<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934: For the fiscal year ended January 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, WA 98034
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(425) 814-5700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock, par value $0.01 per share
Class A Warrants to purchase Class A Common Stock
Class B Warrants to purchase Class A Common Stock
Class C Warrants to purchase Class A Common Stock
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the Registrant's voting stock held by
nonaffiliates of the Registrant as of April 15 ,1998, was approximately
$7,944,039 (based on the average bid and ask price of such stock on such date).
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a Court.
Yes X No
--- ---
As of April 15, 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 59
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1
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LAMONTS APPAREL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE 52 WEEKS ENDED JANUARY 31, 1998
PART I
ITEM 1 - BUSINESS
GENERAL BACKGROUND
Lamonts Apparel, Inc. (the "Company" or "Lamonts") is a Northwest-based regional
retailer with 38 stores in five states. The Company offers an assortment of
moderately priced fashion apparel, and home and fashion accessories at
competitive prices for the entire family. The Company, which has been operating
in the Northwest for thirty years, is well recognized in the region as a
retailer of nationally recognized brand name apparel such as Levi, Liz
Claiborne, Lee, Bugle Boy, Jockey, Alfred Dunner, OshKosh, Adidas, Nike, and
Health-Tex. 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 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 office is located at 12413 Willows Road N.E., Kirkland,
Washington 98034, and its telephone number is (425) 814-5700.
CHAPTER 11 REORGANIZATION
BACKGROUND
Despite numerous attempts to restructure the Company's capital structure from
1992 through 1994, and as a result of 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. The
Company's Modified and Restated Plan of Reorganization (the "Plan") was
confirmed by the Bankruptcy Court on December 18, 1997 and became effective on
January 31, 1998 ("Plan Effective Date").
PLAN
The overall purpose of the Plan was 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 considered to be
reasonable.
The Plan resulted in an approximate $90 million net reduction in the total
indebtedness and liabilities subject to reorganization of the Company. The Plan
provided generally for, among other things, payment in full by the Company of
administrative expenses, certain other priority claims and secured claims, other
than the claim of BankBoston, N.A. ("BankBoston"), the agent and lender under
the Company's bank credit facility (the "BankBoston Facility"), (which was
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 provided that the
2
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Company assume all of the obligations under the BankBoston Facility,
including any unpaid accrued interest, fees, costs and charges. See Note 1
to the Consolidated Financial Statements for a description of the Plan.
DEBTOR-IN-POSSESSION ("DIP") FINANCING AND EXIT FINANCING
During its Chapter 11 case, the Company received its debtor-in-possession
financing from BankBoston pursuant to a loan and security agreement, dated June
4, 1996 (the "Prior Loan Agreement") between the Company and BankBoston. On
September 26, 1997, the Prior Loan Agreement was amended and restated as set
forth in the Amended and Restated Debtor-in-Possession and Exit Financing Loan
Agreement (the "Loan Agreement"), between the Company and BankBoston. Pursuant
to the Loan Agreement, BankBoston provides Lamonts with (i) a revolving credit
facility (the "Revolver") with a maximum borrowing capacity of $32 million and
(ii) a term loan in the amount of $10 million (the "Term Loan"). See Note 7 to
the Consolidated Financial Statements for a description of the BankBoston
Facility.
OPERATIONS
Lamonts offers an assortment of moderately priced fashion apparel and home and
fashion accessories at competitive prices for the entire family.
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 sales events.
SHOE LICENSEE - Lamonts utilizes a licensee, Shoe Corporation of America
("SCOA"), for its family shoe department. The sales of shoes represented
approximately 5.7% of the Company's total annual revenues for the 52 weeks ended
January 31, 1998 ("Fiscal 1997"), but are not reflected in such revenues for
financial reporting purposes because income derived by the Company from the
rental fees charged to the licensee is reported as an offset to operating
expenses. The rental fees paid to Lamonts by SCOA (approximately $1.3 million
for Fiscal 1997) range from 10% to 12% of annual net sales generated by the
licensee. The license agreement with SCOA expires in January 2001 with one
three-year extension at Lamonts' 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 during the Company's Chapter 11 case.
In addition, the Company's membership in Frederick Atkins, Inc. ("Atkins"), a
merchandising consultant and buying cooperative, provides it with industry
research and the use of Atkins' private label import program. Additionally, the
Company backs certain of its direct import purchases with letters of credit
issued through Atkins. The Company maintains a non-interest bearing deposit
account with Atkins equal to 17% of its historic annual purchases to cover costs
associated with the letters of credit.
The Company purchases its merchandise from approximately 1,200 vendors and is
not dependent on any single source of supply. The Company maintains no
long-term commitments with any supplier and believes that there will continue
to be an adequate supply of merchandise to satisfy its current and
anticipated requirements. However, like other apparel retailers, the Company
is highly dependent upon its ability to obtain trade credit.
DISTRIBUTION - The Company utilizes a contractor, Assembly Transportation
Distribution Systems, Inc. ("ATD"), to operate its distribution center pursuant
to an arrangement that continues through February 2001. Fees payable to ATD
pursuant to such arrangement are approximately $15,000 per month. Through its
distribution center, which is dedicated to the Company for centralized receiving
and marking (ticketing), the Company generally 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.
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The current lease for the distribution center, which is guaranteed by the
Company, covers 62,500 square feet of space and has an initial term through
February 2001 with one three-year extension at Lamonts' option. The amount of
lease payments guaranteed by the Company pursuant to such lease is approximately
$21,000 per month. See "Item 2 - Properties."
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 people, 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.
Approximately 35 employees working in the Wenatchee, Washington store are
represented by the United Food and Commercial Workers Union; these employees
have not negotiated a bargaining agreement, and they work under the same
working conditions as the Company's non-union employees. Approximately 16
employees working in the Kirkland corporate office are represented by the
United Food and Commercial Workers Union pursuant to an employee ratified
agreement that expires on March 31, 2000. Management believes its employee
relations are good.
COMPETITION - Lamonts competes with other specialty retail apparel stores,
department stores and discount/mass merchandisers on the basis of product range,
quality, fashion, price and service. The Company 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 Lamonts.
TRADEMARKS - The Company currently owns various registered trademarks which are
part of its proprietary brand imports program. Management believes that,
although such trademarks are significant, the Company's business is not
dependent on any of such rights.
CREDIT POLICY - The Company offers its customers various methods of payment
including cash, check, Lamonts charge card, certain major credit cards and a
lay-away plan. Since its inception in July 1988, the Company's charge card
program has expanded to approximately 617,000 accounts, of which 152,000 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 customers who pay by cash, check or bank credit card. The
Company believes that its proprietary charge card program provides additional
benefits in two areas: (i) 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 ("ADS") (which purchased the charge accounts from National City Bank of
Columbus), provides for the option of paying in full within 30 days of the
billed date with no finance charge or with revolving credit terms. Terms of the
short-term revolving charge accounts require customers to make minimum monthly
payments in accordance with prescribed schedules. Through a contractual
arrangement, as amended (the "Alliance Agreement"), ADS 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. ADS waived the supplemental discount fee for Fiscal 1997. 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 ADS $0.1 million
for bad debt expense and $0.9 million in fees during Fiscal 1996. In Fiscal
1997, discount fees totaled approximately $0.9 million.
4
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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.
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 the service bureau referred to below. 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 to the
merchants, Year 2000 preparations, customer database, direct marketing systems,
as well as a new POS platform to support enhanced customer service and direct
marketing initiatives.
The Company utilizes an outside service bureau, Affiliated Computer Services,
Inc. ("ACS"), for its mainframe computer processing pursuant to a contract that
continues through February 2000. Fees payable to ACS under such contract are
based on CPU utilization plus other miscellaneous charges. The minimum monthly
fee payable to ACS under such contract is $50,000. In addition, ACS licenses
certain system and application software programs to the Company.
YEAR 2000 - The Company has established a compliance program to modify or
replace existing information technology systems so that such systems will not
generate invalid or incorrect results in connection with processing year dates
for the year 2000 and later years. The Company believes that it will be able to
achieve Year 2000 compliance by the middle of the 52 weeks ending January 29,
2000 ("Fiscal 1999") and does not currently anticipate any material disruption
in its operations as a result of any failure by the Company to achieve
compliance. The Company spent approximately $324,000 in Fiscal 1997 and
estimates it will spend approximately $500,000 during the 52 weeks ending
January 30, 1999 ("Fiscal 1998") and $150,000 in Fiscal 1999 to make its
computer systems Year 2000 compliant.
Additionally, 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 any
information concerning the compliance status of its suppliers or such other
third parties. However, because third-party failures could have a material
adverse impact on the Company's ability to conduct business, confirmations are
being requested from the Company's major suppliers to certify that plans are
being developed to address the Year 2000 issues.
REGULATIONS - The Company is subject to Federal, state and local laws and
regulations affecting retail apparel stores generally. The Company believes
that it is in substantial compliance with these laws and regulations.
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CHANGE IN FISCAL YEAR
On March 9, 1995, the Company elected to change its fiscal year end from the
Saturday closest to October 31 to the Saturday closest to January 31 to enhance
comparability of the Company's results of operations with other apparel
retailers.
ITEM 2 - PROPERTIES
The Company considers its ability to maintain attractive, high traffic store
locations to be a critical element of its business and a key determinant of
Lamonts' future growth and profitability.
The Company currently operates 38 stores in the following locations:
<TABLE>
<CAPTION>
Alaska (7) Washington (23) Utah (1)
- ----------- --------------- ---------
<S> <C> <C>
- - Anchorage: 3 stores - Seattle: 6 stores - Logan
- - Fairbanks - Bellevue/Eastside: 4 stores
- - Juneau - Spokane: 2 stores
- - Soldotna - Tacoma: 2 stores Oregon (2)
- - Wasilla - Aberdeen ----------
- Marysville - Astoria
Idaho (5) - Moses Lake - Corvallis
- ---------- - Olympia
- - Coeur d'Alene - Port Angeles
- - Idaho Falls - Silverdale
- - Lewiston - Tri-Cities
- - Moscow - Wenatchee
- - Pocatello - Yakima
</TABLE>
Of the 38 stores, 14 are located in regional malls, 15 are located in community
malls, three are located in strip centers, and six are located in free-standing
locations.
All of the Company's stores are currently operated in facilities leased by the
Company, except one which is operated in a building owned by the Company subject
to a ground lease which expires in 2015. The leases for these facilities have
terms up to 30 years, with an average remaining term of seven years, not
including additional option periods. The Company leases its principal office in
Kirkland, Washington. The lease, which commenced May 1996, is for approximately
30,000 square feet and expires May 2006.
The Company's stores range from 20,700 to 80,000 square feet in size, 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 twenty (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.
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The Company has an arrangement with Assembly Transportation Distribution
Systems, Inc. ("ATD"), which provides distribution and merchandise processing
services for Lamonts on a cost plus fee reimbursement basis. As part of the
arrangement, the Company is a guarantor of the lease of the distribution
center located in Kent, Washington. The lease expires February 2001 and has
one three-year extension option.
ITEM 3 - 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.
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. On February 20, 1998, the United
States District Court for the District of Alaska entered a final judgment
against Hickel for an amount in excess of $1.8 million. Hickel has since
appealed the judgment and posted a bond in the amount of $2.1 million 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 relating to the final
judgment have been recorded in the Consolidated Financial Statements.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Plan and the related Disclosure Statement were transmitted to all impaired
creditors and equity security holders of the Company along with ballots for the
purpose of soliciting acceptances of the Plan. At a hearing to consider
confirmation of the Plan, the Bankruptcy Court found that the Plan was accepted
by the holders of general unsecured claims totaling approximately 99.2% in
dollar amount and 95.9% in number of holders of such claims held by creditors
that timely voted to accept or reject the Plan, and that the Plan was accepted
by the holders of equity security interests totaling approximately 98.3% in
amount of shares held by equity security holders that timely voted to accept or
reject the Plan. The ballots contained no provision for abstentions. As a
result, ballots that were not returned and invalid ballots had no effect on the
outcome of the vote on the Plan. A summary of the valid ballots cast is as
follows:
<TABLE>
<CAPTION>
Ballots Ballots
Accepting Plan Rejecting Plan
--------------- ---------------
<S> <C> <C>
Holders of general unsecured claims 417 18
Holders of equity security interests 290 14
Holders of other priority claims 4 0
</TABLE>
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Pursuant to the Plan, the Company's Class A Common Stock, par value $0.01 per
share ("Common Stock"), was delivered to Norwest Bank Minnesota, N.A., as
exchange agent, on January 31, 1998, for distribution to unsecured creditors and
shareholders. The Common Stock is quoted on the OTC Bulletin Board and is
listed under the symbol "LMNT."
The average bid and ask price of the Common Stock on April 15, 1998 was $1.41.
At April 15, 1998, there were 1,371 holders of record of the Common Stock.
Prior to the Plan Effective Date, the Company's outstanding common stock ("Old
Common Stock") was quoted on the OTC Bulletin Board and, until January 20, 1995,
was listed on the Nasdaq Stock Market's Smallcap Market ("NASDAQ") under the
symbol "LMNT." The following table sets forth, for the periods indicated, the
high and low closing bid prices of the Old Common Stock as reported on NASDAQ
and over-the-counter quotes. The bid prices, as stated, represent inter-dealer
prices without adjustments for retail mark-ups, mark-downs or commissions and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Fiscal 1997: High Low
- ------------------------ -------- --------
<S> <C> <C>
Quarter ended May 3 1/8 1/16
Quarter ended August 2 1/8 1/16
Quarter ended November 1 3/16 1/16
Quarter ended January 31 1/4 1/16
Fiscal 1996: High Low
- ------------------------ -------- --------
Quarter ended May 4 1/4 1/8
Quarter ended August 3 7/16 1/8
Quarter ended November 2 1/4 1/8
Quarter ended February 1 7/16 1/16
</TABLE>
DIVIDENDS
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.
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ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data for the
Company and should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto included in Item 8. The
following financial data is not necessarily comparable for the periods
presented because of the effects of Fresh-Start Reporting, and, among other
things, the Company's change in fiscal year end on March 9, 1995. However,
for purposes of comparing the data for the 53 weeks ended February 3, 1996
("Fiscal 1995"), the Company has provided data for the comparable prior year
period, which are derived from unaudited financial records of the Company.
LAMONTS APPAREL, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JAN 31, 1998 FEB 1, 1997 FEB 3, 1996
-------------- -------------- ----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
- ------------------------------
Revenues (1) $ 201,623 $ 203,602 $ 199,548
Cost of merchandise sold 131,700 130,480 131,677
-------------- -------------- ----------------
Gross profit 69,923 73,122 67,871
-------------- -------------- ----------------
Operating and administrative expenses 67,844 67,173 71,372
Depreciation and amortization 7,141 7,999 9,232
Impairment of long-lived assets - 4,170 -
-------------- -------------- ----------------
Operating costs 74,985 79,342 80,604
-------------- -------------- ----------------
Loss from operations before other
income (expense), reorganization
expenses, fresh-start revaluation,
and extraordinary item (5,062) (6,220) (12,733)
Other income (expense):
Interest expense
Cash (5,900) (5,053) (5,098)
Other income (expense) 8 12 196
-------------- -------------- ----------------
Loss from operations before
reorganization expenses,
fresh-start revaluation and
extraordinary item (10,954) (11,261) (17,635)
Reorganization expenses (5,995) (6,037) (7,240)
Fresh-start revaluation 70,495 - -
-------------- -------------- ----------------
Income (loss) before extraordinary
item 53,546 (17,298) (24,875)
Extraordinary item - gain on debt
discharge 69,158 0 -
-------------- -------------- ----------------
Net income (loss) $122,704 $(17,298) $(24,875)
-------------- -------------- ----------------
-------------- -------------- ----------------
Net income (loss) before
extraordinary item per
common share (See Note 4)
Basic and Diluted $3.00 $(0.97) $(1.39)
-------------- -------------- ----------------
-------------- -------------- ----------------
Net income (loss) per common share
(See Note 4)
Basic and Diluted $6.86 $(0.97) $(1.39)
-------------- -------------- ----------------
-------------- -------------- ----------------
Shares Used in Computing Earnings
(Loss) per Common Share
(in thousands) (See Note 4)
Basic and Diluted 17,876 17,900 17,894
-------------- -------------- ----------------
-------------- -------------- ----------------
BALANCE SHEET DATA (at end of period)
- -------------------------------------
Working capital $(5,625) $(3,357) $(2,248)
Total assets 97,468 93,272 102,361
Liabilities subject to settlement under
reorganization proceedings - 102,858 104,845
Long term debt and obligations under
capital leases, net of current
maturities 13,835 2,846 -
Stockholders' equity (deficit) 19,956 (59,553) (42,556)
</TABLE>
- ----------------------------------
(1) The additional week in Fiscal 1995 accounted for $2.2 million of revenues.
