increased 0.4%, from 36.1% for YTD 1997, to
36.5% for YTD 1998, partially due to better inventory management and
controls. In addition, gross profit in the first quarter of 1997 was
negatively impacted by markdowns associated with severe winter storms.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
were $15.7 million or 30.9% of sales for the 3rd Quarter 1998, compared to $16.5
million or 32.8% of sales for the 3rd Quarter 1997. Operating and
administrative expenses were $45.2 million or 32.0% of sales for YTD 1998,
compared to $47.2 million or 34.4% of sales for YTD 1997. Excluding the
curtailment gain of $1.0 million recognized in the
11
<PAGE>
first quarter of fiscal 1998 (see Note 6 to the consolidated financial
statements), operating and administrative expenses for YTD 1998 were 32.8% of
sales. Expense savings initiatives, including lower occupancy expense at the
Company's leased distribution center and lower store payroll expense,
partially offset by an increase in Year 2000 remediation costs, accounted for
the remainder of the reduction in operating and administrative expenses for
YTD 1998 as compared to YTD 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$2.2 million for the 3rd Quarter 1998 and $1.7 million for the 3rd Quarter
1997. Depreciation and amortization expense was $6.0 million for YTD 1998 and
$5.5 million for YTD 1997. Both increases are primarily due to the
revaluation of assets in connection with fresh-start reporting.
INTEREST EXPENSE. Interest expense was $1.5 million for the 3rd Quarter 1998
compared to $1.4 million for the 3rd Quarter 1997. Interest expense was $3.7
million for YTD 1998 compared to $3.9 million for YTD 1997. Interest expense
is primarily related to outstanding borrowings under the Company's BankBoston
Facility, referred to below. The decrease in YTD 1998, is primarily the
result of an adjustment, totaling approximately $0.8 million, for a change in
estimate recorded in the twenty-six weeks ended August 1, 1998, partially
offset by higher average outstanding balances on the BankBoston Facility
during 1998 periods.
REORGANIZATION EXPENSES. Reorganization expenses of $0.9 million for the 3rd
Quarter 1997 and $1.9 million for YTD 1997 represent costs directly related
to the Company's Chapter 11 case and consist primarily of professional fees.
No such costs were incurred in the 3rd Quarter 1998 or YTD 1998.
NET LOSS. As a result of the foregoing, the Company recorded a net loss of
$0.7 million for the 3rd Quarter 1998, compared to a net loss of $2.1 million
for the 3rd Quarter 1997. The YTD 1998 net loss of $3.3 million decreased
$5.6 million from the net loss of $8.9 million for YTD 1997. The $5.6
million improvement is primarily due to (i) the increase in gross profit of
$1.9 million, due mainly to the increase in store revenues, (ii) the decrease
in operating and administrative expenses of $2.1 million, which includes the
curtailment gain of $1.0 million, and (iii) the reduction in reorganization
expenses of $1.9 million. These improvements were partially offset by the
increase in depreciation and amortization expense of $0.5 million.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company used $8.6 million of cash for operating activities for YTD 1998.
Cash for operating activities was used to fund losses in YTD 1998, the
seasonal inventory build-up required to meet the Company's sales objectives,
and the payment of accrued reorganization expenses as required under the
Plan. These uses of cash were partially offset by a seasonal increase in
accounts payable.
Cash used for operating activities decreased by $0.9 million as compared to
YTD 1997. The reduction is primarily due to the decrease in the net loss
(after giving effect to the curtailment gain) and a reduction in restricted
cash due to emergence from Chapter 11. These increases in cash provided by
operating activities were partially offset by a reduction of accrued expenses
related to the payment of bonuses, reorganization and other expenses, and an
increase in inventory levels (net of the increase in accounts payable),
compared to YTD 1997.
The Company used $1.3 million of cash in investing activities for YTD 1998,
representing an increase of $0.5 million as compared to $0.8 million used in
YTD 1997. The increase is partially attributable to higher capital
expenditures. In addition, the Company received approximately $0.2 million
from the sale of land during YTD 1997.
For YTD 1998, the Company received $11.0 million of cash from financing
activities as compared to $10.6 million for YTD 1997, due primarily to higher
net borrowings under the Revolver.
12
<PAGE>
As of October 31, 1998, the Company had a working capital ratio of 0.9. The
Company believes that borrowings under the BankBoston Facility, referred to
below, trade credit, and cash generated from operations will provide the cash
necessary to fund the Company's cash requirements for the foreseeable future.
CAPITAL RESOURCES
The Company entered into the Amended and Restated Debtor-in-Possession and
Exit Financing Loan Agreement, dated as of September 26, 1997 (the "Loan
Agreement"), between the Company and BankBoston, N.A. ("BankBoston"),
pursuant to which BankBoston provides Lamonts with (i) a revolving line of
credit (the "Revolver") with a maximum borrowing capacity of $32 million, $35
million for the period October 15, 1998 to December 15, 1998; and (ii) a
term loan in the amount of $10 million (the "Term Loan" and, together with
the Revolver, the "BankBoston Facility"). In addition, the Company must
maintain a Revolver balance of less than $20.5 million for 30 consecutive
days between December 15, 1998 and January 31, 1999. See Note 7 to the
consolidated financial statements for the 52 weeks ended January 31, 1998,
included in the Company's Annual Report on Form 10-K, as amended, for a
description of the BankBoston Facility.
The Company expensed fees of approximately $0.8 million YTD 1998 and $0.6
million YTD 1997 for the BankBoston Facility.
As of December 9, 1998, the Company had $22.9 million of borrowings
outstanding under the Revolver and $9.950 million outstanding under the Term
Loan. To meet its obligation under the Revolver and to maintain borrowings
under the Revolver at less than $20.5 million for 30 consecutive days between
December 15, 1998 and January 31, 1999, the Company intends to pay down
borrowings during such period with cash flow from operations.
SEASONALITY
The Company's sales are seasonal, with the fourth quarter historically being
the strongest quarter as a result of the holiday season.
YEAR 2000
"Fiscal 1998" refers to the 52 weeks ending January 30, 1999, and "Fiscal
1999" refers to the 52 weeks ending January 29, 2000.
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations.
The Company has established a compliance program to modify or replace
existing information technology systems to prevent the generation of invalid
or incorrect results in connection with processing year dates for the year
2000 and later. The Company believes that it will complete its Year 2000
modifications by the third quarter of Fiscal 1999 and, based on its current
understanding of its systems, does not currently anticipate any material
disruption in its operations as a result of Year 2000 issues. However, if
such modifications or replacements are not properly made, or are not timely
completed, the reasonably worst case scenario is that various non-essential
stand-alone systems would be impaired and the Company would lose its ability
to efficiently process merchandise through its leased distribution center,
which might have a material adverse effect on its operations.
13
<PAGE>
As of October 31, 1998, the Company estimates that 80% of its information
technology ("IT") systems have been tested and are currently operating as
Year 2000 compliant systems. The Company estimates that an additional 10% of
its IT systems have been reviewed and modified, but not yet tested. A
summary of the expected completion dates for work currently in process to
make all IT operating systems and application systems software Year 2000
compliant is as follows:
Fourth Quarter of Fiscal 1998: Mid-range computer operating
systems and application systems
software.
First Quarter of Fiscal 1999: Local area network, servers and
desktop personal computers.
Second Quarter of Fiscal 1999: Full test of all systems at a
disaster recovery site which will
emulate the changeover to the Year
2000.
Third Quarter of Fiscal 1999 1. Replacement of in-store
registers, computers, and
operating systems, with new
state-of-the art NCR hardware
and software.
2. Leased distribution center
Suppliers of the Company and other third parties exchange information with
the Company or rely on the Company's merchandising systems for certain sales
and stock information. The Company currently does not have complete
information concerning the compliance status of its suppliers or other third
parties. However, because third-party failures could have a material adverse
impact on the Company's ability to conduct business, the Company plans to
request confirmations from major suppliers to certify that plans are being
developed to address Year 2000 issues.
Beginning in the fourth quarter of Fiscal 1998, the Company will develop
contingency plans for all IT and non-IT systems, as well as develop
contingencies for dealing with those suppliers and other third parties who
have not responded to Year 2000 readiness questionnaires, or who are at risk
of non-compliance.
The Company spent $352,000 YTD 1998 and $325,000 through Fiscal 1997 to make
its computer systems Year 2000 compliant. The total cost of the project to
date as of October 31, 1998, was $677,000, and the Company estimates it will
spend an additional $150,000 in the remainder of Fiscal 1998, and $150,000 in
Fiscal 1999.
The cost of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources,
cooperation of vendors and other factors. However, there can be no guarantee
that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and
cost of personnel trained in the area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
The Company presently believes that Year 2000 issues will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or assessment, remediation and testing
are not effected timely with respect to Year 2000 problems that are
identified, there can be no assurance that Year 2000 issues will not
materially adversely impact the Company's results of operations or adversely
affect the Company's relationships with customers, vendors, or others.