9
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ITEM 6 - SELECTED FINANCIAL DATA
LAMONTS APPAREL, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 WEEKS ENDED QUARTER ENDED 52 WEEKS ENDED
JAN 28, 1995 JAN 28, 1995 OCT 29, 1994
-------------- -------------- ----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
- -----------------------------
Revenues (1) $ 231,199 $ 71,014 $ 237,922
Cost of merchandise sold 175,330 60,587 163,697
-------------- -------------- ----------------
Gross profit 55,869 10,427 74,225
-------------- -------------- ----------------
Operating and administrative expenses 87,807 22,400 88,520
Depreciation and amortization 11,355 2,666 11,441
Store closure costs 7,200 - 7,200
-------------- -------------- ----------------
Operating costs 106,362 25,066 107,161
-------------- -------------- ----------------
Loss from continuing operations
before other income (expense),
reorganization expenses
and income tax benefit (50,493) (14,639) (32,936)
Other income (expense):
Interest expense
Cash (6,698) (1,356) (8,130)
Non-cash (2) (5,160) (1,670) (3,490)
Other income (expense) 27 29 (369)
-------------- -------------- ----------------
Loss from continuing operations before
reorganization expenses and income
tax benefit (62,324) (17,636) (44,925)
Reorganization expenses 7,499 7,499 -
-------------- -------------- ----------------
Loss from continuing operations before
income tax benefit (69,823) (25,135) (44,925)
Income tax benefit (400) - (400)
-------------- -------------- ----------------
Net loss $(69,423) $(25,135) $(44,525)
-------------- -------------- ----------------
-------------- -------------- ----------------
Net income (loss) per common share
(See Note 4)
Basic and Diluted $(4.13) $(1.41) $(3.05)
-------------- -------------- ----------------
-------------- -------------- ----------------
Shares Used in Computing Earnings
(Loss) per Common Share
(in thousands) (See Note 4)
Basic and Diluted 16,820 17,883 14,583
-------------- -------------- ----------------
-------------- -------------- ----------------
BALANCE SHEET DATA (at end of period)
- -------------------------------------
Working capital $ 16,025 $ 16,025 $ 9,938
Total assets 120,269 120,269 152,589
Liabilities subject to settlement under
reorganization proceedings 108,333 108,333 -
Long term debt and obligations under
capital leases, net of
current maturities - - 80,642
Stockholders' equity (deficit) (17,509) (17,509) 7,560
</TABLE>
- --------------------------------
(1) The additional week in Fiscal 1995 accounted for $2.2 million of revenues.
(2) Non-cash interest expense is comprised of amortization of discounts on the
Company's long term debt and interest paid through issuance of additional
debt.
10
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto included elsewhere in this
document. On March 9, 1995, the Company elected to change its fiscal year end
from the Saturday closest to October 31 to the Saturday closest to January 31 in
order to enhance comparability of the Company's results of operations with other
apparel retailers. Accordingly, for purposes of comparing the results of
operations of the Company for Fiscal 1995, the Company believes it is meaningful
to use the comparable prior year period as the basis for comparison.
The information contained herein, including, without limitation, statements
containing the words "believes," "anticipates," "expects," and words of a
similar import, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance, or achievements of the Company,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, (i) national and local general
economic and market conditions, (ii) demographic changes, (iii) liability and
other claims asserted against the Company, (iv) competition, (v) the loss of
significant customers or suppliers, (vi) fluctuations in operating results,
(vii) changes in business strategy or development plans, (viii) business
disruptions, (ix) the ability to attract and retain qualified personnel, (x)
ownership of Common Stock, (xi) volatility of stock price, and (xii) the
additional risk factors identified in the Company's Registration Statement on
Form S-1 (No. 333-44311) initially filed with the Securities and Exchange
Commission (the "SEC") on January 15, 1998. The Company disclaims any
obligations to update any such factors or to announce publicly the result of any
revisions to any of the forward-looking statements contained or incorporated by
reference herein to reflect untrue events or developments.
FINANCIAL CONDITION
BACKGROUND
Despite numerous attempts to restructure the Company's capital structure from
1992 through 1994, and as a result of continued deterioration of the
Company's financial position, on the Petition Date, the Company filed a
voluntary petition for relief under Chapter 11 in the Bankruptcy Court. In
Chapter 11, the Company continued to manage its affairs and operate its
business as a debtor-in-possession. On December 18, 1997, the Bankruptcy
Court confirmed the Plan and, on January 31, 1998, the Plan became effective.
Under the Plan, among other things, certain indebtedness of Lamonts was
canceled in exchange for new equity interests, certain indebtedness was
reinstated, certain other pre-petition claims were discharged, certain claims
were settled, existing equity interests were extinguished and new equity
interests were issued, executory contracts and unexpired leases were assumed
or rejected, and the members of a new board of directors were designated.
See Note 1 to the Consolidated Financial Statements for description of the
Plan.
In an effort to return the Company's operations to profitability, the Company
has instituted cost containment measures and implemented expense initiatives to
reduce overall operating expenses. In addition, the Company has adopted new
merchandising strategies, which are designed to: (i) organize merchandising
efforts in key departments on an integrated basis to streamline operations and
focus responsibility for merchandise presentation and a more attractive mix of
quality, price and availability; (ii) reduce or eliminate low-margin items and
departments and add higher margin goods; and (iii) 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.
STORE LOCATIONS
Since October 29, 1994, the Company has closed 19 stores, 11 of which were
closed after the Petition Date 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. Management has no current plans to close
any of the remaining 38 Lamonts stores.
11
<PAGE>
In March 1995, the Company opened a new store in Issaquah, Washington.
Management is also evaluating the possibility of opening new stores in other
desirable geographic locations to facilitate revenue growth. The Company
intends to use funds generated from operating cash flow and, in certain
circumstances, landlord financing, to cover the costs associated with opening
such new stores. There can be no assurance, however, that operating cash flow
and/or the amount of landlord financing will be sufficient to cover such costs.
FRESH-START REVALUATION
Effective January 31, 1998, the Company implemented the required accounting for
entities emerging from Chapter 11 in accordance with the American Institute of
Certified Public Accountant's (AICPA) Statement of Position 90-7 ("SOP 90-7"),
Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
(also referred to as "Fresh-Start Reporting"). Under Fresh-Start Reporting, the
reorganization value (determined as discussed below) of the Company was
allocated to the reorganized Company's net assets on the basis of the purchase
method of accounting, which required the adjustment of the Company's assets and
liabilities to reflect their estimated fair value at the Plan Effective Date.
In accordance with SOP 90-7, the Company's reorganization value was determined
as of the Plan Effective Date. The reorganization value was derived by an
independent public accounting firm using various valuation methods, including
discounted cash flow analyses (utilizing the Company's projections), analyses of
the market values of other publicly traded companies whose businesses are
reasonably comparable, and analyses of the present value of the Company's
equity. This value was viewed as the fair value of the Company before
considering liabilities and approximated the amount a willing buyer would have
paid for the assets of the Company immediately after restructuring. Management
determined the value of the equity to be approximately $20 million by deducting
working capital, operating debt, and the new debt from the reorganization value.
The adjustments to reflect the consummation of the Plan and the adoption of
Fresh-Start Reporting, including the adjustment to restate assets and
liabilities at the fair value of net assets and the gain on debt discharge for
liabilities subject to settlement under reorganization proceedings, are
reflected in the Consolidated Statements of Operations under the captions "Fresh
Start Revaluation" and "Extraordinary Item - Gain on Debt Discharge." See Note
2 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO THE 52 WEEKS ENDED FEBRUARY 1, 1997 ("FISCAL 1996")
REVENUES. Revenues of $201.6 million for Fiscal 1997 decreased $2.0 million on
a total store basis from $203.6 million for Fiscal 1996. The decrease is
attributable to the closure of five stores that were operating during Fiscal
1996. Comparable store revenues, for the 38 stores, of $201.6 million for
Fiscal 1997 increased 6.3% from $189.7 million for Fiscal 1996. Comparable
store revenues are defined as revenues generated at stores open for at least 12
months in each of the periods. Management believes that revenues have increased
due to higher inventory levels and continued improvement in the quality of the
merchandise offered in the stores compared to the prior year. There can be no
assurance that a continuation of such factors will increase revenues in future
periods.
GROSS PROFIT. Gross profit as a percentage of revenues, 34.7% for Fiscal 1997,
decreased from 35.9% in Fiscal 1996. The gross profit for Fiscal 1997 includes
the establishment of a $2.0 million markdown reserve. Exclusive of this
reserve, the gross profit percentage for Fiscal 1997 would have been 35.7%,
relatively flat as compared to Fiscal 1996. Reductions in the LIFO inventory
layers impacted the Consolidated Financial Statements of Operations by $0.2
million in Fiscal 1997 and Fiscal 1996.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
were $67.8 million, or 33.6% of revenues for Fiscal 1997, compared to $67.2
million, or 33.0% of revenues, for Fiscal 1996. Operating and administrative
expense savings of $3.6 million attributable to closed stores operating in the
prior year were offset by increases in (i) credit card fees of $0.4 million,
(ii) advertising of $1.0 million, (iii) payroll of $0.5 million, (iv) write-down
of supplies inventory and other current assets of $1.1 million, and (v) other
expenses of $1.2 million, which included Year 2000 compliance expenses. Year
2000 costs included in operating and administrative expenses for Fiscal 1997
amounted to approximately $0.3 million.
12
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $7.1
million for Fiscal 1997 decreased $0.9 million from $8.0 million for Fiscal
1996. The decrease was primarily related 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 Fiscal 1996 due to the
adoption of Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("SFAS No. 121"). See Note 3 to the Consolidated Financial Statements.
INTEREST EXPENSE. Interest expense was $5.9 million in Fiscal 1997 compared to
$5.1 million in Fiscal 1996. Interest expense is primarily related to
outstanding borrowings under the Company's bank credit facilities. The increase
in interest expense is primarily due to debt facility fees incurred in
connection with the Term Loan and Revolver.
REORGANIZATION EXPENSES. During the course of the Chapter 11 case, the Company
recognized $26.8 million in reorganization expenses, including approximately
$13.2 million of non-cash charges, of which $6.0 million was incurred during
Fiscal 1997 and $6.0 million during Fiscal 1996. The Fiscal 1997 expenses
relate primarily to professional fees and bonuses paid to certain employees
associated with the Company's Chapter 11 case. In addition, the Fiscal 1996
expenses include accrued or estimated costs associated with the rejection of
real property leases, and costs related to closing underperforming and
nonprofitable stores.
FRESH-START REVALUATION - The Company recorded a fresh-start revaluation
adjustment of $70.5 million in Fiscal 1997. See Note 2 to the Consolidated
Financial Statements.
NET INCOME. As a result of the foregoing factors, net income was $122.7 million
for Fiscal 1997 compared to a net loss of $17.3 million in Fiscal 1996. The
$0.3 million improvement (exclusive of the $70.5 million fresh-start revaluation
and $69.2 million extraordinary item - gain on debt discharge) is primarily due
to no impairment of long-lived assets for Fiscal 1997 compared to the
recognition of a $4.2 million for impairment in Fiscal 1996, and the decrease in
depreciation and amortization expenses of $0.9 million, offset by (i) the
decrease in gross profit of $3.2 million, primarily due to the establishment of
a $2.0 million markdown reserve , (ii) the increase in operating and
administrative expenses of $0.6 million, and (iii) the increase in interest
expense of $0.8 million.
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES. Revenues of $204 million for Fiscal 1996 increased 2.0% on a total
store basis from $199 million for Fiscal 1995. Management believes that
revenues have increased due to increased levels of inventory and overall
improvement in the quality of the merchandise offered in the stores compared to
the prior year. Comparable store revenues, for the 38 stores, of $189.7 million
for Fiscal 1996 increased 4.6% from $181.2 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 12 months in each of
the periods.
GROSS PROFIT. Gross profit as a percentage of revenues of 36.0% for Fiscal 1996
increased 1.5% from 34.5% for Fiscal 1995 (excluding the effect of non-cash
charges of $0.2 million in Fiscal 1996 and $0.9 million in Fiscal 1996). The
non-cash charges consist primarily of "LIFO" inventory valuation and net
realizable value adjustments. Reductions in the LIFO inventory layers impacted
the statements of operations by $0.2 million and $0.5 million for Fiscal 1996
and Fiscal 1995, respectively. The improvement in gross profit margins can be
attributed to the Company's continued efforts to improve the quality of
merchandise offered while maintaining price points geared to the Company's
customer base. The Company has also implemented policies to mark-down and clear
out any unsold merchandise within its respective season.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses of
$67.2 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 is primarily attributable to the closure of a store in early 1996 and
the sale-leaseback of an additional store. The increase in depreciation and
amortization associated with newly acquired assets was offset by reductions due
to assets becoming fully depreciated or amortized.
13
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS. A non-cash charge of $4.2 million for the
impairment of long-lived assets was recognized during Fiscal 1996 due to the
application of Statement No. 121. See "Item 8 - Financial Statements and
Supplementary Data - Note 4." The charge consists of a non-cash write-off of
the excess of cost over net assets acquired, leasehold interests and leasehold
improvements determined to be impaired under the application of Statement No.
121.
INTEREST EXPENSE. Interest expense of $5.1 million in Fiscal 1996 remained
unchanged from Fiscal 1995.
REORGANIZATION EXPENSES. Since the Chapter 11 case, the Company has
recognized $20.8 million in reorganization expenses (approximately $13.2
million of non-cash charges), of which $6.0 million was incurred during
Fiscal 1996 and $7.2 million during Fiscal 1995. These expenses related
primarily to professional fees associated with the Company's Chapter 11 case,
the accrued or estimated costs associated with the rejection of real property
leases, and costs related to closing underperforming and nonprofitable stores
subsequent to the Company's Chapter 11 case. The charges for store closures
are primarily non-cash write-offs of inventory losses realized in the
inventory liquidation process.
NET LOSS. The net loss of $17.3 million for Fiscal 1996 decreased $7.5 million,
a 30% improvement over the net loss of $24.9 million for Fiscal 1995. The
reduction in net loss is primarily a result of (i) a $5.2 million improvement in
gross margin which includes non-cash charges for LIFO as discussed above, (ii) a
$1.2 million decrease in costs related to reorganization expenses, excluding the
costs associated with the closing of stores in Fiscal 1996 compared to Fiscal
1995, (iii) lower operating and administrative expenses of $4.2 million in
Fiscal 1996 as discussed above, and (iv) a $1.2 million decline in depreciation
and amortization expense during Fiscal 1996, offset by a $4.2 million non-cash
charge for the impairment of long-lived assets.
LIQUIDITY AND CAPITAL RESOURCES
In Fiscal 1997, $0.8 million of cash was used by operating activities as
compared to $2.1 million of cash used by operating activities before
reorganization expenses in Fiscal 1996. The Company's primary cash requirement
is the procurement of inventory which is currently funded through borrowings
under the BankBoston Facility, trade credit and cash generated from operations.
Like other apparel retailers, the Company is highly dependent upon its ability
to obtain trade credit, which is generally extended by its vendors and a small
number of factoring institutions that continually monitor the Company's credit
lines. If the Company continues to obtain the trade credit terms it is
currently receiving, the Company believes that borrowings under the BankBoston
Facility and cash expected to be generated from operations will provide the cash
necessary to fund the Company's cash requirements for the next 12 months.
The increase in net cash used in investing activities for Fiscal 1997 from
Fiscal 1996 of $5.1 million resulted primarily from net sales proceeds of $4.5
million received in the sale-leaseback of one of the Company's stores during
Fiscal 1996.
The Company received $5.8 million from financing activities for Fiscal 1997,
compared to $2.0 million for Fiscal 1996. The $3.8 million increase is the
result of proceeds from the Term Loan offset by lower net borrowings under the
Revolver.
FINANCING
The Company entered into the Loan Agreement, pursuant to which BankBoston is
providing the Company with a $42 million Revolver and Term Loan on the terms and
conditions set forth in the Loan Agreement. See Note 7 to the Consolidated
Financial Statements for a description of the BankBoston Facility.
For Fiscal 1997, the weighted average interest rate for the loans ("Base Rate
Loans") based on the annual interest rate announced from time to time by
BankBoston as its "base rate" (the "Base Rate") was 10.0% (calculated on the
average monthly balance of Base Rate Loans) and the weighted average interest
rate for loans ("Eurodollar Loans") based on a rate (fully adjusted for
applicable reserve requirements) based on the rate offered for dollar deposits
in the interbank eurodollar market (the "Eurodollar Rate") was 8.45% (calculated
on the average monthly balance of Eurodollar Loans). The Company has expensed
fees of approximately $0.9 million for the BankBoston Facility
14
<PAGE>
during Fiscal 1997, which consist primarily of monthly payments based on the
average unused borrowing capacity and on the borrowing capacity under the
Revolver.
As of April 15, 1998, the Company had $24.4 million of borrowings outstanding
under the Revolver (with additional borrowing capacity thereunder of $4.8
million) and $10.0 million outstanding under the Term Loan.
To hedge the interest rate exposure from variable rate loans under the
BankBoston Facility, on March 24, 1998, the Company entered into a forward
interest rate swap letter agreement ("Swap Agreement") with BankBoston. The Swap
Agreement is for a fixed rate of 5.73% plus the margin from time to time
applicable to the Eurodollar Loans on a notional amount of $20 million for a
period of two years beginning March 25, 1998. BankBoston has the right to
terminate the Swap Agreement on March 23, 1999 upon five days prior notice.
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 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 the 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 1997 and Fiscal 1996.
<TABLE>
<CAPTION>
(dollars in thousands)
------------------------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
-------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
FISCAL 1997
Revenues $37,648 $49,483 $50,263 $64,229 $201,623
% Contribution 18.7% 24.5% 24.9% 31.9%
FISCAL 1996
Revenues $37,922 $49,657 $50,705 $65,318 $203,602
% Contribution 18.6% 24.4% 24.9% 32.1%
</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 believes that inflationary factors have had a minimal effect on the
Company's operations during the past three years.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LAMONTS APPAREL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE #
- -------
<S> <C>
17 Report of Independent Accountants
18 Consolidated Balance Sheets - January 31, 1998 and February 1, 1997
19 Consolidated Statements of Operations for the 52 weeks ended January 31,
1998, 52 weeks ended February 1, 1997 and 53 weeks ended February 3,
1996
20 Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the 52 weeks ended January 31, 1998, 52 weeks ended February 1, 1997
and 53 weeks ended February 3, 1996
21 Consolidated Statements of Cash Flows for the 52 weeks ended January 31,
1998, 52 weeks ended February 1, 1997 and 53 weeks ended February 3,
1996
23 Notes to Consolidated Financial Statements
</TABLE>
16
<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. (the "Company") as of January 31, 1998 and February 1, 1997 and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the 52 weeks ended January 31, 1998 and February 1, 1997 and
the 53 weeks ended February 3, 1996. 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 the
Company as of January 31, 1998 and February 1, 1997 and the consolidated results
of operations and cash flows for the 52 weeks ended January 31, 1998 and
February 1, 1997 and the 53 weeks ended February 3, 1996, in conformity with
generally accepted accounting principles.
On January 31, 1998, the Company emerged from bankruptcy. As discussed in Note
2 to the consolidated financial statements, the Company adopted "Fresh-Start
Reporting" principles in accordance with the American Institute of Certified
Public Accountant's Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code." As a result of the reorganization
and the adoption of Fresh-Start Reporting, the Company's January 31, 1998
consolidated balance sheet is not comparable to the Company's February 1, 1997
consolidated balance sheet since it presents the consolidated financial position
of the reorganized entity.
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
Seattle, Washington
April 10, 1998
17
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 1,301 $ 2,066
Receivables 1,703 1,595
Inventories 38,617 37,559
Prepaid expenses and other 1,500 1,528
Restricted cash and deposits 1,543 714
------------ ------------
Total current assets 44,664 43,462
Property and equipment 42,494 30,653
Leasehold interests 8,281 3,477
Excess of cost over net assets acquired - 11,591
Deferred financing costs - 1,989
Restricted cash and deposits 1,130 1,142
Other assets 899 958
------------ ------------
Total assets $ 97,468 $ 93,272
------------ ------------
------------ ------------
Liabilities not subject to settlement under
reorganization proceedings:
Current Liabilities:
Borrowings under the Revolver $ 18,967 $ -
Borrowings under DIP Facility - 23,141
Accounts payable 15,186 13,578
Accrued payroll and related costs 3,106 2,285
Accrued taxes 865 812
Accrued interest 1,007 616
Accrued store closure costs - 1,050
Accrued reorganization expenses 2,497 1,165
Other accrued expenses 6,804 4,160
Current maturities of long-term debt 403 -
Current maturities of obligations under
capital leases 1,454 12
------------ ------------
Total current liabilities 50,289 46,819
Long-term debt, net of current maturities 10,536 -
Obligations under capital leases, net of current
maturities 13,835 2,846
Other 2,852 302
------------ ------------
Total liabilities not subject to settlement
under reorganization -proceedings 77,512 49,967
Liabilities subject to settlement under reorganization
proceedings:
Related party - 67,600
Other - 35,258
------------ ------------
Total liabilities subject to settlement
under reorganization - 102,858
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.01 par value; 40,000,000 shares
and 40,000,000 shares authorized; 9,000,000
and 17,900,053 shares issued and outstanding,
respectively 90 179
Additional paid-in-capital 19,866 62,972
Accumulated deficit -- (122,704)
------------ ------------
------------ ------------
Total stockholders' equity (deficit) 19,956 (59,553)
------------ ------------
Total liabilities and stockholders' equity
(deficit) $ 97,468 $ 93,272
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
18
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 53 Weeks
ended ended ended
January 31, February 1, February 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 201,623 $ 203,602 $ 199,548
Cost of merchandise sold 131,700 130,480 131,677
----------- ----------- -----------
Gross profit 69,923 73,122 67,871
----------- ----------- -----------
Operating and administrative expenses 67,844 67,173 71,372
Depreciation and amortization 7,141 7,999 9,232
Impairment of long-lived assets - 4,170 -
----------- ----------- -----------
Operating costs 74,985 79,342 80,604
----------- ----------- -----------
Loss from operations before other income
(expense), reorganization expenses,
fresh-start revaluation, and
extraordinary item (5,062) (6,220) (12,733)
Other income (expense):
Interest expense:
Cash (contractual interest of
$13.1 million, $13.7 million
and $13.8 million,
respectively) (5,900) (5,053) (5,098)
Other income (expense) 8 12 196
----------- ----------- -----------
Loss from operations before
reorganization expenses,
fresh-start revaluation,
and extraordinary item (10,954) (11,261) (17,635)
Reorganization expenses (5,995) (6,037) (7,240)
Fresh-start revaluation 70,495 - -
----------- ----------- -----------
Income (loss) before extraordinary item 53,546 (17,298) (24,875)
Extraordinary item - gain on debt
discharge 69,158 - -
----------- ----------- -----------
Net income (loss) $122,704 $(17,298) $(24,875)
----------- ----------- -----------
----------- ----------- -----------
Basic and Diluted Earnings (Loss) per
Common Share
Income (loss) from operations before
extraordinary item $3.00 $(0.97) $(1.39)
Extraordinary Item - gain on debt
discharge $3.86 $0.00 $0.00
Net income (loss) $6.86 $(0.97) $(1.39)
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
19
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Minimum
Additional pension
Number of Common paid-in liability Accumulated
shares stock capital adjustment deficit Total
---------- -------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 28, 1995 17,900 $ 179 $ 62,843 $ - $ (80,531) $ (17,509)
Net loss for the 53 weeks
ended February 3, 1996 - - - - (24,875) (24,875)
Compensation expense related
to stock option plan - - 78 - - 78
Minimum pension liability
adjustment - - - (250) - (250)
---------- -------- ----------- ---------- ----------- ---------
Balance, February 3, 1996 17,900 179 62,921 (250) (105,406) (42,556)
Net loss for the 52 weeks
ended February 1, 1997 - - - - (17,298) (17,298)
Compensation expense related
to stock option plan - - 51 - - 51
Minimum pension liability
adjustment - - - 250 - 250
---------- -------- ----------- ---------- ----------- ---------
Balance, February 1, 1997 17,900 179 62,972 - (122,704) (59,553)
Net income for the 52 weeks
ended January 31, 1998 - - - - 122,704 122,704
Minimum pension liability
adjustment - - - (438) - (438)
Compensation expense related
to stock option plan - - 38 - - 38
Cancellation of the former
equity and elimination
of accumulated
deficit under the Plan (17,900) (179) (63,010) 438 - (62,751)
Issuance of new equity under
the Plan 9,000 90 19,866 - - 19,956
---------- -------- ----------- ---------- ----------- ---------
Balance, January 31, 1998 9,000 $ 90 $ 19,866 $ - $ - $ 19,956
---------- -------- ----------- ---------- ----------- ---------
---------- -------- ----------- ---------- ----------- ---------
</TABLE>
20
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 weeks ended 52 weeks ended 53 weeks ended
January 31, February 1, February 3,
1998 1997 1996
------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $122,704 $(17,298) $(24,875)
Adjustments to reconcile net income (loss) to net cash
used by operating activities before reorganization items:
Depreciation and amortization 7,141 7,999 9,232
Impairment of long-lived assets - 4,170 -
Gain on sale of fixed asset (177) - -
Non-cash interest, including interest paid-in-kind
and amortization of debt discount 321 - -
Stock option expense 38 51 78
Net change in current assets and liabilities 3,900 (2,621) 4,895
Net realizable value adjustment to inventory - - 500
Decrease (increase) in long term restricted cash and deposits 11 137 (1,022)
Other (1,103) (562) (1,425)
Reorganization expenses 5,995 6,037 7,240
Fresh-start revaluation (70,495) - -
Gain on debt discharge (69,158) - -
------------- -------------- --------------
Net cash used by operating activities
before reorganization expenses (823) (2,087) (5,377)
------------- -------------- --------------
Operating cash flows used by reorganization expenses:
Payment for professional fees or other expenses
related to the Chapter 11 proceedings (4,539) (3,241) (2,475)
------------- -------------- --------------
Net cash used by operating activities (5,362) (5,328) (7,852)
------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures (1,507) (699) (1,343)
Proceeds from sale of assets 39 4,459 -
Other 257 90 (448)
------------- -------------- --------------
Net cash provided (used) by investing activities (1,211) 3,850 (1,791)
------------- -------------- --------------
Cash flows from financing activities:
Net post-petition (payments) borrowings under Revolver (4,174) 2,807 4,496
Proceeds from Term Loan 10,000 - -
Assumption of liabilities subject to compromise 939 - -
Principal payments on obligations under capital leases (900) (778) (1,183)
Other (57) (66) (61)
------------- -------------- --------------
Net cash provided by financing activities 5,808 1,963 3,252
------------- -------------- --------------
Net increase (decrease) in cash (765) 485 (6,391)
Cash, beginning of period 2,066 1,581 7,972
------------- -------------- --------------
Cash, end of period $ 1,301 $ 2,066 $ 1,581
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
21
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 weeks ended 52 weeks ended 53 weeks ended
January 31, February 1, February 3,
1998 1997 1996
------------- -------------- --------------
<S> <C> <C> <C>
Reconciliation of net change in current assets and liabilities:
(Increase) decrease in accounts receivable $ (154) $ 818 $ 692
(Increase) decrease in inventory (excluding
adjustment for net realizable value) 118 (7,158) (2,692)
(Increase) decrease in prepaid expenses and other (64) 548 2,018
Increase (decrease) in accounts payable 1,607 5,161 6,663
Increase (decrease) in accrued payroll and related costs 821 (111) (517)
Increase (decrease) in accrued taxes 53 (9) 288
Increase (decrease) in accrued interest 547 409 (103)
Increase (decrease) in accrued store closure costs (1,050) (2,204) 303
Increase (decrease) in other accrued expenses 2,022 (75) (1,757)
------------- -------------- --------------
$ 3,900 $(2,621) $ 4,895
------------- -------------- --------------
------------- -------------- --------------
Supplemental Cash Flow Information:
Cash interest payments made $ 4,824 $ 4,783 $ 5,201
Non-cash transactions:
Capital lease relating to sale - leaseback of Alderwood store - 2,835 -
Capital leases relating to equipment 759
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
22
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 1 - REORGANIZATION AND EMERGENCE FROM CHAPTER 11
Lamonts Apparel, Inc. (the "Company" or "Lamonts") is a Northwest-based regional
retailer with 38 stores in five states. The Company offers an assortment of
moderately priced fashion apparel and home and fashion accessories at
competitive prices for the entire family.
On January 6, 1995 ("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. The Company's
Modified and Restated Plan of Reorganization (the "Plan") was confirmed by the
Bankruptcy Court on December 18, 1997 and became effective on January 31, 1998
("Plan Effective Date").
The overall purpose of the Plan was 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 considered to be
reasonable.
The Plan resulted in an approximate $90 million net reduction in the total
indebtedness and liabilities subject to reorganization of the Company. The Plan
provided generally for, among other things, payment in full by the Company of
administrative expenses, certain other priority claims and secured claims, other
than the claim of BankBoston, N.A. ("BankBoston"), the agent and lender under
the Company's bank credit facility (the "BankBoston Facility"), (which was
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 and/or rejection 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 provided that the Company will
assume all of the obligations under the BankBoston Facility, including any
unpaid accrued interest, fees, costs and charges.
Pursuant to the Plan,
(a) an aggregate of 8,800,000 shares of Class A Common Stock, par value
$0.01 per share, of the Company ("Common Stock"), 2,203,320 Class A
Warrants to purchase Common Stock ("Class A Warrants") and 700,237 Class
B Warrants to purchase Common Stock ("Class B Warrants") have been or
will be issued to the holders of pre-petition claims against Lamonts;
(b) an aggregate of 200,000 shares of Common Stock and 100,000 Class B
Warrants were issued to the holders of Lamonts common stock outstanding
prior to the Plan Effective Date (the "Old Common Stock"); and
(c) 228,639 Class C Warrants to purchase Common Stock ("Class C
Warrants") and 10 shares of Class B Common Stock, par value $.01 per
share, of the Company ("Class B Common Stock"), were issued to
Specialty Investment I LLC (the "Surety").
All such securities were or will be issued in exchange for various pre-petition
claims and interests allowed by the Bankruptcy Court, except those issued to the
Surety which were issued as required under the BankBoston Facility in
consideration of the guaranty made by the Surety of a $10 million term loan made
to the Company prior to the Plan Effective Date and in partial exchange for its
administrative claim.
In addition, pursuant to the Plan, the Company granted options ("Stock Options")
for the purchase of Common Stock as follows:
(i) options exercisable for the purchase of 1,000,000 shares of Common Stock
with an exercise price of $1.00 per share;
23
<PAGE>
(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 exercise price of $0.01 per share,
exercisable only on or after the date on which the Class A Warrants
become exercisable ("Protective A Options"); and
(iii) to prevent dilution resulting from the issuance of the Class B
Warrants, options exercisable for the purchase of an additional 88,915
shares of Common Stock with an exercise price of $0.01 per share,
exercisable only on or after the date on which the Class B Warrants
become exercisable ("Protective B Options").
The number of Protective A Options and Protective B Options that may be
exercised is limited under certain circumstances. (See Note 12.)
In addition, to prevent dilution resulting from the issuance of the Class C
Warrants to the Surety, the holders of Stock Options were issued Class C
Warrants exercisable for the purchase of an aggregate of 381,060 shares of
Common Stock (355,656 shares with an exercise price of $1.25 per share and for
an aggregate of 25,404 shares with an exercise price of $.01 per share). (See
Note 12.)