Additionally, there can be no assurance that the Year 2000 issues of other
entities will not have a material adverse impact on the Company's systems or
results of operations.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
*10.24 First Amendment dated January 8, 1998 to Amended
and Restated Debtor in Possession and
Exit Financing Loan Agreement dated September
26, 1997 among the Registrant, certain
financial institutions and BankBoston, as agent.
*10.25 Second Amendment dated April 1, 1998 to Amended
and Restated Debtor in Possession and Exit
Financing Loan Agreement dated September 26,
1997 among the Registrant, certain financial
institutions and BankBoston, as agent.
*10.26 Third Amendment dated September 23, 1998 to
Amended and Restated Debtor in Possession and
Exit Financing Loan Agreement dated September
26, 1997 among the Registrant, certain
financial institutions and BankBoston, as agent.
*27.1 Financial Data Schedule
--------------
* filed herewith
</TABLE>
(b) Reports filed on Form 8-K:
None
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Registrant: LAMONTS APPAREL, INC.
---------------------
Date: December 14, 1998 By: /s/ Debbie A. Brownfield
----------------------------------
Debbie A. Brownfield
Executive Vice President,
Chief Financial Officer, Treasurer,
and Secretary
16
<PAGE>
FIRST AMENDMENT
FIRST AMENDMENT dated as of January 8, 1998 (this "AMENDMENT"), by and
among LAMONTS APPAREL, INC., a Delaware corporation and a debtor and debtor in
possession under Chapter 11 of the Bankruptcy Code (the "BORROWER"), having its
principal place of business at 12413 Willows Road N.E., Kirkland, WA 98034,
BANKBOSTON, N.A. (f/k/a "The First National Bank of Boston"), a national banking
association with its head office at 100 Federal Street, Boston, Massachusetts
02110, as Revolving Credit Bank and Term Loan Lender (the "BANK"), and
BANKBOSTON, N.A. (f/k/a "The First National Bank of Boston"), as Agent (the
"AGENT") amending certain provisions of the Amended and Restated Debtor in
Possession and Exit Financing Loan Agreement by and among the Borrower, the
Bank, and the Agent dated as of September 26, 1997 (the "LOAN AGREEMENT").
Terms not otherwise defined herein which are defined in the Loan Agreement shall
have the respective meanings herein assigned to such terms in the Loan
Agreement.
WHEREAS, the Borrower has requested that the Bank agree to amend the terms
of the Loan Agreement in certain respects; and
WHEREAS, the Bank is willing to amend the terms of the Loan Agreement in
such respects, upon the terms and subject to the conditions contained herein;
and
NOW, THEREFORE, in consideration of the mutual agreements contained in the
Loan Agreement, herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
Section 1. AMENDMENTS TO DEFINITIONS. Section 1.1 of the Loan Agreement
is hereby amended as follows:
DEFINITION OF "DIP MATURITY DATE." Section 1.1 of the Loan Agreement is
amended by deleting the word "and" following clause (b) thereof, and deleting
the entire clause (c) of the definition of the term "DIP Maturity Date."
Section 2. AMENDMENT TO SECTION 10.1(a)(ii) OF THE LOAN AGREEMENT.
Section 10.1(a)(ii) of the Loan Agreement is hereby amended by inserting after
clause (A) thereof, "(provided that the information contained in the foregoing
clause (A) for the month of December 1997 shall be delivered on or before
January 20, 1998)".
<PAGE>
-2-
Section 3. REPRESENTATIONS, WARRANTIES AND COVENANTS; NO DEFAULT;
AUTHORIZATION. The Borrower hereby represents, warrants and covenants to the
Agent as follows:
(a) Each of the representations and warranties of the Borrower contained
in the Loan Agreement or in any other Loan Documents was true and correct as of
the date as of which it was made and is true and correct in all material
respects as of the date of this Amendment except to the extent such
representations and warranties expressly related to a prior date (in which case
they shall be true and correct as of such earlier date); and no Default or Event
of Default has occurred and is continuing as of the date of this Amendment; and
(b) This Amendment has been duly authorized, executed and delivered by the
Borrower.
Section 4. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment shall be subject to the Agent's receipt on or prior to January 9, 1998
of each of (a) a copy of this Amendment executed by the Borrower; and (b)
written confirmation of approval of this Amendment executed by the Surety and
written ratification of the Supplemental Guaranty (as defined in the Purchase
and Guaranty Agreement) executed by the Guarantor (as defined in the Purchase
and Guaranty Agreement), each in form and substance satisfactory to the Agent.
Section 5. RATIFICATION, ETC. Except as expressly amended hereby, the
Loan Agreement, the other Loan Documents, and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects.
All references in the Loan Agreement or any related agreement or instrument to
the Loan Agreement shall hereafter refer to the Loan Agreement as amended
hereby.