As 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 day following the Plan Effective Date, warrants
(the "Gordian Warrants") exercisable for a number of shares of Common Stock
having a value equal to $200,000. See Note 12 for a description of the terms of
the Gordian Warrants.
In connection with the Plan, 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 agreed to file and
cause to remain effective a Registration Statement under the Securities Act of
1933, as amended, covering certain of the securities distributed under the Plan.
See Note 13 for a description of such registration rights. Also in connection
with the Plan, Alan R. Schlesinger and Loren R. Rothschild entered into new
employment agreements with the Company which amended and restated the terms of
their existing employment agreements.
The Plan was filed with the Bankruptcy Court on October 31, 1997. The
Disclosure Statement relating thereto, 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 was confirmed by the Bankruptcy
Court on December 18, 1997 and became effective on January 31, 1998.
With the exception of payments contemplated by the Plan to be made subsequent to
the Plan Effective Date, all payments and distributions required under the Plan
to be made in respect of pre-petition liabilities have been made or otherwise
provided for, and, other than as contemplated by the Plan, no further recourse
to the Company may be had by any person with respect of such pre-petition
claims.
The following sets forth the nature and amount of pre-petition liabilities
subject to settlement under reorganization proceedings:
<TABLE>
<CAPTION>
PRE FRESH-START FEBRUARY 1,
JANUARY 31, 1998 1997
----------------- -----------
(dollars in thousands)
<S> <C> <C>
Accounts payable and accrued liabilities $22,664 $23,121
Capital Lease obligations 10,313 11,216
10-1/4% Notes (including pre-petition accrued interest) 67,600 67,600
13-1/2% Notes (including pre-petition accrued interest) 838 838
Notes Payable 31 83
----------------- -----------
$101,446 $102,858
----------------- -----------
----------------- -----------
</TABLE>
24
<PAGE>
Costs associated with the reorganization of the Company were expensed as
incurred. Such costs include certain expenses of the committees that
represented Lamonts' unsecured trade creditors, bondholders and equity holders
(the "Committees"). The amounts charged to reorganization expense by the
Company are as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Write-off of property and equipment,
net of obligations under capital leases $2,362
Professional fees $2,344 $2,128 2,479
Lease related costs 196 1,036 925
Payroll related costs 1,924 411 411
Store closure costs, administrative and other 1,531 2,462 1,063
------- -------- --------
$5,995 $6,037 $7,240
------- -------- --------
------- -------- --------
</TABLE>
NOTE 2 - BASIS OF PRESENTATION AND FRESH-START REPORTING
Pursuant to the guidance provided by the American Institute of Certified Public
Accountants in Statement 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7") (also referred to as
"Fresh-Start Reporting"), the Company adopted Fresh-Start Reporting for
financial reporting purposes as of January 31, 1998. Under Fresh-Start
Reporting, the reorganization value of the Company was allocated to the
reorganized Company's net assets on the basis of the purchase method of
accounting. This method required the adjustment of the Company's assets and
liabilities to reflect their estimated fair value at the Plan Effective Date.
In accordance with SOP 90-7, the Company's reorganization value was determined
as of the Plan Effective Date. The reorganization value was derived by an
independent public accounting firm using various valuation methods, including
discounted cash flow analyses (utilizing the Company's projections), analyses of
the market values of other publicly traded companies whose businesses are
reasonably comparable, and analyses of the present value of the Company's
equity. The reorganization value was determined to be the fair value of the
Company before considering liabilities and approximated the amount a willing
buyer would have paid for the assets of the Company immediately after
restructuring.
The primary methodology used to determine the reorganization value was a
weighted average of the historical market guideline method, projected guideline
method, and the income approach using the discounted cash flow method. Under
the income approach, the terminal value was determined using the discounted cash
flow projected for the period from February 1, 1998 through February 3, 2002,
using a discount rate of 14.1% and a long-term growth rate of 3.5%, with a
capitalization rate at 10.6%.
The adjustments to reflect the consummation of the Plan and adoption of
Fresh-Start Reporting, including the adjustment to restate assets and
liabilities at their respective estimated fair values, the gain on debt
discharge for liabilities subject to settlement under reorganization
proceedings of $69.2 million, and the elimination of $122.7 million of the
prior accumulated deficit, are reflected in the accompanying consolidated
financial statements at January 31, 1998.
Additionally, a black line is shown to separate the January 31, 1998
consolidated balance sheet from the prior year since it is not prepared on a
comparable basis. The effect of the reorganization on the Company's
consolidated balance sheet as of January 31, 1998 is as follows:
25
<PAGE>
<TABLE>
<CAPTION>
PRE-FRESH-START FRESH-START
(dollars in thousands) BALANCE SHEET BALANCE SHEET
JANUARY 31, DEBT FRESH-START JANUARY 31,
1998 DISCHARGE REPORTING 1998
--------------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Current Assets:
Cash $ 1,301 $ 1,301
Receivables 1,703 1,703
Inventories 37,441 $ 1,176 (a) 8,617
Prepaid expenses and other 1,500 1,500
Restricted cash and deposits 1,543 1,543
--------------- --------- ------------ -------------
Total current assets 43,488 - 1,176 44,664
Property and equipment 27,255 15,239 (b) 42,494
Leasehold interests 3,049 5,232 (b) 8,281
Excess of cost over net assets acquired 11,266 (11,266)(c) -
Deferred financing costs 1,266 $(1,266)(d) -
Restricted cash and deposits 1,130 1,130
Other assets 899 899
--------------- --------- ------------ -------------
Total assets $ 88,353 $(1,266) $ 10,381 $ 97,468
--------------- --------- ------------ -------------
--------------- --------- ------------ -------------
Liabilities not subject to settlement under reorganization
proceedings:
Current Liabilities:
Borrowings under the Revolver $ 18,967 $ 18,967
Accounts payable 15,186 15,186
Accrued payroll and related costs 3,106 3,106
Accrued taxes 865 865
Accrued interest 1,163 $ (156)(e) 1,007
Accrued reorganization expenses 2,497 2,497
Other accrued expenses 6,442 $ 362 (f) 6,804
Current maturities of long-term debt 403 403
Current maturities of obligations under capital leases 177 1,277 (e) 1,454
--------------- --------- ------------ -------------
Total current liabilities 48,806 362 1,121 50,289
Long-term debt, net of current maturities 10,536 10,536
Obligations under capital leases, net of current maturities 3,444 10,391 (e) 13,835
Other 1,023 835 (f) 994 (g) 2,852
--------------- --------- ------------ -------------
Total liabilities not subject to settlement under
reorganization proceedings 63,809 1,197 12,506 77,512
--------------- --------- ------------ -------------
Liabilities subject to settlement under reorganization
proceedings:
Related party 67,600 (67,600)(f) -
Other 33,846 (23,533)(f) (10,313)(e) -
--------------- --------- ------------ -------------
Total liabilities subject to settlement under
reorganization proceedings 101,446 (91,133) (10,313) -
--------------- --------- ------------ -------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 10,000,000 shares authorized
no shares issued or outstanding - -
Common stock, $.01 par value; 40,000,000 shares authorized
9,000,000 shares issued and outstanding 179 88 (h) (177)(h) 90
Additional paid-in-capital 63,010 19,424 (h) (62,568)(h) 19,866
Minimum pension liability adjustment (438) 438 (g) -
Accumulated deficit (139,653) 69,158 (i) 70,495 (j) -
--------------- --------- ------------ -------------
Total stockholders' equity (deficit) (76,902) 88,670 8,188 19,956
--------------- --------- ------------ -------------
Total liabilities and stockholders' equity
(deficit) $ 88,353 $ (1,266) $ 10,381 $ 97,468
--------------- --------- ------------ -------------
--------------- --------- ------------ -------------
</TABLE>
26
<PAGE>
(a) To adjust inventories to fair value.
(b) To allocate fair value to identifiable net assets in accordance with
purchase method accounting as follows: property and equipment, $15.2
million; and leasehold interests, $5.2 million.
(c) To write off the balance of excess of cost over net assets acquired.
(d) To write off the balance of deferred financing costs related to debt
discharged.
(e) To reclassify certain liabilities subject to settlement under
reorganization proceedings, where the obligation was assumed.
(f) To record the discharge of liabilities subject to settlement under
reorganization proceedings, and reclassify pre-petition priority claims
and cure amounts.
(g) To restate liabilities, including pension liabilities at fair value.
(h) To record cancellation of historical Stockholders' equity (deficit) and
record reorganization value of $20.0 million, $0.1 million of which is
classified as Class A Common Stock, $.01 par value. The remaining $19.9
million is classified as additional paid-in-capital.
(i) To record the extraordinary item - gain on debt discharge.
(j) To recognize the value of the reorganized Company.
Pro Forma Consolidated Statement of Operations (unaudited)
The following unaudited pro forma consolidated statement of operations reflects
the financial results of the Company during Fiscal 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>
As Reported Pro forma
52 Weeks Ended 52 Weeks Ended
January 31, 1998 Adjustments January 31, 1998
---------------- ----------- ----------------
<S> <C> <C> <C>
Total revenue $201,623 $ 201,623
Total cost of merchandise sold,
operating expenses, and depreciation (1)(3)
and amortization and other income (4)(5)
(expense) (212,577) $470 (6)(7) (212,107)
---------------- ----------------
Loss from operations before reorganization
expenses, fresh-start revaluation and
extraordinary item (10,954) (10,484)
---------------- ----------------
Reorganization expenses (5,995) 5,995 (2) -
Fresh-start revaluation 70,495 (70,495)(8) -
---------------- ----------------
Income (loss) before extraordinary
item 53,546 (10,484)
Extraordinary item 69,158 (69,158)(8) -
---------------- ----------- ----------------
Net income (loss) $122,704 (133,188) $(10,484)
---------------- ----------- ----------------
---------------- ----------- ----------------
Basic and diluted earnings (loss)
per share $6.86 $(0.59)
---------------- ----------------
---------------- ----------------
</TABLE>
The unaudited pro forma statement of operations has been adjusted to reflect the
following:
1) An increase in depreciation and amortization expense of approximately $1.0
million due to the change in the fair value of identifiable assets, property
and equipment and leasehold interests.
2) The elimination of approximately $6.0 million in reorganization costs.
3) The elimination of approximately $0.4 million for amortization of excess
of cost over net assets acquired.
4) The elimination of approximately $0.7 million for amortization of deferred
financing fees associated with outstanding warrants to purchase Old Common
Stock which were canceled on the Plan Effective Date.
5) The amortization of approximately $0.5 million in facility fees in respect of
the working capital facility
27
<PAGE>
6) The reduction in rent expense of approximately $0.2 million for several
stores where the landlord has agreed to concessions upon assumption of the
lease.
7) An increase in interest expense of $0.1 million associated with debt arising
from deferred priority tax claims and deferred cure payments
8) The elimination of Fresh-Start Reporting adjustments totaling approximately
$70.5 million and extraordinary item - gain on debt discharge of $69.2
million.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FRESH-START REPORTING
The Company adopted SOP 90-7, or Fresh-Start Reporting, for financial reporting
purposes as of January 31, 1998. Under Fresh-Start Reporting, the Company's
assets and liabilities were adjusted to reflect their fair values at the Plan
Effective Date (See 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.
CHANGE IN FISCAL YEAR
On March 9, 1995, the Company elected to change its fiscal year end from the
Saturday closest to October 31 to the Saturday closest to January 31 to enhance
the comparability of the Company's results of operations with other apparel
retailers.
CASH EQUIVALENTS
The Company considers all short term investments with original maturities of
three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost (using the retail last-in, first-out
("LIFO") method) or net realizable value.
As part of Fresh-Start Reporting (See Note 2), the LIFO reserve was written off
and the base year inventory was restated to the January 31, 1998 value.
The carrying value of the Company's inventories as of February 1, 1997 and
February 3, 1996 exceeded the weighted average cost of inventories by $1.8
million and $2.1 million, respectively.
RESTRICTED CASH AND DEPOSITS
Current restricted cash and deposits include amounts deposited in restricted
operating accounts for the purpose of ensuring payment of employee payroll,
utilities, and certain taxes, including retail sales taxes. Noncurrent
restricted cash and deposits include $1.0 million as of January 31, 1998 and
$1.0 million as of February 1, 1997 held as a deposit by the Company's buying
service for the annual usage of international letters of credit.
PROPERTY AND EQUIPMENT
The Company's adoption of Fresh-Start Reporting as of January 31, 1998, required
property and equipment to be adjusted to fair value. In prior periods, property
and equipment was recorded at cost less accumulated depreciation. The adoption
of Fresh-Start Reporting did not result in any material change in the remaining
useful lives of the Company's property and equipment.
Depreciation is determined using the remaining useful lives based on the
following original useful lives: buildings and improvements, 10-40 years;
furniture, fixtures and equipment, 3-10 years; and leasehold improvements and
28
<PAGE>
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 (or restated
value) 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 improvements 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
The excess of the fair rental value of leased facilities under operating leases
over the respective contractual rents was recorded as an asset at its discounted
net present value and is being amortized on a straight-line basis over the
respective remaining lease terms.
During Fiscal 1996, the Company wrote off approximately $0.6 million of
leasehold interests due to the adoption of SFAS No. 121 (defined below).
The accumulated amortization of leasehold interests approximated $1.7 million
and $1.4 million at February 1, 1997 and February 3, 1996, respectively. The
adoption of Fresh-Start Reporting did not result in any significant change in
the remaining useful lives of the Company's leasehold interests. (See Note 2.)
IMPAIRMENT OF LONG-LIVED ASSETS
During the 52 weeks ended February 1, 1997 ("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"
("SFAS No. 121"). SFAS 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.
With the adoption of SFAS 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 as 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 Fiscal 1996, the Company recognized a non-cash impairment loss of $4.2
million. Of the total impairment loss, $2.3 million represented impairment of
property and equipment, $1.3 million related to excess of cost over net assets
acquired and $0.6 million pertained to leasehold interests. Considerable
management judgment is necessary to estimate discounted future cash flows.
Accordingly, actual results could vary significantly from such estimates.
29
<PAGE>
EXCESS OF COST OVER NET ASSETS ACQUIRED
At January 31, 1998, the excess of cost over net assets acquired, net of
accumulated amortization of $11.3 million was written off under Fresh-Start
Reporting. Prior to the Plan Effective Date, the excess of cost over the fair
value of net assets acquired was being amortized on a straight-line basis over
40 years. The accumulated amortization approximated $1.4 million and $1.2
million at February 1, 1997 and February 3, 1996, respectively.
During Fiscal 1996, the Company wrote off approximately $1.3 million of the
excess of cost over net assets acquired due to the adoption of SFAS No. 121.
DEFERRED FINANCING COSTS
Costs incurred in connection with the issuance of the Company's debt were
amortized using the effective interest method over the term of the related
indebtedness. In connection with an amendment to the Company's 10-1/4% Senior
Subordinated Notes due 1999 (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 Old Common Stock to the holders of the
10-1/4% Notes. The issuance of the 1994 Warrants resulted in an increase of
$2.2 million in deferred financing costs and additional paid-in capital.
At January 31, 1998, deferred financing costs, net of accumulated amortization
of $1.3 million related to the 10-1/4% Notes and 1994 Warrants was written off
and included in the gain on debt discharge. The accumulated amortization of
deferred financing costs approximated $2.8 million and $2.1 million at February
1, 1997 and February 3, 1996, respectively.
Financing costs incurred by the Company in connection with the BankBoston
Facility are amortized using the effective interest method over the term of the
related indebtedness. These costs are included in prepaid expenses and other
(current) and other assets (noncurrent).
ADVERTISING COSTS
The Company expenses the production costs of advertising as the associated
advertisement is run. Advertising expense approximated $13.2 million, $13.0
million and $12.6 million during the 52 weeks ended January 31, 1998 ("Fiscal
1997"), Fiscal 1996, and the 53 weeks ended February 3, 1996 ("Fiscal 1995"),
respectively.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Comprehensive Income" ("SFAS No.
130"). SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS 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 SFAS No.
130.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes annual and interim reporting standards for a Company's business
segments and related disclosures about its products, services, geographic
areas and major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997, and requires the restatement of
comparative information for earlier periods. Management is currently
evaluating the requirements of SFAS No. 131.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" ("SFAS No. 132"). SFAS 132 significantly
changes current financial statement disclosure requirements from those that were
required under SFAS 87, Employers' Accounting for Pensions (SFAS No. 87), SFAS
No. 88, Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits, and SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997, with earlier
application encouraged. Management is currently evaluating the requirements of
SFAS 132 and will adopt the standard during the 52 weeks ending January 30, 1999
("Fiscal 1998").
30
<PAGE>
USE OF ESTIMATES
The preparation of consolidated 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 consolidated
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 4 - EARNINGS (LOSS) PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" beginning with its fourth quarter of Fiscal 1997. All
prior period earnings per common share data have been restated to conform to the
provisions of this statement. Basic earnings per common share is computed using
the weighted average number of shares outstanding. Diluted earnings per common
share is computed using the weighted average number of shares outstanding
adjusted for the incremental shares attributed to outstanding options to
purchase common stock. Options to purchase 1.6 million shares of Common Stock
in Fiscal 1997 were not included in the computation of diluted earnings per
common share because the option price was greater than the average market price
of the Common Stock. (See Note 12.) Options to purchase 0.3 million shares and
0.4 million shares of common stock, with an exercise price of $0.01 per share,
were not included in Fiscal 1996 and Fiscal 1995, respectively, as they were
antidilutive.
Net loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding. The weighted average number of
shares outstanding for both basic and diluted calculations was 17,875,602,
17,899,906, and 17,893,675 for Fiscal 1997, Fiscal 1996, and Fiscal 1995,
respectively.
<TABLE>
<CAPTION>
Earnings (Loss) per Common Share Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ------------ -------------
<S> <C> <C> <C>
Basic and diluted earnings (loss) per common share
Income (loss) from operations before extraordinary item $3.00 $(0.97) $(1.39)
Extraordinary item - gain on debt discharge $3.86 - -
Net income (loss) $6.86 $(0.97) $(1.39)
Shares Used in Computing Earnings (Loss) per Common Share Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ------------ -------------
(in thousands)
Basic and Diluted 17,876 17,900 17,894
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
31
<PAGE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
----------- -------------
(dollars in thousands)
<S> <C> <C>
Buildings and equipment under capital leases $20,314 $17,605
Buildings and improvements 1,989 2,193
Leasehold improvements 11,241 15,012
Furniture, fixtures, and equipment 7,625 16,699
Deferred software costs 1,325 6,650
----------- -------------
42,494 58,159
Less accumulated depreciation and amortization (0) (27,506)
----------- -------------
$42,494 $30,653
----------- -------------
----------- -------------
</TABLE>
The adoption of Fresh-Start Reporting did not result in any significant change
in the remaining useful lives of the Company's property and equipment. (See
Note 2.)
During Fiscal 1996, the Company wrote off approximately $2.3 million of property
and equipment due to the adoption of SFAS No. 121.
Accumulated amortization for buildings and equipment under capital leases
approximated $5.8 million and $4.6 million at February 1, 1997 and February 3,
1996, respectively.
In December 1996, the Company closed a total of four stores located in Spokane,
Washington, Twin Falls Idaho; Missoula, Montana and Hillsboro, Oregon. The net
book value of furniture, fixtures and equipment associated with these four
stores totaled $0.4 million as of February 1, 1997, and was included in the
store closure reserve. (See Note 8.)
On February 8, 1996, the Company entered into a sale-leaseback transaction
for the land and building at the Company's Alderwood store in Seattle,
Washington. The proceeds of approximately $5.0 million were used to repay
borrowings under the Company's bank credit facility. The Company
concurrently entered into a 20-year lease agreement with the purchaser.
NOTE 6 - LEASES
All of the Company's stores are currently operated in facilities leased by
the Company, except one which is operated in a building owned by the Company,
subject to a ground lease, which expires in 2015. The Company also leases
some of its equipment and its office facility. Generally, store leases
provide for minimum rentals (which include payment of taxes and insurance in
some cases) and contingent rentals (which are based upon a percentage of
sales in excess of a stipulated minimum). The majority of lease agreements
cover periods from 20 to 30 years, including three to six renewal options of
five years each. Capital lease obligations were revalued under Fresh-Start
Reporting. (Note 2.)
32
<PAGE>
Operating lease rental expense is summarized as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
-------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Minimum rentals $6,307 $7,095 $7,300
Contingent rentals 616 660 496
Sublease rentals (999) (959) (803)
-------- ------- -------
$5,924 $6,796 $6,993
-------- ------- -------
-------- ------- -------
</TABLE>
The Company incurred capital lease contingent rental expense of approximately
$0.1 million and received sublease rentals of approximately $0.4 million during
each of Fiscal 1997, Fiscal 1996 and Fiscal 1995. Capital lease interest
expense was $2.0 million, $2.1 million, and $2.0 million during Fiscal 1997,
Fiscal 1996, and Fiscal 1995, respectively.
Future minimum rental payments under capital and operating leases assumed in
accordance with the Plan are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
(dollars in thousands)
<S> <C> <C>
For the fiscal years ending:
1999 $2,943 $6,596
2000 2,958 5,890
2001 2,850 5,101
2002 2,792 4,743
2003 1,984 4,132
Thereafter 11,891 21,475
-------- ---------
Total minimum rental payments 25,418 $47,937
---------
---------
Less amounts representing interest 10,128
--------
Present value of obligations $15,290
--------
--------
</TABLE>
In addition, the Company guarantees an operating lease of a third party that
operates the Company's distribution center in Kent, Washington. The current
lease expires in February 2001 with one renewal option for a term of three
years. Minimum monthly lease payments guaranteed by the Company pursuant to
such lease approximate $21,000 per month.
NOTE 7 - DEBT
REVOLVER AND TERM LOAN
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, pursuant to which BankBoston provides
Lamonts with (i) a revolving line of credit (the "Revolver") with a maximum
borrowing capacity of $32 million; and (ii) a term loan in the amount of $10
million (the "Term Loan"). The Term Loan is guaranteed 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 a borrowing base
approximately equal to
33
<PAGE>
65% (subject to adjustment and reserves as specified in the Loan Agreement)
of the book value of the Company's first quality finished goods inventory
held for sale. 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 subject to
earlier maturity (including, as a result of acceleration, mandatory prepayment
or otherwise) of the Term Loan. The Term Loan will mature December 26, 1999,
subject to earlier 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 a fee equal to
approximately 5% of the outstanding amount of the Term Loan on the relevant
extension date. 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.
Lamonts' borrowings under both the Revolver and the Term Loan bear interest at a
floating rate of 1.50% above the annual interest rate announced from time to
time by BankBoston as its "base rate" (the "Base Rate") or, at Lamonts' option,
at 2.75% above the rate (fully adjusted for applicable reserve requirements)
based on the rate offered dollar deposits in the interbank eurodollar market
(the "Eurodollar Rate"). 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. 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. For Fiscal 1997 and Fiscal 1996, the weighted
average interest rate for Base Rate loans was 10.0% and 9.75%, respectively, and
the weighted average interest rate for Eurodollar Rate loans was 8.45% and
8.25%, respectively
A facility fee in respect of the Revolver in the amount of $336,000 was paid on
the Plan Effective Date and an additional fee in the amount of $224,000 is
payable 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 aggregate amount
available to be drawn by beneficiaries under 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 a 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.
The BankBoston Facility required that, as of the Plan Effective Date, in partial
exchange for the BankBoston administrative claim against the Company's Chapter
11 estate, and in consideration for the guaranty of the Term Loan, the Surety
received (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 Note 12.)
The Loan Agreement contains, among others things, certain covenants restricting
(a) the incurrence of indebtedness, other than (i) indebtedness under the
BankBoston Facility, (ii) current liabilities not incurred through the borrowing
of money, (iii) indebtedness in respect of taxes or other governmental charges
not yet due and payable or being contested in good faith by appropriate
proceeding, (iv) scheduled indebtedness not contemplated as being discharged by
the Plan, (v) certain purchase money indebtedness limited to 50% of permitted
capital expenditures, and (vi) unsecured indebtedness in respect of the limited
recourse arrangements under a contractual
34
<PAGE>
arrangement relating to the Company's charge card between the Company and
Alliance Data Systems, limited to 50% of the amount of cardholders' bad
debts; (b) the creation of liens, other than (i) liens securing the
obligations under the BankBoston Facility, (ii) scheduled liens not
contemplated as being discharged by the Plan, (iii) liens securing taxes or
other governmental charges not yet due, (iv) deposits or pledges made in
connection with social security obligations, (v) mechanics and similar liens
less than 120 days old in respect of obligations not yet due, (vi) immaterial
easements and similar encumbrances, (vii) statutory or common law landlord's
liens, and (viii) purchase money security interests to the extent the
indebtedness is permitted under the Loan Agreement; (c) the payment of
dividends, other than (i) dividends payable solely in shares of Common Stock,
(ii) distributions by a wholly-owned subsidiary of the Company to the Company
and, (iii) dividends and/or distributions contemplated by the Plan; (d)
mergers, consolidations or dispositions of assets, other than (i) sales of
inventory in the ordinary course, (ii) dispositions of leasehold improvements
in connection with permitted store closures, and (iii) dispositions of
obsolete fixtures and equipment not to exceed $100,000 in any 12 month
period; (e) guarantees with respect to indebtedness of other persons, other
than the guarantee of lease payments in respect of the Company's distribution
center in Kent, Washington; and (f) capital expenditures, other than capital
expenditures of $2,500,000, $6,500,000, $5,500,000 and $1,000,000 for Fiscal
1997, Fiscal 1998, Fiscal 1999 and the period from February 6, 2000 to
February 27, 2000, respectively. In addition to the foregoing, the Company
is required to maintain certain inventory levels within a range of minimum
and maximum book values and a debt service coverage ratio, in each case
measured on a quarterly basis as set forth in the Loan Agreement. The
Company is currently in compliance with all such covenants.
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 cause the exercise of certain of BankBoston's rights and remedies under
the Loan Agreement.
As of January 31, 1998, the Company had $19.0 million of borrowings outstanding
under the Revolver (with additional borrowing capacity thereunder of $4.3
million) and $10.0 million outstanding under the Term Loan.
To hedge the interest rate exposure from variable rate loans under the
BankBoston Facility, on March 24, 1998, the Company entered into a forward
interest rate swap letter agreement ("Swap Agreement") with BankBoston. The Swap
Agreement is for a fixed rate of 5.73% plus the margin from time to time
applicable to the Eurodollar Loans on a notional amount of $20 million for a
period of two years beginning March 25, 1998. BankBoston has the right to
terminate the Swap Agreement on March 23, 1999 upon five days prior notice.
CERTAIN DEFERRED PRIORITY TAX OBLIGATIONS
Deferred priority tax obligations consist of $0.7 million (of which
approximately $0.3 million is included in current maturities of long-term debt)
in tax claims which were entitled to priority under the Bankruptcy Code. The
holders of these certain deferred priority tax claims will receive deferred cash
payments in principal amounts equal in the aggregate to the amount of such
claims over a period not exceeding six years from the date of assessment of the
tax on which the claim is based. The deferred cash payments are payable in
quarterly installments beginning April 30, 1998 through October 31, 2000,
together with interest at the prevailing statutory rates.
DEFERRED CURE PAYMENTS
Certain landlords agreed to accept approximately $0.2 million (of which
approximately $0.1 million is included in current maturities of long-term debt)
of deferred cure payments of lease arrearages required under the Plan subsequent
to the Plan Effective Date. The deferred cash payments, including principal
plus simple interest at the rate of 8% per annum, will be paid in equal
principal amounts beginning January 31, 1998 through October 31, 2000.
35
<PAGE>
Maturities of long-term debt obligations are as follows:
<TABLE>
<CAPTION>
For fiscal years ending: (dollars in thousands)
<S> <C>
1999 $ 403
2000 10,253
2001 283
-------
$10,939
-------
-------
</TABLE>
LETTERS OF CREDIT
At January 31, 1998, the Company had no outstanding trade or stand-by letters of
credit.
NOTE 8 - STORE CLOSURE COSTS
In January 1996, the Company received permission from the Bankruptcy Court to
close an underperforming store and the Company conducted a
going-out-of-business sale at this store through March 1996. The Company
owned the building subject to a ground lease and attempted to market the
building. The Company was unable to sell the building and, as a result,
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 this store. In October 1996,
the Company received approval by the Court to close four additional
underperforming stores. The Company conducted going-out-of-business sales at
those stores through December 1996. During Fiscal 1996, $3.1 million was
charged to reorganization expense in connection with the closure of these
stores. There were no store closure costs in Fiscal 1997. Store closure
costs for Fiscal 1996 and Fiscal 1995 are as follows:
<TABLE>
<CAPTION>
STORE CLOSURE COSTS
---------------------
FISCAL FISCAL
1996 1995
--------- --------
(dollars in thousands)
<S> <C> <C>
Write-off of property and equipment, net of
obligations under capital leases $ - $2,362
Adjustments to inventory carrying values 1,866 450
Lease termination costs 1,036 -
Other 186 238
$3,088 $3,050
--------- --------
Amounts charged to reserve $5,292 $3,247
--------- --------
--------- --------
</TABLE>
Revenues associated with the closed stores totaled $13.9 million and $16.1
million in Fiscal 1996 and Fiscal 1995, respectively. Operating income (losses)
incurred from these stores, excluding the allocation of corporate expenses,
interest and reorganization expenses, were $1.4 million and $(0.9) million in
Fiscal 1996 and Fiscal 1995, respectively.
NOTE 9 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
Under SFAS No. 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.
36
<PAGE>
The Company has recorded a valuation allowance against net deferred tax assets
as the Company could not conclude that it was more likely than not that the tax
benefits from temporary differences and net operating loss carryforwards would
be realized. In subsequent periods, the Company may reduce the valuation
allowance, provided that the possibility of utilization of the deferred tax
assets is more likely than not. As defined by SFAS No. 109, any such
reduction in the valuation allowance in the near future will result in a
corresponding addition to paid-in-capital.
Significant components of the Company's deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(dollars in thousands)
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryovers $13,909 $34,366
Accrued payroll and related costs 1,190 954
Leasehold interests 889 2,667
Store closure expenses 4,731 5,209
Other 2,043 2,418
Valuation allowance (20,716) (44,448)
----------- -----------
Total deferred income tax assets 2,046 1,166
----------- -----------
Deferred income tax liabilities:
Inventory (576) (228)
Property and equipment (1,470) (938)
----------- -----------
Total deferred income tax liabilities (2,046) (1,166)
----------- -----------
Net deferred income taxes $0 $0
----------- -----------
----------- -----------
</TABLE>
As of January 31, 1998, the Company had $40.9 million and $32.4 million of
regular tax and alternative minimum tax Net Operating Losses ("NOL"),
respectively, which will expire in years 2005 through 2013, and may be limited
under section 382, as discussed below.
The Company underwent an ownership change in reorganization under Chapter 11
which was approved by the Bankruptcy Court on December 18, 1997. Section 382 of
the Internal Revenue Code limits the use of NOLs when an ownership change
occurs. The annual limitation under section 382 with respect to such ownership
change could significantly limit the Company's ability to use it NOLs to offset
future taxable income. Section 382(l)(5) provides a more favorable treatment as
to the future utilization of NOLs for a corporation that is in a Title 11 case
when the ownership change occurs.
Under section 382(l)(5), if the Company experiences another ownership change
within two years of the first ownership change date, the Company will lose its
NOL carryforwards thereafter. For section 382 purposes, the Company would
experience an ownership change if one or more 5% shareholders increase their
interests in the aggregate by more than 50% of the total of the Company's
Common Stock.
NOTE 10 - 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 AND RESTRICTED CASH
The carrying amount for cash approximates fair value because of the short
maturity of amounts therein.
REVOLVER AND TERM LOAN
The fair value is estimated based on current rates offered for similar debt.
37
<PAGE>
NOTE 11 - 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 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. On February 20, 1998, the United
States District Court for the District of Alaska entered a final judgment
against Hickel for an amount in excess of $1.8 million. Hickel has since
appealed the judgment and posted a bond in the amount of $2.1 million 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.