Section 6. NO OTHER CHANGES; NO IMPLIED WAIVER. Except as expressly
provided herein, the Loan Agreement and the other Loan Documents shall be
unaffected hereby and shall continue in full force and effect, and nothing
contained herein shall constitute a waiver by the Agent or any Bank of any
right, remedy, Default, or Event of Default, or impair or otherwise affect any
Obligations, any other obligations of the Borrower, or any right of the Agent or
any Bank consequent thereon.
Section 7. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
Section 8. GOVERNING LAW. THIS AMENDMENT SHALL FOR ALL PURPOSES BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
COMMONWEALTH OF
<PAGE>
-3-
MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF LAW), AND, PRIOR TO THE EXIT
FACILITY DATE, BUT ONLY TO THE EXTENT APPLICABLE, THE PROVISIONS OF THE
BANKRUPTCY CODE.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as a
sealed instrument as of the date first above written.
LAMONTS APPAREL, INC.
debtor and debtor in possession
By: /s/ Loren Rothschild
-----------------------------------
Name: Loren Rothschild
Title: Vice Chairman
BANKBOSTON, N.A., in its respective
capacities as a Revolving Credit Bank
and Agent
By: /s/ William J. Sherald
-----------------------------------
Name: William J. Sherald
Title: Vice President
BANKBOSTON, N.A., as Term Loan Lender
By: /s/ William J. Sherald
-----------------------------------
Name: William J. Sherald
Title: Vice President
<PAGE>
CONFIRMATION OF THE SURETY
AND
OF THE GUARANTOR
The Surety hereby confirms approval of the foregoing amendment in all
respects and directs the Term Loan Lender to give its consent thereto. The
Guarantor (as defined in the Purchase and Guaranty Agreement) hereby ratifies
and confirms the Supplemental Guaranty (as defined in the Purchase and Guaranty
Agreement) in all respects, and agrees that the Supplemental Guaranty, after
giving effect to foregoing amendment, shall continue in full force and effect.
SPECIALTY INVESTMENT I LLC
By: /s/ Alan R. Goldstein
Name: Alan R. Goldstein
Title: Mgr & CFO
GORDON BROTHERS PARTNERS,
INC.
By: /s/ Alan R. Goldstein
Name: Alan R. Goldstein
Title: CFO/SVP
<PAGE>
SECOND AMENDMENT
SECOND AMENDMENT dated as of April 1, 1998 (this "AMENDMENT"), by and among
LAMONTS APPAREL, INC., a Delaware corporation (the "BORROWER"), having its
principal place of business at 12413 Willows Road N.E., Kirkland, WA 98034,
BANKBOSTON, N.A. (f/k/a "The First National Bank of Boston"), a national banking
association with its head office at 100 Federal Street, Boston, Massachusetts
02110 (the "BANK"), and BANKBOSTON, N.A. (f/k/a "The First National Bank of
Boston"), as Agent (the "AGENT") amending certain provisions of the Amended and
Restated Debtor in Possession and Exit Financing Loan Agreement by and among the
Borrower, the Bank, and the Agent dated as of September 26, 1997 as previously
amended by a First Amendment dated as of January 8, 1998 (as so amended, the
"LOAN AGREEMENT"). Terms not otherwise defined herein which are defined in the
Loan Agreement shall have the respective meanings herein assigned to such terms
in the Loan Agreement.
WHEREAS, the Borrower has requested that the Bank and the Agent agree to
amend the terms of the Loan Agreement in certain respects; and
WHEREAS, the Bank and the Agent are willing to amend the terms of the Loan
Agreement in such respects, upon the terms and subject to the conditions
contained herein; and
NOW, THEREFORE, in consideration of the mutual agreements contained in the
Loan Agreement, herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
Section 1. AMENDMENTS TO DEFINITIONS. Section 1.1 of the Loan Agreement
is hereby amended as follows:
NEW DEFINITIONS. Section 1.1 of the Loan Agreement is amended by adding to
Section 1.1 in the appropriate location in the alphabetical sequence the
following new definitions:
"DERIVATIVE CONTRACT: Any forward contract, future contract, swap,
option or other financing agreement or arrangement (including, without
limitation, caps, floors, collars and similar agreements) at any time
entered into between the Borrower and a Revolving Credit Bank, the value of
which is dependent upon interest rates, currency exchange
<PAGE>
-2-
rates, commodities or other indices, in form and substance satisfactory
to the Revolving Credit Banks."