CREDIT CARD PLAN AGREEMENT
The Company's proprietary charge card, administered and owned by Alliance Data
Systems ("ADS") (which purchased the charge accounts from National City Bank of
Columbus), provides for the option of paying in full within 30 days of the
billed date with no finance charge or with revolving credit terms. Terms of the
short-term revolving charge accounts require customers to make minimum monthly
payments in accordance with prescribed schedules. Through a contractual
arrangement, as amended (the "Alliance Agreement"), ADS 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 maximum fee of 3% of the Net Sales for the subject
year. ADS waived the supplemental discount fee for Fiscal 1997. 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 ADS $0.1 million
for bad debt expense and $0.9 million in fees during Fiscal 1996. In Fiscal
1997, discount fees totaled approximately $0.9 million.
YEAR 2000
The Company has established a compliance program to modify or replace existing
information technology systems so that such systems will not generate invalid or
incorrect results in connection with processing year dates for the year 2000 and
later years. The Company believes that it will achieve Year 2000 compliance by
the middle of the 52 weeks ending January 29, 2000 ("Fiscal 1999") and does not
currently anticipate any material disruption in its operations as a result of
any failure by the Company to achieve compliance. The Company spent
approximately $324,000 in Fiscal 1997 and estimates it will spend approximately
$500,000 during Fiscal 1998 and $150,000 in Fiscal 1999 to make its computer
systems Year 2000 compliant.
Additionally, 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 any
information concerning the compliance status of its suppliers or such other
third parties. However, because third-party failures could have a material
adverse impact on the Company's ability to conduct business, confirmations are
being requested from the Company's major suppliers to certify that plans are
being developed to address the Year 2000 issues.
NOTE 12 - STOCKHOLDERS' EQUITY
As provided under the Plan, the authorized capital stock of the Company is
50,000,000 shares and consists of 39,999,990 shares of Common Stock, 10 shares
of Class B Common Stock, and 10,000,000 shares of preferred stock, par value
$0.01 per share ("Preferred Stock").
38
<PAGE>
All equity interests existing immediately prior to consummation of the Plan were
canceled pursuant to the Plan, and the accumulated deficit relating to such
equity interests was eliminated under Fresh-Start Reporting.
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters on which holders are permitted to vote. No stockholder has any
preemptive right or other similar right to purchase or subscribe for any
additional securities issued by the Company, and no stockholder has any right to
convert Common Stock into other securities. No shares of Common Stock are
subject to redemption or to any sinking fund provisions. All of the outstanding
shares of Common Stock are fully paid and nonassessable.
Subject to the 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.
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.
Upon the affirmative vote of not less than three-fourths of the then outstanding
shares of the Class B Common Stock, (a) during the continuance of any event
described in Section 11(b) of the Loan Agreement (each, an "Event of
Default"), including, without limitation, nonpayment of principal and/or
interest, covenant defaults, breach of representations and warranties and
certain events of bankruptcy, in each case subject to applicable notice and cure
periods, and/or (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, the Company shall (i) file a voluntary
petition under Chapter 11 of the Bankruptcy Code and (ii) 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.
As required under the BankBoston Facility, in consideration of the Surety's
guaranty of the Term Loan, the Surety was issued on the Plan Effective Date, 10
shares of the Class B Common Stock representing all of the authorized and
outstanding Class B Common Stock.
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. 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.
39
<PAGE>
WARRANTS
Pursuant to the Plan, all outstanding warrants to purchase Old Common Stock were
rejected as of the Plan Effective Date.
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
have been or will be issued by the Company in accordance with the Plan pursuant
to a Warrant Agreement (the "Class A/B Warrant Agreement") entered into
between the Company and Norwest Bank Minnesota, N.A., as 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 (as defined below) 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 exercise price for the
Class A Warrants and the Class B Warrants is $.01 per share. 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 antidilution protection as described 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
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 the exercise of all Class B Warrants which are exercisable as
of such date).
CLASS C WARRANTS
254,043 Class C Warrants to purchase an aggregate of 3,810,645 shares of Common
Stock were issued by the Company in accordance with the Plan pursuant to one or
more Warrant Agreements (collectively, the "Class C Warrant Agreements")
entered into between the Company and the initial holders of the Class C
Warrants, and were distributed as follows: (i) 228,639 Class C Warrants to
purchase an aggregate of 3,429,585 shares of Common Stock were 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 381,060 shares of Common Stock were
distributed to the holders of 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 3,556,602 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. The number and type of securities issuable upon exercise
of the Class C Warrants are subject to customary antidilution protection as
described in the Class C Warrant Agreements.
GORDIAN WARRANTS
As part of the compensation to 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, the Gordian Warrants
to purchase an aggregate number 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 five (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
40
<PAGE>
of the "Closing Prices" of the Common Stock for the 45 trading days
commencing on the 45th 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.
STOCK OPTIONS
The Stock Options granted pursuant to the Plan are exercisable for the purchase
of 1,333,728 shares of Common Stock and consist of: (i) options exercisable for
the purchase of 1,000,000 shares of Common Stock with an exercise price of $1.00
per share ("Base Options"); (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 exercise price of $0.01 per share,
exercisable only on or after the date on which the Class A Warrants become
exercisable ("Protective A Options"); and (iii) to prevent dilution resulting
from the issuance of the Class B Warrants, options exercisable for the purchase
of an additional 88,915 shares of Common Stock with an exercise price of $0.01
per share, exercisable only on or after the date on which the Class B Warrants
become exercisable ("Protective B Options" and, together with Protection A
Options, the "Protective Options"). In addition, to prevent dilution resulting
from the issuance of the Class C Warrants to the Surety, holders of Stock
Options have been or will be issued, on a pro rata basis and with the same
vesting schedule as each holder's respective Stock Options, Class C Warrants
exercisable for the purchase of an aggregate of 381,060 shares of Common Stock
(355,656 shares with an exercise price of $1.25 per share and 25,404 shares with
an exercise price of $.01 per share).
The number of Protective Options that 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 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 Stock Options, the Class A Warrants, the Class B Warrants, the Class C
Warrants, or the Gordian Warrants. The Stock Options granted on January 31,
1998 have a term of 10 years and vest as follows: 50% on the date of grant; and
25% on each anniversary of the date of grant. The Stock Options are governed by
the Lamonts Apparel, Inc. 1998 Stock Option Plan (the "Stock Option Plan"), and
the Class C Warrants issued in conjunction therewith are governed by a warrant
agreement in substantially the form of the Class C Warrant Agreement between the
Company and the Surety.
Under the terms of the Stock Option Plan, the Company has available, in addition
to the shares of Common Stock reserved for issuance upon exercise of the Stock
Options granted on the Plan Effective Date, 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 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, a committee
appointed by the Board of Directors ("Compensation Committee"), may determine
that such additional grants would be in the best interest of the Company. On
February 26, 1998, the Compensation Committee reserved 335,500 of the 375,000
shares of Common Stock available for issuance upon exercise of Stock Options
granted by the Compensation Committee on such date to the certain executive
officers of the Company, the disinterested members of the Board, and certain
other senior and middle level managers of the Company. Such Stock 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.
The following summarizes the Stock Options granted under the Stock Option Plan
during Fiscal 1997:
<TABLE>
<S> <C>
Granted 1,333,728
Exercised 0
---------
Balance, January 31, 1998 1,333,728
---------
---------
</TABLE>
41
<PAGE>
The Company has elected to follow Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") in accounting for its
employee stock options. Under APB No. 25, because the exercise price of the
Company's employee options is greater than the market price of the underlying
stock on the date of grant, no compensation expense is recognized in the
consolidated financial statements.
Pro forma information regarding net income and earnings per share is required
SFAS No. 123. This information is required to be determined as if the Company
has accounted for its employee stock options granted subsequent to January 31,
1995, under the fair value method of that statement.
The fair value of the options was estimated at the date of grant using the
Black-Scholes options pricing model with the following weighted average
assumptions for Fiscal 1997: risk free interest rate of 5.7%; a stock price
volatility factor of 45%; and expected option life of 10 years following
vesting; and no dividend during the expected term.
For purposes of pro forma disclosures required by SFAS No. 123, the Company's
income and earnings per share ("EPS") would have reflected compensation cost
determined based on the estimated fair value of the options at the date of
grant. There are no pro forma adjustments for Fiscal 1996 and Fiscal 1995
because no options were granted during these periods. The Company's pro forma
information is as follows:
Pro Forma Income and EPS from Operations Before Extraordinary Item:
<TABLE>
<CAPTION>
Fiscal 1997
----------------------
(dollars in thousands
except share data)
<S> <C>
Income from operations before extraordinary item:
As reported $53,546
Pro forma net income $52,952
Basic and Diluted EPS from operations before extraordinary item:
As reported $3.00
Pro forma net income per share $2.96
</TABLE>
1992 STOCK OPTION PLAN
Pursuant to the Plan, the Company's previous Nonstatutory Stock Option Plan (the
"1992 Stock Option Plan") and all employee stock options outstanding under the
1992 Stock Option Plan were rejected on the Plan Effective Date. The following
table summarizes the 1992 Stock Option Plan activity prior to the Effective
Date:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
--------
<S> <C>
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
Rejection of options (275,451)
--------
Balance, January 31, 1998 0
--------
--------
</TABLE>
42
<PAGE>
NOTE 13 - RELATED PARTY 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 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, entered
into that certain Voting Agreement dated as of October 30, 1992 (the "Voting
Agreement"). The Voting Agreement provided, among other things, that (i)
Apollo Retail Partners ("ARP"), a holder of greater than 5% of the Old Common
Stock, could 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, could designate two persons to the Board of Directors.
Lamonts' obligations under the Voting Agreement were 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 Waterfall Vintiadis & Company, Inc. ("Morgens"), a holder of greater
than 5% of the Old Common Stock, was covered by the equity registration
rights agreement pursuant to its terms. These agreements were rejected as of
the Plan Effective Date.
As a holder of Old Common Stock, ARP received 76,951 shares of Common Stock
and 38,475 Class B Warrants under the Plan based on the amount of shares of
Old Common Stock beneficially owned by ARP. All of the Old Common Stock
beneficially owned by ARP was canceled on the Plan Effective Date.
As holders of Old Common Stock, certain affiliates of Morgens received 16,568
shares of Common Stock and 8,285 Class B Warrants under the Plan based on the
amount of Old Common Stock beneficially owned by Morgens as reflected in the
Schedule 13D filed by Morgens on February 13, 1998. All of the Old Common
Stock beneficially owned by Morgens was canceled on the Plan Effective Date.
As a holder of Old Common Stock and of Old 10-1/4% Notes, Executive Life
Insurance Company of New York ("ELICNY"), a holder of greater than 5% of the
Old Common Stock, received 347,074 shares of Common Stock, 209,426 Class A
Warrants and 71,577 Class B Warrants pursuant to the first two distributions
under the Plan. ELICNY may receive additional shares of Common Stock, Class
A Warrants and Class B Warrants following the resolution of pending claims
filed against the Company during its Chapter 11 case. All of the Old 10-1/4%
Notes and the Old Common Stock beneficially owned by ELICNY were canceled on
the Plan Effective Date.
As a holder of Old Common Stock and of Old 10-1/4% Notes, certain investment
companies and accounts indirectly controlled by FMR Corp. (collectively
"Fidelity") received 2,925,142 shares of Common Stock, 1,810,380 Class A
Warrants and 581,184 Class B Warrants pursuant to the first two distributions
under the Plan. Fidelity may receive additional shares of Common Stock,
Class A Warrants and Class B Warrants following resolution of pending claims
filed against the Company during its Chapter 11 case. All of the Old 10-1/4%
Notes and the Old Common Stock beneficially owned by Fidelity were canceled
on the Plan Effective Date.
As required by the BankBoston Facility and in partial exchange for its
administrative claim, pursuant to the Plan, the Surety received (i) 228,639
Class C Warrants exercisable for the purchase of an aggregate of 3,429,585
shares of Common Stock and (ii) 10 shares of Class B Common Stock
representing all of the authorized and outstanding Class B Common Stock.
In connection with the Plan, the Company entered into a Grant of Registration
Rights in favor of Fidelity and the Surety, pursuant to which, and subject to
certain exceptions, the Company has agreed to file and cause to remain
effective a Registration Statement under the Securities Act of 1933, as
amended, covering certain of the securities distributed under the Plan until
no such securities are outstanding. The Company is required to pay all
expenses (other than underwriting discounts and commissions) in connection
with all such registrations. In addition, the agreement provides for certain
"piggyback" registration rights. The Company is currently incurring
liquidated
43
<PAGE>
damages of approximately $1,750 per week for failure by the Company to cause
the Registration Statement to become effective within 45 days after the Plan
Effective Date. The amount of such damages will double in the event such
Registration Statement is not effective within 90 days after the Plan
Effective Date.
NOTE 14 - BENEFIT PLANS
PENSION PLAN
On January 1, 1986, the Company established the Lamonts Apparel, Inc.
Employees Retirement Trust (the "Pension Plan"). The Pension 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 Pension Plan in amounts which
comply with the minimum regulatory funding requirements. On February 26,
1998, the Board approved an amendment to the Pension Plan which provides
that, effective April 1, 1998, benefits under the Pension Plan will cease to
accrue and prohibits the entry of any new participants. Participants that
are not yet vested will continue to accrue vesting service after April 1,
1998.
The following table sets forth the Company's funded plan status and amounts
recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
------------- ------------- -----------
(dollars in thousands, except percents)
<S> <C> <C> <C>
Actuarial present value of accumulated benefit obligations,
Including vested benefits of $7,215, $5,345 and $5,462 at
January 31, 1998, February 1, 1997, and February 3, 1996,
respectively $7,428 $5,598 $5,651
------------- ------------- -----------
------------- ------------- -----------
Projected benefit obligation $8,422 $6,513 $6,639
Pension Plan assets at value, primarily money market
funds and guaranteed investment contracts 6,528 6,045 5,143
------------- ------------- -----------
Projected benefit obligation in excess of Pension Plan assets 1,894 468 1,496
Unrecognized net loss from past experience different
from that assumed -- (347) (1,238)
------------- ------------- -----------
Accrued pension cost 1,894 121 258
Charge to equity to recognize minimum liability -- -- 250
------------- ------------- -----------
Total accrued pension cost $1,894 $121 $508
------------- ------------- -----------
------------- ------------- -----------
Discount rate 7.00% 7.75% 7.25%
Rate of increase in future compensation levels 3.5% 3.5% 3.5%
Expected long term rate of return on assets 9.0% 9.0% 9.0%
</TABLE>
Amounts charged to expense under the Pension Plan were as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
------- ------- ------
(dollars in thousands)
<S> <C> <C> <C>
Service cost, benefits earned during the period $ 336 $ 404 $ 414
Interest cost on projected benefit obligation 527 461 483
Actual return on assets (777) (635) (883)
Other, including deferred recognition of asset gain 255 213 559
----- ----- -----
Net pension cost $ 341 $ 443 $ 573
----- ----- -----
----- ----- -----
</TABLE>
44
<PAGE>
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 were terminated,
unfunded plan benefit liabilities would not be material. The Company disputed
the claim. PBGC withdrew its claim without prejudice.
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 1% to 15% of their compensation, in
increments of 1%. Under the 401(k) Plan, the Company matches contributions
equal to 50% of each participant's deferred pay contributions (such contribution
not to exceed one percent of the participant's compensation). Effective April
1, 1998, the Company increased its matching contribution to 50% of the first 4%
of each participant's deferred pay contributions. The Company contributed $0.12
million, $0.14 million, and $0.15 million during Fiscal 1997, Fiscal 1996, and
Fiscal 1995, respectively.
45
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<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,
Treasurer 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. Wiesner* 59 Director
Paul M. Buxbaum* 42 Director
</TABLE>
- -----------------
* Designated for appointment to the Board of Directors by the Board (as
constituted prior to the Plan Effective Date) and approved by the committees
that represented Lamonts' unsecured trade creditors and bondholders under and
in accordance with the Plan. Such individuals have served on the Board of
Directors since the Plan Effective Date.
Mr. Schlesinger joined Lamonts as President and Chief Executive Officer in
November 1994. In December 1994, Mr. Schlesinger was appointed Director and
Chairman of the Board. From 1991 to 1994, Mr. Schlesinger was a Senior Vice
President with The May Company Department Stores.
Mr. Rothschild, a Director of the Company since October 1992, became Vice
Chairman of the Board in December 1994. In addition, Mr. Rothschild has served
as President and Director of Sycamore Hill Capital Group since September 1993.
Prior to that time, he served as Vice Chairman and President of American
Protection Industries Inc. ("API"), a privately held company engaged in direct
marketing of collectibles, home decor products, flowers by wire clearing house,
and real estate and agribusiness, and Vice Chairman of The Franklin Mint from
1985 to June 1992. From 1988 to June 1992, Mr. Rothschild also served as
Chairman and Chief Executive Officer of API's Agribusiness division.
Ms. Brownfield joined the Company as Vice President of Finance, Secretary and
Treasurer in September 1985 and served as Acting Chief Financial Officer of the
Company from January 1993 through August 1993. Ms. Brownfield was named Senior
Vice President and Chief Financial Officer in December 1995 and was named
Executive Vice President in June 1997.
Mr. Bulen joined Lamonts in November 1995 as Senior Vice President and General
Merchandise Manager. Prior to joining the Company, Mr. Bulen was Vice
President, Retail Stores, with Vans, Inc. from April 1993. He also has an
extensive retail background with The May Company Department Stores, where he
served in a variety of merchandising roles from February 1976 to January 1993.
46
<PAGE>
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 has served on the Board of Directors of the Company since 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 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 and,
since December 1997, has served on the board of directors of P. F. Magic
Mr. Wiesner has served on the Board of Directors of the Company since the Plan
Effective Date. Since 1987, 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 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 Beerman.
Mr. Buxbaum has served on the Board of Directors of the Company since 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 more than 300 locations in the northeastern United States. Since
April 1995, Mr. Buxbaum has served on the board of directors of Richman Gordman
1/2 Price Stores and, since May 1997, Mr. Buxbaum has served on the board of
directors of Jay Jacobs Stores.
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 has delegated certain authority to its Audit and Compensation
Committees, whose initial members are Messrs. Springel, Wiesner and Buxbaum.
The Audit Committee's duties and responsibilities include, among other things,
meeting 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. The
Compensation Committee's duties and responsibilities 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.
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who beneficially own more than 10% of a registered class of the
Company's equity securities, to file with the SEC initial reports of ownership
(Form 3's) and reports of changes in ownership of such securities (Form 4's and
Form 5's). Executive officers, directors, and greater than 10% beneficial
shareholders are required to furnish the Company with copies of all Section
16(a) forms they file. In connection with a review of stock ownership of the
Company, it was discovered that (i) in Fiscal 1992, Mr. Rothschild failed to
timely file a Form 3 upon becoming a director of the Company, (ii) in the 52
weeks ended January 28, 1995, Mr. Schlesinger failed to timely file a Form 3
upon becoming an executive officer of the Company, (iii) in Fiscal 1995, Ms.
Brownfield and Mr. Bulen failed to timely file Form 3's upon becoming executive
officers of the Company, and (iv) in Fiscal 1997, Mr. Grossblatt failed to
timely file a Form 3 upon becoming an executive officer of the Company. The
postponement in reporting was inadvertent, and all required forms were
subsequently filed in February 1998.
47
<PAGE>
COMPENSATION OF DIRECTORS
The Company has agreed to pay each director (other than Messrs. Schlesinger and
Rothschild) a fee of $2,500 for attending each meeting of the Board ($500 for
each meeting attended telephonically) and $1,500 for attending each meeting of
the Audit Committee and the Compensation Committee, plus reimbursement for
reasonable out-of-pocket expenses incurred in connection with attending such
meetings. On February 26, 1998 the Compensation Committee granted 5,000 Stock
Options to each director. Each Stock Option has an exercise price of $1.00, a
term of ten years and vests as follows: 25% on the date of grant; and 25% on
each anniversary of the date of grant.
During Fiscal 1997, the Company did not pay any compensation to any person as a
director of the Company.
48
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during Fiscal 1997, Fiscal 1996, and Fiscal 1995, to (i) the Company's
Chief Executive Officer and (ii) the Company's four other most highly
compensated executive officers whose total salary and bonus exceed $100,000
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-----------------------------------------------------------------------
Other Annual Securities All Other
Fiscal Compensation Underlying Compensa-
Name and Principal Position Year Salary ($) Bonus ($) ($) Options tion($)(1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alan R. Schlesinger, Director, 1997 450,000 675,000 (2) 0 1,028,882 8,475
Chairman of the Board, 1996 450,000 100,000 0 0 5,100
President and Chief Executive 1995 450,000 100,000 0 0 3,600
Officer
Loren R. Rothschild, Director 1997 240,000 187,000 (3) 0 257,224 2,790
and Vice Chairman of the 1996 240,000 0 0 0 2,790
Board 1995 240,000 0 0 0 2,790
Debbie A. Brownfield, 1997 170,000 65,000 (4) 0 102,884 2,391
Executive Vice President, 1996 160,000 30,000 0 0 2,016
Chief Financial Officer and 1995 121,249 35,000 0 0 1,497
Secretary
E.H. Bulen, Senior Vice 1997 175,000 50,000 (6) 0 85,737 2,119
President and General 1996 152,000 15,000 0 0 661
Merchandise Manager (5) 1995 48,930 (7) 0 0 0 0
Gary Grossblatt, Senior Vice 1997 94,874 (8) 90,000 (9) 66,641 (10) 51,441 138
President, General
Merchandise Manager
</TABLE>
- -----------------
Notes To Summary Compensation Table
(1) These figures in "All Other Annual Compensation" column consist of (a)
Company contributions to a tax qualified trust under the Company's Tax
Relief Investments Protection Plan, as amended to date, and (b) premiums
paid by the Company for term life insurance pursuant to the Lamonts Apparel
Group Life and Long-Term Disability Plan, effective July 7, 1991.
(2) Includes a $400,000 bonus paid upon exit from Chapter 11, $100,000 annual
guaranteed bonus, and $175,000 employment extension bonus.
(3) Includes a $187,000 bonus paid upon exit from Chapter 11.
(4) Includes a $35,000 bonus paid upon exit from Chapter 11 and a guaranteed
bonus of $30,000.
(5) Mr. Bulen commenced his employment with the Company in November 1995.
(6) Includes a $30,000 bonus paid upon exit from Chapter 11 and a guaranteed
bonus of $20,000.
(7) Includes $24,430 in consulting fees for the period from September 27, 1995
to November 30, 1995.
(8) Mr. Grossblatt commenced his employment with the Company in August 1997.
49
<PAGE>
(9) Includes a $20,000 bonus paid upon exit from Chapter 11, a signing bonus of
$50,000, and a guaranteed bonus of $20,000.
(10) Relocation expenses for Mr. Grossblatt.
OPTION GRANTS DURING FISCAL 1997
<TABLE>
<CAPTION>
Grant Date
Individual Grants Value (1)
- ----------------------------------------------------------------------------------------------------------
Number of
Securities
Underlying Exercise or Grant Date
Options Percent of Total Base Price Present Value
Name Granted (#) (2) Options Granted $(/Share) Expiration Date $
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alan R.
Schlesinger 1,028,882 (3) 60% (4) (5) $356,494
Loren R.
Rothschild 257,224 (6) 15% (4) (5) $89,124
Debbie A.
Brownfield 102,884 (7) 6% (4) (5) $35,649
E.H. Bulen 85,737 (8) 5% (4) (5) $29,707
Gary A.
Grossblatt 51,441 (9) 3% (4) (5) $18,231
</TABLE>
- -----------------
Notes To Option Grants Table
(1) The present value of the Stock Options and Class C Warrants was estimated
on their date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions: (a) no dividend yield, (b)
expected volatility of 45%, (c) risk-free interest rate of 5.7%, and (d)
expected life of 10 years.
(2) Consists of Stock Options and Class C Warrants granted on the Plan
Effective Date to the Named Executive Officers.
(3) Consists of (i) Base Options exercisable for the purchase of 600,000 shares
of Common Stock, (ii) Protective A Options exercisable for the purchase of
146,888 shares of Common Stock, (iii) Protective B Options exercisable for
the purchase of 53,349 shares of Common Stock, and (iv) Class C Warrants
exercisable for the purchase of 228,645 shares of Common Stock.
(4) Each Base Option has an exercise price of $1.00 per share; each Protective
A Option and Protective B Option has an exercise price of $.01 per share;
and each Class C Warrant has a weighted average exercise price of $1.17 per
share (14 shares at an exercise price of $1.25 per share and 1 share at an
exercise price of $.01 per share).
(5) Each Base Option, Protective A Option, Protective B Option and the portion
of each Class C Warrant to purchase Common Stock at a per share exercise
price of $.01 expires on January 31, 2008; and the portion of each Class C
Warrant to purchase Common Stock at a per share exercise price of $1.25
expires on January 31, 2002.
(6) Consists of (i) Base Options exercisable for the purchase of 150,000 shares
of Common Stock, (ii) Protective A Options exercisable for the purchase of
36,722 shares of Common Stock, (iii) Protective B
50
<PAGE>
Options exercisable for the purchase of 13,337 shares of Common Stock, and
(iv) Class C Warrants exercisable for the purchase of 57,165 shares of
Common Stock.
(7) Consists of (i) Base Options exercisable for the purchase of 60,000 shares
of Common Stock, (ii) Protective A Options exercisable for the purchase of
14,689 shares of Common Stock, (iii) Protective B Options exercisable for
the purchase of 5,335 shares of Common Stock, and (iv) Class C Warrants
exercisable for the purchase of 22,860 shares of Common Stock.
(8) Consists of (i) Base Options exercisable for the purchase of 50,000 shares
of Common Stock, (ii) Protective A Options exercisable for the purchase of
12,241 shares of Common Stock, (iii) Protective B Options exercisable for
the purchase of 4,446 shares of Common Stock, and (iv) Class C Warrants
exercisable for the purchase of 19,050 shares of Common Stock.
(9) Consists of (i) Base Options exercisable for the purchase of 30,000 shares
of Common Stock, (ii) Protective A Options exercisable for the purchase of
7,344 shares of Common Stock, (iii) Protective B Options exercisable for
the purchase of 2,667 shares of Common Stock, and (iv) Class C Warrants
exercisable for the purchase of 11,430 shares of Common Stock.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1997 AND FISCAL YEAR END OPTION/SAR
VALUES:
The following table provides information related to the number and value of
options held by the Named Executive Officers at the end of Fiscal 1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Value Options/SARs at Fiscal Options/SARs
Acquired Realized Year End (#) (1) (2) (3) at Fiscal Year End ($)
------------------------- -------------------------
Name Exercisable/unexercisable Exercisable/unexercisable
- ---------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Alan R. Schlesinger 0 N/A 406,701 / 622,181 (4)
Loren R. Rothschild 0 N/A 101,677 / 155,547 (4)
Debbie A. Brownfield 0 N/A 40,668 / 62,216 (4)
E.H. Bulen 0 N/A 33,890 / 51,847 (4)
Gary A. Grossblatt 0 N/A 20,334 / 31,107 (4)
</TABLE>
- -----------------
Notes To Aggregated Option Exercises And Fiscal Year-End Option Value Table
(1) None of the Named Executive Officers exercised any Stock Options or Class C
Warrants during Fiscal 1997.
(2) Consists of Stock Options and Class C Warrants granted on the Plan Effective
Date to the Named Executive Officers.
(3) For purposes of calculating the number of securities underlying unexercised
options at fiscal year-end that are exercisable, options that are
exercisable include (a) vested Base Options and (b) that portion of the
vested Class C Warrants that are immediately exercisable. Options that
are unexercisable include (i) unvested Base Options, (ii) Protective A
Options and Protective B Options, (iii) unvested Class C Warrants and
(iv) that portion of the vested Class C Warrants that are exercisable on
the first date on which the Aggregate Equity Trading Value equals or
exceeds $25 million.
(4) There was no market for the Common Stock on January 31, 1998. As a result,
it is difficult to determine if and to what extent the Stock Options were
in-the-money at fiscal year-end and impracticable to assign a value thereto.
51
<PAGE>
PENSION PLAN
The Company maintains the Lamonts Apparel, Inc. Employees Retirement Trust,
effective January 1, 1986 (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. On February 26,
1998, the Board approved an amendment to the Pension Plan which provides that,
effective April 1, 1998, benefits under the Pension Plan will cease to accrue
and prohibits the entry of any new participants. Participants that are not yet
vested will continue to accrue vesting service after April 1, 1998. The
following table contains the estimated annual benefits 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 80,302 107,070 133,837 160,604
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) As of January 31, 1998, credited years of service for the Named Executive
Officers are as follows: Alan R. Schlesinger (3 years); Loren R. Rothschild
(3 years); Debbie Brownfield (22.25 years); E.H. Bulen (2 years); and Gary
Grossblatt (0 years).
(3) Benefits are based on the product of years of service multiplied by the sum
of (a) 0.5% of the 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 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) 0.65% of final average earnings in excess of the average
Social Security Wage Base $(29,304 for 1997).
EMPLOYMENT AGREEMENTS
Pursuant to the Plan, Messrs. Schlesinger and Rothschild entered into new
employment agreements with the Company (respectively, the "Schlesinger
Employment Agreement" and the "Rothschild Employment Agreement"), which
amended and restated their existing employment agreements. Pursuant to the
Schlesinger Employment Agreement, Mr. Schlesinger received a one-time bonus of
$175,000 for extending the term of his employment through January 31, 2002. Mr.
Schlesinger's base salary and guaranteed annual bonus 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. As a result of a cost of living
adjustment made on February 1, 1998, Mr. Schlesinger's base salary and
guaranteed annual bonus are $495,000 and $110,000, respectively. In connection
with the Plan, Mr. Schlesinger received a $400,000 bonus, together with a grant
of 800,237 Stock Options and 15,243 Class C Warrants. In addition, the
Schlesinger Employment Agreement provides that Mr. Schlesinger will receive
$1,500 per month for unreimbursed business expenses and a car allowance.
Pursuant to the Rothschild Employment Agreement, 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 of his employment to the third anniversary of the
90th day following the Plan Effective Date. For the first 90 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
52
<PAGE>
year, subject to a non-discretionary annual cost of living adjustment
reflecting the increase in the cost of living since January 1, 1995. In
addition, in connection with the Plan, Mr. Rothschild received a $187,000
bonus, together with a grant of 200,059 Stock Options and 3,811 Class C
Warrants.
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 more than 24 months in the case
of Mr. Schlesinger and for a period of no more 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%. Upon a Change of Control (as defined in the
Schlesinger Employment Agreement), all outstanding options and warrants to
purchase Common Stock beneficially owned by Mr. Schlesinger shall immediately
vest.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The determination of Fiscal 1997 executive compensation was made by the members
of the Board of Directors. Messrs. Schlesinger and Rothschild are executive
officers of the Company. Compensation paid to Messrs. Schlesinger and
Rothschild was pursuant to employment agreements which were approved by the
Bankruptcy Court following notice and a hearing and approval by the Committees.
See "Employment Agreements" above.
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 have each entered into indemnification
agreements (the "Indemnification Agreements") with the Company pursuant to
which the Company has agreed to 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.
53
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth as of April 15, 1998 information known to
management of the Company concerning the beneficial ownership of the 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.
CLASS A COMMON STOCK
For purposes of calculating beneficial ownership below, shares beneficially
owned include (a) shares of Common Stock issuable upon the exercise of vested
Protective A Options 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, (c) with
respect to the Class C Warrants to be issued to the Surety, shares of Common
Stock issuable upon exercise of that portion of such Class C Warrants that are
immediately exercisable and (d) shares of Common Stock (including shares of
Common Stock issuable upon exercise of Class A Warrants) that may be distributed
following the resolution of pending claims filed against the Company during its
Chapter 11 case. Shares beneficially owned do not include (i) shares of Common
Stock issuable upon the exercise of unvested Stock Options or that portion of
the vested 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 shares of Common Stock
issuable upon exercise of that portion of such Class C Warrants that are
exercisable on the first date of which the Aggregate Equity Trading Value equals
or exceeds $25 million.
As of April 15, 1998, the Aggregate Equity Trading Value equaled $18,147,709
based on the average closing price for the five trading days immediately
preceding such date of the Common Stock of $1.40 per share and 12,962,649 shares
outstanding. See Note 12 to the Consolidated Financial Statements for a
description of the Aggregate Equity Trading Value.