"DERIVATIVE CONTRACT TERMINATION OBLIGATION: The maximum amount of
any termination or loss payment which at the time of determination would be
required to be paid pursuant to the termination of any Derivative Contract
by reason of any event of default or early termination event thereunder,
whether or not such event of default or early termination event has in fact
occurred."
"UNPAID DERIVATIVE CONTRACT TERMINATION OBLIGATION: The amount of any
termination or loss payment due and payable on account of the termination
of any Derivative Contract by reason of the occurrence of an event of
default or early termination event thereunder, together with any interest,
fees, expenses and other amounts payable thereunder, and which at the time
of determination has not been paid."
DEFINITION OF "INDEBTEDNESS." Section 1.1 of the Loan Agreement is further
amended by deleting the word "and" appearing before subpart (e) of the
definition of the term "Indebtedness" and inserting the words, "and (f) all
obligations under any Derivative Contract," after subpart (e) thereof.
DEFINITION OF "LOAN DOCUMENTS." Section 1.1 of the Loan Agreement is
further amended by inserting the words, "Derivative Contracts," in the third
line of the definition of the term "Loan Documents" thereof following the words,
"the Surety Power of Attorney," and before the word, "and" appearing therein.
DEFINITION OF "TOTAL EXIT COMMITMENT." Section 1.1 of the Loan Agreement
is further amended by inserting the following text at the end of the definition
of the term "Total Exit Commitment" appearing therein:
"PROVIDED THAT, so long as any Derivative Contract is
in effect, the "Total Exit Commitment" shall be reduced by the
greater of (i) $550,000, and (ii) the sum of all Derivative
Contract Termination Obligations."
Section 2. AMENDMENT TO SECTION 2.7 OF THE LOAN AGREEMENT.
(a) Section 2.7 of the Loan Agreement is hereby amended by inserting
the words, "and to pay any Unpaid Derivative Contract Termination Obligations,"
following the word "Obligations" appearing in the last line of Section 2.7(a)
thereof.
<PAGE>
-3-
(b) Section 2.7 is further amended by inserting the words, "or such
Unpaid Derivative Contract Termination Obligations," in the last paragraph
thereof, after the words, "Unpaid Reimbursement Obligations," appearing in
subpart (A) thereof.
Section 3. AMENDMENT TO SECTION 10.2(b) OF THE LOAN AGREEMENT. Section
10.2(b) of the Loan Agreement is hereby amended by deleting the word "and"
appearing before clause "(vii)" thereof and inserting the words, ", and (viii)
Indebtedness in favor of one or more Revolving Credit Banks arising under any
Derivative Contract", after clause (vii) thereof.
Section 4. AMENDMENT TO SECTION 10.2(d) OF THE LOAN AGREEMENT. Section
10.2(d) of the Loan Agreement is hereby amended by inserting the words, "(v)
investments comprising any Derivative Contract, and", following subpart "(iv)"
thereof, and renumbering subpart "(v)" thereof, "(vi)" thereof.
Section 5. AMENDMENT TO SECTION 11.1(b) OF THE LOAN AGREEMENT. Section
11.1(b) of the Loan Agreement is hereby amended by deleting the word "or"
appearing at the end of clause "(xv)" thereof, inserting the word "or" at the
end of clause "(xvi)" thereof and inserting the following new subpart "(xvii)"
following clause "(xvi)" thereof:
"(xvii) the failure to pay, following any required
notice, any amount as and when due under any Derivative
Contract;"
Section 6. AMENDMENT TO SECTION 11.4(a) OF THE LOAN AGREEMENT.
(a) Section 11.4 of the Loan Agreement is hereby amended by inserting
the phase, "other than any Unpaid Derivative Contract Termination Obligations"
following the term "Obligations", in the first sentence of Section 11.4(a)(ii)
thereof.
(b) Section 11.4 of the Loan Agreement is hereby further amended by
inserting the following text as subpart "(iv)" thereof and renumbering "(iv)
FOURTH" and "(v) FIFTH", "(v) FIFTH" and "(vi) SIXTH" respectively:
"(iv) FOURTH, to the Agent for the benefit of the
Revolving Credit Banks owed Unpaid Derivative Contract
Termination Obligations;"
<PAGE>
-4-
Section 7. AMENDMENT TO SECTION 11.4(b) OF THE LOAN AGREEMENT.
(a) Section 11.4(b) of the Loan Agreement is hereby amended by
inserting the phase, "other than any Unpaid Derivative Contract Termination
Obligations" following the term "Obligations", in the first sentence of Section
11.4(b)(iii) thereof.