<TABLE>
<CAPTION>
As of April 15, 1998
-----------------------------------------------
Amount and Nature
of Beneficial
Ownership of Class
A Common Stock Percentage of Class
------------------ -------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Alan R. Schlesinger 492,645 (1) 5.2%
Loren R. Rothschild 123,163 (1) 1.4%
Debbie A. Brownfield 54,286 (1) *
E.H. Bulen 46,260 (1) *
Gary A. Grossblatt 29,006 (1) *
Stanford Springel 1,250 (2) *
John J. Wiesner 1,250 (2) *
Paul M. Buxbaum 1,250 (2) *
c/o Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, WA 98034
All directors and executive officers as
a group (8 persons) (1) (2) 749,110 (1) (2) 7.7%
54
<PAGE>
5% STOCKHOLDERS
BEA Associates (3)
153 East 53rd St.
New York, New York 10022 568,646 (4) 6.2%
FMR Corp. (5)
82 Devonshire Street
Boston, Massachusetts 02109 4,840,521 (4) 44.7%
Specialty Investment I LLC (6)
40 Broad Street
Boston, Massachusetts 02109 3,200,946 (7) 26.2%
</TABLE>
- --------------------
* Percentage equal to less than 1%
(1) Represents shares of Common Stock issuable upon the exercise of (i) vested
Base Options and vested Protective A Options and (ii) that portion of the
vested Class C Warrants held by executive officers that are immediately
exercisable. Does not include shares of Common Stock issuable upon the
exercise of unvested Stock Options or that portion of the vested Stock
Options and Class C Warrants held by executive officers that become
exercisable on the first date on which the Aggregate Equity Trading Value
equals or exceeds $25 million. Also includes, in the case of Ms.
Brownfield, 23 shares issued upon cancellation of Old Common Stock.
(2) Represents shares of Common Stock currently issuable upon the exercise of
vested stock options with an exercise price of $1.00 per share.
(3) 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.
(4) Represents shares issued upon cancellation of Old Common Stock and shares
issued in exchange for the Company's 10-1/4% Senior Subordinated Notes due
1999 (the "Old 10-1/4% Notes"), in each case pursuant to the first two
distributions under the Plan. Also includes (i) 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 and (ii) 12,146 shares of Common Stock (including 2,432 shares
issuable upon exercise of Class A Warrants) and 104,999 shares of Common
Stock (including 21,023 shares issuable upon exercise of Class A Warrants)
representing the maximum amount of shares of Common Stock (including shares
issuable upon exercise of Class A Warrants) that could be received by BEA
Associates or FMR (as defined below), respectively, pursuant to one or more
subsequent distributions under the Plan following the resolution of pending
claims filed against the Company during its Chapter 11 case. Does not
include (i) 71,577 shares and 581,184 shares of Common Stock issuable upon
the exercise by BEA Associates and FMR, respectively, of Class B Warrants,
that become exercisable on the first date on which the Aggregate
Equity Trading Value equals or exceeds $25 million, and (ii) any additional
shares of Common Stock issuable upon exercise of Class B Warrants that could
be received by BEA Associates or FMR pursuant to one or more subsequent
distributions under the Plan following the resolution of pending claims
filed against the Company during its Chapter 11 case.
(5) 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
55
<PAGE>
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. Edward C. Johnson, III and Abigail Johnson
own 12% and 24.5%, respectively, of the aggregate outstanding voting
stock of FMR. Together with other members of the Edward C. Johnson, III
family, such persons collectively own shares of common stock of FMR
representing approximately 49% of the voting power of FMR.
(6) The sole member of Specialty Investment I LLC, the Surety, is GBP LLC.
Michael G. Frieze and Robert G. Sager own 34% and 32%, respectively, of
the aggregate outstanding interests in GBP LLC. Certain direct and
indirect beneficial owners of Specialty Investment I LLC are also
beneficial owners of Gordon Brothers Partners, Inc.
(7) Represents Common Stock issuable upon the exercise of that portion of the
Class C Warrants that are immediately exercisable. Does not include the
Common Stock 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.
CLASS B COMMON STOCK
<TABLE>
<CAPTION>
As of April 15, 1998
----------------------------------------
Amount and
Nature of
Beneficial
Ownership of
Class B Common
Stock Percentage of Class
--------------- -------------------
<S> <C> <C>
5% STOCKHOLDERS
Specialty Investment I LLC (1) 10 100%
40 Broad Street
Boston, Massachusetts 02109
</TABLE>
(1) The sole member of Specialty Investment I LLC, the Surety, is GBP LLC.
Michael G. Frieze and Robert G. Sager own 34% and 32%, respectively, of the
aggregate outstanding interests in GBP LLC. Certain direct and indirect
beneficial owners of Specialty Investment I LLC are also beneficial owners
of Gordon Brothers Partners, Inc.
56
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED 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 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, entered
into that certain Voting Agreement dated as of October 30, 1992 (the "Voting
Agreement"). The Voting Agreement provided, among other things, that (i)
Apollo Retail Partners ("ARP"), a holder of greater than 5% of the Old Common
Stock, could 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, could designate two persons to the Board of Directors.
Lamonts' obligations under the Voting Agreement were 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 Waterfall Vintiadis & Company, Inc. ("Morgens"), a holder of greater
than 5% of the Old Common Stock, was covered by the equity registration
rights agreement pursuant to its terms. These agreements were rejected as of
the Plan Effective Date.
As a holder of Old Common Stock, ARP received 76,951 shares of Common Stock
and 38,475 Class B Warrants under the Plan based on the amount of shares of
Old Common Stock beneficially owned by ARP according to the records of the
Company as of December 18, 1997. All of the Old Common Stock beneficially
owned by ARP was canceled on the Plan Effective Date.
As holders of Old Common Stock, certain affiliates of Morgens received 16,568
shares of Common Stock and 8,285 Class B Warrants under the Plan based on the
amount of Old Common Stock beneficially owned by Morgens as reflected in the
Schedule 13D filed by Morgens on February 13, 1998. All of the Old 13-1/2%
Notes and the Old Common Stock beneficially owned by Morgens were canceled on
the Plan Effective Date.
As a holder of Old Common Stock and of Old 10-1/4% Notes, Executive Life
Insurance Company of New York ("ELICNY"), a holder of greater than 5% of the
Old Common Stock, received 347,074 shares of Common Stock, 209,426 Class A
Warrants and 71,577 Class B Warrants pursuant to the first two distributions
under the Plan. ELICNY may receive additional shares of Common Stock, Class
A Warrants and Class B Warrants following the resolution of pending claims
filed against the Company during its Chapter 11 case. All of the Old 10-1/4%
Notes and the Old Common Stock beneficially owned by ELICNY were canceled on
the Plan Effective Date.
As a holder of Old Common Stock and of Old 10-1/4% Notes, Fidelity received
2,925,142 shares of Common Stock, 1,810,380 Class A Warrants and 581,184
Class B Warrants pursuant to the first two distributions under the Plan.
Fidelity may receive additional shares of Common Stock, Class A Warrants and
Class B Warrants following resolution of pending claims filed against the
Company during its Chapter 11 case. All of the Old 10-1/4% Notes and the Old
Common Stock beneficially owned indirectly by Fidelity were canceled on the
Plan Effective Date.
As required by the BankBoston Facility and in partial exchange for its
administrative claim, pursuant to the Plan, the Surety received (i) 228,639
Class C Warrants exercisable for the purchase of an aggregate of 3,429,585
shares of Common Stock and (ii) 10 shares of Class B Common Stock
representing all of the authorized and outstanding Class B Common Stock.
In connection with the Plan, the Company entered into a Grant of Registration
Rights in favor of Fidelity and the Surety, pursuant to which, and subject to
certain exceptions, the Company has agreed to file and cause to remain
effective a Registration Statement under the Securities Act of 1933, as
amended, covering certain of the securities distributed under the Plan until
no such securities are outstanding. The Company is required to pay all
expenses (other than underwriting discounts and commissions) in connection
with all such registrations. In addition, the agreement provides for certain
"piggyback" registration rights. The Company is currently incurring
liquidated
57
<PAGE>
damages to the Fidelity Funds and the Surety of approximately $1,750 per week
for failure by the Company to cause the Registration Statement to become
effective within 45 days after the Plan Effective Date. The amount of such
damages will double in the event such Registration Statement is not effective
within 90 days after the Plan Effective Date.
58
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report
1. FINANCIAL STATEMENTS OF LAMONTS APPAREL, INC. - Reference is made
to the Index to Consolidated Financial Statements on page 16.
2. FINANCIAL STATEMENT SCHEDULES - All schedules have been omitted as
they are either not required or not applicable or because the
information required to be presented is included in the
Consolidated Financial Statements and related notes.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
(a) Exhibits.
3.1 Second Restated Certificate of Incorporation of the
Registrant. (17)
3.2 Amended and Restated By-laws of the Registrant. (17)
4.1 Specimen Class A Common Stock certificate. (17)
4.2 Specimen Class B Common Stock certificate. (17)
4.3 Warrant Agreement dated January 31, 1998 between the
Registrant and Norwest Bank Minnesota, N.A., as Warrant
Agent. (15)
4.4 Warrant Agreement dated January 31, 1998 between the
Registrant and Specialty Investment I LLC. (15)
4.5 Warrant Agreement dated January 31, 1998 between the
Registrant and Gordian Group, L.P. (16)
4.6 Form of Warrant Agreement dated January 31, 1998 between
Registrant and each of Alan R. Schlesinger, Loren R.
Rothschild, Debbie A. Brownfield, E.H. Bulen and Gary
Grossblatt. (15)
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. (17)
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) (18).
10.4 Amendment No. 2 dated March 30, 1994 to the Credit Card Plan
Agreement. (4)
10.5 Letter Agreement dated November 2, 1994 to the Credit Card Plan
Agreement. (5)
10.6 Employment Agreement dated April 18, 1995 between the
Registrant and Alan R. Schlesinger. (6) (18)
59
<PAGE>
10.7 Employment Agreement dated April 18, 1995 between the
Registrant and Loren R. Rothschild. (6) (18)
10.8 License Agreement dated May 25, 1995 between the Registrant
and Shoe Corporation of America. (7)
10.9 Computer Services Agreement dated February 1, 1996 between the
Registrant and Infotech Corporation. (8)
10.10 Loan and Security Agreement dated June 4, 1996 between First
National Bank of Boston and the Registrant. (9)
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). (17)
10.12 Waiver dated August 3, 1996 between First National Bank of
Boston and the Registrant. (10)
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. (11)
10.14 Amendment dated December 9, 1996 to the Credit Card Plan
Agreement. (12)
10.15 Computer Services Agreement dated February 4, 1997 between the
Registrant and Affiliated Computer Services, Inc. (12)
10.16 Second Amendment dated May 23, 1997 to Loan and Security
Agreement dated June 4, 1996 between the Registrant and
BankBoston, N.A. (f/k/a The First National Bank of on)
("BankBoston"). (13)
10.17 Non-Qualified Employee Stock Option Agreement dated January
31, 1998 between the Registrant and each of Alan R.
Schlesinger, Loren R. Rothschild, Debbie A. Brownfield, E.H.
Bulen and Gary A. Grossblatt. (17) (18)
10.18 Lamonts Apparel, Inc. 1998 Stock Option Plan. (17) (18)
10.19 Amended and Restated Employment Agreement dated January 31,
1998 between the Registrant and Alan R. Schlesinger. (17) (18)
10.20 Amended and Restated Employment Agreement dated January 31,
1998 between the Registrant and Loren R. Rothschild. (17)
(18).
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. (14)
10.22 Grant of Registration Rights dated January 31, 1998 among the
Company and the parties listed on the signature pages thereto.
(17)
10.23 Form of Indemnification Agreement dated January 31, 1998
between the Registrant and each of Alan R. Schlesinger, Loren
R. Rothschild, Debbie A. Brownfield, E.H. Bulen, Gary A.
Grossblatt, Paul M. Buxbaum, Stanford Springel and John J.
Wiesner. (17) (18)
21.1 Subsidiaries of the Registrant. (3)
27.1 Financial Data Schedule *
60
<PAGE>
99.1 Modified and Restated Plan of Reorganization Under Chapter 11
of the Bankruptcy Code. (14)
99.2 Supplemented and Restated Disclosure Statement (As Amended) re
Debtor's Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code. (14)
</TABLE>
- -------------
* filed herewith
(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 Registration Statement No. 33-68720
of the Registrant, initially filed with the Commission on September
14, 1993.
(4) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with Commission on June 14, 1994.
(5) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with Commission on January 27, 1995.
(6) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with Commission on April 21, 1995.
(7) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with Commission on June 12, 1995.
(8) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with Commission on May 3, 1996.
(9) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with Commission on June 18, 1996.
(10) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with Commission on September 16, 1996.
(11) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with Commission on December 17, 1996.
(12) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with Commission on May 2, 1997.
(13) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with Commission on September 12, 1997.
(14) Incorporated by reference from Quarterly Report on Form 10-Q of the
Registrant as filed with Commission on December 16, 1997.
(15) Incorporated by reference from the Company's Registration Statement
on Form 8-A (File No. 000-15542) filed with the Commission on
February 2, 1998.
(16) Incorporated by reference from the Company's Registration Statement
on Form S-8 (File No. 333-45455) filed with the Commission on
February 2, 1998.
(17) Incorporated by reference from the Company's Registration Statement
on Form S-1 (File No. 333-44311) initially filed with the
Commission on January 15, 1998.
61
<PAGE>
(18) Management contracts and/or compensatory plans required to be
identified specifically as responsive to Item 601(b)(10)(iii)(A) of
Regulation S-K..
(b) Reports filed on Form 8-K
1. Form 8-K dated December 18, 1998. Item 3 - Bankruptcy or
Receivership, related to announcing that the order confirming
Debtor's Modified and Restated Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code of Lamonts Apparel, Inc. was
entered by the United States Bankruptcy Court for the Western
District of Washington at Seattle.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LAMONTS APPAREL, INC.
By: /s/ Debbie A. Brownfield
---------------------------------
Debbie A. Brownfield
Executive Vice President and Chief Financial Officer
Date: April 30, 1998
63
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Alan R. Schlesinger Chairman of the Board, Chief
- --------------------------- Executive Officer, President and
Alan R. Schlesinger Director (Principal Executive Officer) April 30, 1998
/s/ Loren R. Rothschild Vice Chairman of the Board, Chief
- --------------------------- Administrative Officer and Director April 30, 1998
Loren R. Rothschild
/s/ Debbie A. Brownfield Executive Vice President and Chief
- --------------------------- Financial Officer (Principal
Debbie A. Brownfield Financial and Accounting Officer) April 30, 1998
/s/ Stanford Springel
- --------------------------- Director April 30, 1998
Stanford Springel
/s/ John J. Wiesner
- --------------------------- Director April 30, 1998
John J. Wiesner
/s/ Paul M. Buxbaum
- --------------------------- Director April 30, 1998
Paul M. Buxbaum
</TABLE>
64
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 1,301
<SECURITIES> 0
<RECEIVABLES> 1,703
<ALLOWANCES> 0
<INVENTORY> 38,617
<CURRENT-ASSETS> 44,664
<PP&E> 42,494
<DEPRECIATION> 0
<TOTAL-ASSETS> 97,468
<CURRENT-LIABILITIES> 50,289
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 19,866
<TOTAL-LIABILITY-AND-EQUITY> 97,468
<SALES> 201,623
<TOTAL-REVENUES> 201,623
<CGS> 131,700
<TOTAL-COSTS> 131,700
<OTHER-EXPENSES> 80,980<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,900
<INCOME-PRETAX> 53,546
<INCOME-TAX> 0
<INCOME-CONTINUING> 53,546<F2>
<DISCONTINUED> 0
<EXTRAORDINARY> 69,158<F3>
<CHANGES> 0
<NET-INCOME> 122,704
<EPS-PRIMARY> $6.86
<EPS-DILUTED> $6.86
<FN>
<F1>Includes operating and administrative expenses of $67,844, depreciation and
amortization of $7,141 and reorganization expense of $5,995.
<F2>Includes income of $70,495 for Fresh-start revaluation.
<F3>Gain on debt discharge.
</FN>
</TABLE>