(b) Section 11.4 of the Loan Agreement is hereby further amended by
inserting the following text as subpart "(iv)" thereof and renumbering "(iv)
FOURTH" and "(v) FIFTH", "(v) FIFTH" and "(vi) SIXTH" respectively:
"(iv) FOURTH, to the Agent for the benefit of the
Revolving Credit Banks owed Unpaid Derivative Contract
Termination Obligations;"
Section 8. REPRESENTATIONS, WARRANTIES AND COVENANTS; NO DEFAULT;
AUTHORIZATION. The Borrower hereby represents, warrants and covenants to the
Agent as follows:
(a) Each of the representations and warranties of the Borrower contained
in the Loan Agreement or in any other Loan Documents was true and correct as of
the date as of which it was made and is true and correct in all material
respects as of the date of this Amendment except to the extent such
representations and warranties expressly related to a prior date (in which case
they shall be true and correct as of such earlier date); and no Default or Event
of Default has occurred and is continuing as of the date of this Amendment;
(b) This Amendment has been duly authorized, executed and delivered by the
Borrower; and
(c) This Amendment shall constitute the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms.
Section 9. RATIFICATION, ETC. Except as expressly amended hereby, the
Loan Agreement, the other Loan Documents, and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects.
All references in the Loan Agreement or any related agreement or instrument to
the Loan Agreement or the Notes shall hereafter refer to the Loan Agreement or
the Notes as amended hereby.
Section 10. NO OTHER CHANGES; NO IMPLIED WAIVER. Except as expressly
provided herein, the Loan Agreement and the other Loan Documents shall be
<PAGE>
-5-
unaffected hereby and shall continue in full force and effect, and nothing
contained herein shall constitute a waiver by the Agent or any Bank of any
right, remedy, Default, or Event of Default, or impair or otherwise affect any
Obligations, any other obligations of the Borrower, or any right of the Agent or
any Bank consequent thereon.
Section 11. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
Section 12. GOVERNING LAW. THIS AMENDMENT SHALL FOR ALL PURPOSES BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF LAW.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as a
sealed instrument as of the date first above written.
LAMONTS APPAREL, INC.
By: /s/ Debbie Brownfield
-----------------------------------
Name: Debbie Brownfield
Title: EVP & CFO
BANKBOSTON, N.A.
for itself and as Agent
BY: /s/ William J. Sherald
-----------------------------------
Name: William J. Sherald
Title: Vice President
<PAGE>
-6-
CONFIRMATION OF THE SURETY
AND
OF THE GUARANTOR
The Surety hereby confirms approval of the foregoing amendment in all
respects and directs the Term Loan Lender to give its consent thereto. The
Guarantor (as defined in the Purchase and Guaranty Agreement) hereby ratifies
and confirms the Supplemental Guaranty (as defined in the Purchase and Guaranty
Agreement) in all respects, and agrees that the Supplemental Guaranty, after
giving effect to foregoing amendment, shall continue in full force and effect.
SPECIALTY INVESTMENT I LLC
By: /s/ Alan R. Goldstein
-----------------------------------
Name: Alan R. Goldstein
Title: Mgr & CFO
GORDON BROTHERS PARTNERS, INC.
By: /s/ Alan R. Goldstein
-----------------------------------
Name: Alan R. Goldstein
Title: CFO & SVP
<PAGE>
THIRD AMENDMENT
THIRD AMENDMENT dated as of September 23, 1998 (this "AMENDMENT"), by and
among LAMONTS APPAREL, INC., a Delaware corporation (the "BORROWER"), having its
principal place of business at 12413 Willows Road N.E., Kirkland, WA 98034,
BANKBOSTON, N.A. (f/k/a "The First National Bank of Boston"), a national banking
association with its head office at 100 Federal Street, Boston, Massachusetts
02110 (the "BANK"), and BANKBOSTON, N.A. (f/k/a "The First National Bank of
Boston"), as Agent (the "AGENT") amending certain provisions of the Amended and
Restated Debtor in Possession and Exit Financing Loan Agreement by and among the
Borrower, the Bank, and the Agent dated as of September 26, 1997 as previously
amended by a First Amendment dated as of January 8, 1998 and a Second Amendment
dated as of April 1, 1998 (as so amended, the "LOAN AGREEMENT"). Terms not
otherwise defined herein which are defined in the Loan Agreement shall have the
respective meanings herein assigned to such terms in the Loan Agreement.
WHEREAS, the Borrower has requested that the Bank and the Agent agree to
amend the terms of the Loan Agreement in certain respects; and
WHEREAS, the Bank and the Agent are willing to amend the terms of the Loan
Agreement in such respects, upon the terms and subject to the conditions
contained herein; and
NOW, THEREFORE, in consideration of the mutual agreements contained in the
Loan Agreement, herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
Section 1. AMENDMENTS TO SECTION 1.1 OF THE LOAN AGREEMENT. Section 1.1
of the Loan Agreement is hereby amended as follows:
NEW DEFINITIONS. Section 1.1 of the Loan Agreement is hereby amended by
adding to Section 1.1 in the appropriate location in the alphabetical sequence
the following new definition:
"ADDITIONAL AMENDMENT FEE: That certain fee in the amount of
$50,000."
DEFINITION OF "BORROWING BASE." Section 1.1 of the Loan Agreement is
amended by deleting clauses (a) and (b) appearing in the definition of
"Borrowing Base," and substituting therefor the following:
<PAGE>
-2-
"(a) Except as otherwise provided in paragraph (b) hereof, at any time
on or after the Exit Facility Date:
(i) 65% of the result of (A) Eligible Inventory at
such time, MINUS (B) the Inventory Shrink Reserve; MINUS
(ii) the aggregate amount of any Landlord Lien Reserves
with respect to all Specified Leases at such time.
(b) Provided the Agent shall have received on or prior to January
13, 1999 (A) an updated collateral appraisal and assessment of the
Borrower's inventory including, without limitation, its mix and quality
in form and substance satisfactory to the Banks and the Surety in their
absolute discretion, and (B) the Additional Amendment Fee for the account
of the Term Loan Lender (which in turn will be for the account of the
Surety), during the period commencing on January 15, 1999 and ending on
June 30, 1999:
(i) 70% of the result of (A) Eligible Inventory at
such time, MINUS (B) the Inventory Shrink Reserve; MINUS
(ii) the aggregate amount of any Landlord Lien Reserves
with respect to all Specified Leases at such time."
DEFINITION OF "EXIT COMMITMENT." Section 1.1 of the Loan Agreement is
further amended by deleting the words, "the lesser of," and clauses (a) and (b)
appearing in the definition of "Exit Commitment," and substituting therefor the
following:
"$32,000,000 during the period commencing on the Effective Date and
ending on October 14, 1998, $35,000,000 during the period commencing on
October 15, 1998, and ending on December 15, 1998, and $32,000,000 during
the period commencing on December 16, 1998 and at all applicable times
thereafter; as such amount may be reduced from time to time or terminated
hereunder, PROVIDED THAT, so long as any Derivative Contract is in effect,
the "Exit Commitment" shall be reduced by any amount by which the sum of
all Derivative Contract Termination Obligations exceeds $600,000."
DEFINITION OF "TOTAL EXIT COMMITMENT." Section 1.1 of the Loan Agreement
is further amended by deleting the proviso appearing in the definition of "Total
Exit Commitment."
<PAGE>
-3-
Section 2. AMENDMENT TO EXIT REVOLVING CREDIT NOTE. In furtherance of
the foregoing, the Exit Revolving Credit Note is hereby amended by changing the
amount "$32,000,000" to "$35,000,000" in each place such amount appears, and by
changing the phrase "Thirty-Two Million" to "Thirty-Five Million", in each place
such amount appears in the Exit Revolving Credit Note. Each Revolving Credit
Bank is authorized to reflect such change on its Exit Revolving Credit Note.
Section 3. AMENDMENT FEE. The Borrower agrees to pay to the Agent, for
the account of the Revolving Credit Bank, a Third Amendment amendment fee (the
"Amendment Fee") in the amount of $30,000. The Borrower hereby authorizes the
Agent to debit its Operating Account to pay the Amendment Fee on the effective
date of this Third Amendment.
Section 4. REPRESENTATIONS, WARRANTIES AND COVENANTS; NO DEFAULT;
AUTHORIZATION. The Borrower hereby represents, warrants and covenants to the
Agent as follows:
(a) Each of the representations and warranties of the Borrower contained
in the Loan Agreement or in any other Loan Documents was true and correct as of
the date as of which it was made and is true and correct in all material
respects as of the date of this Amendment except to the extent such
representations and warranties expressly related to a prior date (in which case
they shall be true and correct as of such earlier date); and no Default or Event
of Default has occurred and is continuing as of the date of this Amendment;
(b) This Amendment has been duly authorized, executed and delivered by the
Borrower; and
(c) This Amendment shall constitute the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms.
Section 5. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment shall be subject to satisfaction of the following conditions on or
prior to September 30, 1998:
(a) This Amendment shall have been duly executed and delivered by the
Borrower, the Banks, and the Agent.
(b) The Agent shall have received copies, certified by a duly authorized
officer of the Borrower as of the date hereof, of the resolution of the board of
directors of the Borrower approving the transactions contemplated hereby and the
execution and delivery of this Amendment, and as to the titles, incumbency, and
specimen signatures of the officers signing this Amendment and the documents
relating thereto.
<PAGE>
-4-
(c) The Agent shall have received a certificate of a duly authorized
officer of the Borrower (i) certifying that no amendments to the certificate or
articles of incorporation or organization of the Borrower have been undertaken
since such documents were last delivered to the Agent, and (ii) certifying that
no amendments to the by-laws of the Borrower have been undertaken since such
documents were last delivered to the Agent.
(d) The Agent shall have received from Borrower the most recently required
Borrowing Base Report.
(e) The Agent shall have received a favorable legal opinion addressed to
the Banks and the Agent, dated as of the date hereof, in form and substance
satisfactory to the Agent, from Ryan, Swanson & Cleveland, counsel to the
Borrower.
(f) The Agent shall have received the Amendment Fee.
(g) The Agent shall have received written confirmation of approval of this
Amendment executed by the Surety and written ratification of the Supplemental
Guaranty (as defined in the Purchase and Guaranty Agreement) executed by the
Guarantor (as defined in the Purchase and Guaranty Agreement), each in form and
substance satisfactory to the Agent.
(h) The Agent shall have received such other documents or instruments
relating hereto as the Agent shall have reasonably requested.
Section 6. RATIFICATION, ETC. Except as expressly amended hereby, the
Loan Agreement, the other Loan Documents, and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects.
All references in the Loan Agreement or any related agreement or instrument to
the Loan Agreement or the Notes shall hereafter refer to the Loan Agreement or
the Notes as amended hereby.
Section 7. NO OTHER CHANGES; NO IMPLIED WAIVER. Except as expressly
provided herein, the Loan Agreement and the other Loan Documents shall be
unaffected hereby and shall continue in full force and effect, and nothing
contained herein shall constitute a waiver by the Agent or any Bank of any
right, remedy, Default, or Event of Default, or impair or otherwise affect any
Obligations, any other obligations of the Borrower, or any right of the Agent or
any Bank consequent thereon.
Section 8. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
<PAGE>
-5-
Section 9. GOVERNING LAW. THIS AMENDMENT SHALL FOR ALL PURPOSES BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF LAW).
<PAGE>
-6-
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as a
sealed instrument as of the date first above written.
LAMONTS APPAREL, INC.
By: /s/ Loren Rothschild
-----------------------------------
Name: Loren Rothschild
Title: Vice Chairman
BANKBOSTON, N.A., in its
respective capacities as a Revolving
Credit Bank and Agent
By: /s/ William J. Sherald
-----------------------------------
Name: William J. Sherald
Title: Vice President
BANKBOSTON, N.A., as Term Loan Lender
By: /s/ William J. Sherald
-----------------------------------
Name: William J. Sherald
Title: Vice President
<PAGE>
-7-
CONFIRMATION OF THE SURETY
AND
OF THE GUARANTOR
The Surety hereby confirms approval of the foregoing amendment in all
respects and directs the Term Loan Lender to give its consent thereto. The
Guarantor (as defined in the Purchase and Guaranty Agreement) hereby ratifies
and confirms the Supplemental Guaranty (as defined in the Purchase and Guaranty
Agreement) in all respects, and agrees that the Supplemental Guaranty, after
giving effect to foregoing amendment, shall continue in full force and effect.
SPECIALTY INVESTMENT I LLC
By: /s/ Alan R. Goldstein
-----------------------------------
Name: Alan R. Goldstein
Title: Mgr & CFO
GORDON BROTHERS PARTNERS, INC.
By: /s/ Alan R. Goldstein
-----------------------------------
Name: Alan R. Goldstein
Title: CFO/SVP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS UMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR
THE THIRTY-NINE WEEKS ENDED OCTOBER 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 2,354
<SECURITIES> 0
<RECEIVABLES> 1,554
<ALLOWANCES> 0
<INVENTORY> 61,034
<CURRENT-ASSETS> 66,520
<PP&E> 29,397<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,109
<CURRENT-LIABILITIES> 72,963
<BONDS> 0
0
0
<COMMON> 16,927
<OTHER-SE> 3,029
<TOTAL-LIABILITY-AND-EQUITY> 114,109
<SALES> 140,924
<TOTAL-REVENUES> 140,924
<CGS> 89,437
<TOTAL-COSTS> 51,170<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,658
<INCOME-PRETAX> (3,328)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,328)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
<FN>
<F1>Amount is net of accumulated depreciation of $4,122.
<F2>Includes operating expenses and administrative expenses of $45,162 and
depreciation and amortization of $6,008.
</FN>
</TABLE>
